COP28 was the largest gathering of world leaders this year.  I’m pleased that the largest gathering of leaders was focused on tackling one of the largest systemic issues – climate change. But that’s only great if it was a success….

After 27 previous gatherings, this was the first COP that focused on taking stock on global commitments and progress to date. But that doesn’t mean no announcements or commitments being made, so there’s still a lot of noise to work through.

It’s fair to say not everyone views COP28 as a success, and I’ve included some specific highs and lows in this blog. But overall, I think it's hard to deny that some progress was made – maybe I’m just an optimist.

The mood definitely improved as talks progressed, possibly helped by distance from early allegations that the host state may be planning side discussions on fossil fuel deals.  

What does the outcome mean for overall levels of climate risk? I’d say broadly no change – more words, but still few definitive actions. Yes, there remains international consensus on the importance of meeting the Paris Agreement goals, no mean feat given the current geopolitical challenges, but the talks did not move the dial much in terms of the speed of action to achieve them.

There is always a great focus on the final text agreed by all parties. Actions from global nations to deliver on their promises are of course far more important than the words themselves. But the words are still important, because they send a signal to companies and investors to encourage progressive actions aligned with these commitments.    

The good  

• This is the first formal recognition by a COP that transitioning away from fossil fuels is key to meeting the Paris Agreement (it’s the first time fossil fuels have been directly referred to in the final agreement – pretty surprising in my view).  
• Linked to this, the text calls on countries to contribute to a global tripling of renewable energy capacity and a doubling in the rate of energy efficiency improvements by 2030 – underpinning investment opportunities driven by the energy transition.
• We also saw a clear emphasis on this decade, recognising the importance of taking action now, not later, to achieve 2050 targets and reduce the risk of tipping points. Hopefully this pushes words into actions more than before.
• There has been more focus on food and agriculture (the sector with third highest emissions) this time: 150 countries agreed to include the sector in their climate plans. There was also more discussion on considering nature (particularly deforestation and biodiversity) when addressing climate change, as well as the interaction with health. Finally the full picture is being fully discussed!
• The Just Transition was given more attention than before, with the Just Transition Work Programme launched during the event. A mechanism to enable loss and damage funding to take place was also launched (having been discussed since COP27 last year), which is a step in the right direction.  

What fell short?

• The wording on fossil fuels is weaker than it needs to be to meet the Paris commitment – referencing "transitioning away" rather than "phasing out".  Over 100 countries (including the UK and US, but not including China or OPEC member countries) supported the stronger version.  But the final text reflects the reality that – to achieve universal adoption – the text needs to support those least able to act (predominantly certain developing countries).
• There are loopholes in the wording so that countries could lean on technologies like carbon capture as an excuse for continuing to produce and consume fossil fuels.  Carbon capture is not currently on track to scale up enough to support this.
• There is very little progress on the level of the financial commitments made to developing countries to help them transition, or to build resilience and adapt to the impacts of climate change. Despite the launch of the loss and damage fund (as noted above), actual commitments stood just over $700m, vs the level planned/hoped being in the $100bns. Mixed reports on this – on the one hand, these commitments “had to come from existing budgets for now” – on the other, certain countries (like the US, with a $17.5m commitment) don’t appear to be pulling their weight. The proof will be in how these commitments ramp up when new budgets are drawn up…
• Representation from the oil industry far outstripped indigenous groups, which makes for bad headlines (and did), though it is this industry that needs to change the most, so the optimist in me hopes they attended with the right intentions.  

What does this mean for investors?

• For me, the headline signal is that 1.5oC remains the ambition (and that this relies on a transition away from fossil fuels), with net zero commitments and a focus on real world change as important as it’s ever been. Our responsible investment philosophy gives more detail on how we approach this.
• There are clear investment opportunities supported by the announcements, predominantly for long-term investors. Our energy and investment teams have collaborated to ensure we’re bringing sight of new opportunities and latest market dynamics to our client base – you should expect to see more from us on this.
• Recognising that governments need to act in accordance with their commitments to meet the Paris Agreement, we see a clear need for investors to hold governments to account. This is an increasing focus for us and we are developing an approach to enable our clients to collectively support and undertake policy advocacy. Do get in touch if you’d like to hear more about this ahead of launch.  

Many of the announcements will need time to bed in (or for specifics to be released) so we’ll be on the lookout for further developments.   

For a look back on COP generally and the focus this year, as well as insights from our investment-energy collaboration, listen to our pre-COP28 podcast episode here.