Helene Winch, Head of Responsible Investing, discuses the consensus from the COP28 meeting and why investors globally need to step up, be brave and increase investment in emerging markets.
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It was always going to be a controversial COP with the environmentalists across the world fearing that discussions would fail and end with no final statement. However, in the end a UAE Consensus was published and welcomed by investors.
What is COP?
Firstly, let’s remind ourselves on what the COP is – every year the UN holds a general meeting for all members (countries) with a focus on climate. The COP or Conference of the Parties is that meeting, and in 2023 this was the 28th meeting held, hence COP28.
The COP host transfers every year and in 2023 the meeting was hosted by the United Arab Emirates (UAE), a country whose economy is dependent on oil, a so called Petrostate. With carbon emissions directly from fossil fuels being the largest driver of climate warming, the potential conflict between the UAE’s government revenue stream and any agreed global action to reduce carbon emissions loomed over the meeting. On top of this, for the first year oil and gas companies were formally invited to the conference. Whether this is a positive depends on whether you think that the energy transition can only be successful if the oil and gas industry drives innovation to low carbon energy or whether you are cynical on the industry’s primary actions being focussed on lobbying against proposals to cut global carbon emissions through reduced production of oil and gas.
However, despite, or maybe because of these complications, in the last seconds of the meeting, the final agreed COP statement, named the UAE Consensus, included the phrase “transitioning away from fossil fuels”. This is the first time that the words ‘fossil fuels’ have been referenced in a final COP statement and some early commentators predicted that the statement would lead to a fall in market prices for oil and gas companies, the rationale being that any long-term reduction of oil and gas production would mean that some oil and gas reserves would no longer be able to be developed and the related profits be lost. However, while the COP statements are important, we must remember that they are not legally binding.
Reducing the demand for fossil fuels
Potentially more exciting is the focus on very ambitious targets for increasing renewable energy generation supported by continued innovation in the sector, wide acceptance of the technology and falling costs. A continuation of the growth in this low carbon energy supply is likely to reduce the long-term demand for fossil fuels in our energy system.
Impact on emerging markets
The final statement also acknowledges a disappointment in the lack of financial support for emerging markets – to compensate these countries against the financial costs of the physical impacts from a changing climate, in the ‘loss and damage’ fund. While there were some funding commitments to support emerging countries, we know historically these are unreliable funds with commitments often not met.
Investors globally need to recognise that they need to step up, be brave and increase investment in emerging markets to really have an impact on protecting countries from both physical climate risks and to support their energy transition – the long term financial and non-financial gains will be worthwhile.
