The 2023 United Nations Climate Change Conference (COP28) saw global leaders gather in Dubai to assess progress towards the 2015 Paris Agreement goals of significantly cutting greenhouse gas emissions and limiting global warming to 1.5°C above pre-industrial levels. Capco was on the ground in the UAE, presenting to delegates on sustainable finance at a dedicated session sponsored by Microsoft, and below the team share their round-up of the key conference talking points.
With temperatures this year hitting 1.43°C above the pre-industrial average, the pressing need for immediate action on climate change is clear.1 This imperative was reflected in attendance levels at this year’s event, with COP28 drawing 70,000 delegates from almost 200 countries2 – twice the size of last year's gathering in Sharm El-Sheikh.3
As widely reported, the Conference concluded with the signing of an agreement to “transition away” from fossil fuels – the first time such language has been included in 30 years of climate negotiations, and as such a significant milestone.4
In his closing plenary remarks, COP28 President Dr Sultan Al Jaber emphasized the importance of climate finance and: “We have reframed the conversation around climate finance. We have integrated the real economy into climate action. And we have moved to a new mindset, where solutions to the climate challenge become the drivers of a new economic age.”
The topic had garnered significant attention on the ground, particularly in light of the UAE's pledge of $270 billion in green finance through its banks by 2030.5 Below we highlight the key takeaways and implications of the conference discussions on this topic.
Speaking at a COP28 Green Climate Fund event, UN Climate Change Executive Secretary Simon Stiell described finance as “the great enabler of climate action…providing grant funding for developing countries can get both mitigation and adaptation projects off the ground…it builds momentum.”6
According to COP28 organizers, over $85 billion has been committed to climate finance at the time of writing.7 Notable highlights include:
Climate finance. The UAE committed over $30 billion to a new fund for investing in climate-friendly projects. This initiative places particular emphasis on unlocking an additional $5 billion in private finance across the Global South.
Loss and damage. The wealthy countries identified as the primary contributors to the climate emergency have collectively pledged $700 million to the loss and damage fund. This fund aims to provide financial assistance for climate-related damages in developing nations.
Green Climate Fund. An announcement has been made to replenish the world's largest multilateral fund dedicated to assisting developing countries in addressing the climate crisis. A substantial amount of $3.5 billion has been allocated for this purpose.
Nonetheless, there are still significant gaps that need to be addressed in financing efforts. The recently announced $700 million for loss and damage at COP28 represents a mere 0.7% of the commitment made by wealthy nations fifteen years ago at COP15. The original commitment aimed to channel $100 billion per year by 2020 to developing countries.8
This glaring disparity becomes even more apparent when considering that the climate adaptation finance gap for developing countries has widened by 50% this year. According to a report released by the UN before COP28, this gap is estimated to be between US$194-366 billion annually.
Furthermore, in a separate report the UN states that the goal of limiting global warming to 1.5°C requires significant climate investment opportunities amounting to up to US$275 trillion by 2050 for the transition of the entire global economy. Failing to make this transition poses serious risks, including potential annual GDP losses of up to $4-6 trillion by 2050.9
Innovative financial instruments announced at COP28 Finance Day, showcasing progress in international financial architecture reform, included:
Moreover, the significant emphasis placed on transition finance attracted considerable attention, with discussions centring on the need to establish standardized definitions for transition finance strategies. These strategies are critical in unlocking global finance to support net-zero commitments and measure progress.
Reflecting this trend, during Capco’s sustainable finance session we saw significant audience interest on the following topics:
Anupriya Muppala, Capco APAC and Middle East ESG Lead with Naim Alame, Capco Middle East Managing Partner at COP28, pictured ahead of Anupriya's presentation.
Efforts to enhance the “availability, accessibility, and affordability of climate finance” are expected to gather momentum going forward.10 Financial institutions will have a vital role in facilitating the mobilization of necessary financing, which involves utilizing innovative financing instruments in green and sustainable finance to leverage emerging private sector financing sources.
As the world's investors shift their focus to the outcomes of COP28, sustainable investment continues to gain significant attention. This presents substantial opportunities for financial institutions to introduce new products. However, there is also an expected rise in investor expectations for greater transparency and regulatory oversight to combat deceptive environmental claims (greenwashing).
Plan your journey towards a net zero transition – Financial institutions should commit to aligning their lending and investment portfolios with the global goal of achieving net zero emissions by 2050. A fundamental step in this journey is to measure the emissions associated with financed activities, enabling tracking investments across different sectors. This will help identify the starting point and formulate a credible transition plan and sector-specific decarbonization policies.
Develop expertise and knowledge in sustainable finance – By developing a deep understanding of sustainable finance principles and practices, financial institutions can align their product offerings with the expectations of investors and regulators. This involves creating strategies incorporating sustainable investment options and integrating sustainability criteria into risk assessment and decision-making processes.
Invest in robust data management capabilities – Prioritizing data collection, analysis, and reporting is essential for financial institutions to measure and report the impact of their sustainability-related activities accurately. By doing so, they can provide transparent and credible information to clients and stakeholders, meeting the growing demand for greater transparency and accountability in sustainable finance.
To explore how your organization can gain a competitive advantage in the ever-evolving sustainable finance landscape, please contact Naim Alame, Middle East Managing Partner and Anupriya Muppala, APAC and Middle East ESG Lead via the form below.
References
1https://wmo.int/media/news/world-had-warmest-october-record
3 https://www.un.org/en/climatechange/cop27
4 https://unfccc.int/news/cop28-agreement-signals-beginning-of-the-end-of-the-fossil-fuel-era
5 https://www.reuters.com/sustainability/sustainable-finance-reporting/uae-banks-pledge-200-bln-green-finance-cop28-climate-talks-2023-12-04/
6 https://unfccc.int/news/finance-is-the-great-enabler-of-climate-action-simon-stiell-at-cop28-green-climate-fund-event
8 https://www.nature.com/articles/d41586-021-02846-3
9 https://www.unepfi.org/industries/investment/unlocking-investment-in-net-zero/
10 https://www.cop28.com/climate_finance_framework
