GAM outlines the hopes and expectations for COP28, with the investments necessary to facilitate the transition to a net zero economy increasingly coming into focus.
29 November 2023
Last year, I reflected on investor expectations for COP27, coming at the end of an important year for sustainable investment. One year on, did any of the progress we hoped for come to fruition? What can we expect from COP28 in Dubai?
COP27 – a frustrating lack of progress
Let’s first revisit last year’s COP. Take the 2022 US Inflation Reduction Act, which strove to bring about record investment in clean energy and other green projects, as well as inspire global momentum.
Similarly, we hoped for large scale climate financing which could combine public funding with strategic incentives to supercharge private investment. COP27 also sought to commence climate adaptation and ‘loss and damage’ compensation for natural disasters and help adapt to irreversible impacts.
But it could be argued outcomes last year were disappointing. Unambitious goals at COP were met with yet more uninspiring action. Most notably, the final text of the agreement omitted any commitment to phase down fossil fuels, something that a near universal consensus of climate experts argue is necessary to meet emissions reduction targets.
As COP28 approaches, we should remind ourselves what is at stake. We live in a warming world where climate change impacts are having disastrous consequences for economies and communities. At the end of the hottest year on record, investors are looking for decisive action.
COP28 – here we go again
The agenda in the UAE is full to bursting. The anticipated global stocktake inevitably shows we are behind on progress. The question is whether this COP presidency can finally corral parties to communicate a joint message for strengthening action and a path forward.
There could well be the much-anticipated ‘moment for course correction’ and ramping up of ambition that the UN Climate Change Executive Secretary hopes for. In turn, this could spur greater ambition for the revised nationally determined contributions (NDCs) due in early 2025, along with national adaptation plans and national policy measures to support them.
Financing – a perennial issue
Meanwhile, sustained climate investment from both public and private sector is still necessary to meet climate goals. Bloomberg New Energy Finance estimates that between USD 3.1 trillion and USD 5.8 trillion in annual climate investments are required to reach net zero, and this need is especially acute in developing economies.
While much of this finance will come from private sources, governing bodies have a critical role to play in helping de-risk climate investment in emerging economies and spur investment. By acting first, either by building up critical infrastructure or providing incentives, private investment could be made more attractive if better risk return ratios were guaranteed by developed economy governments.
However, these nations have yet to fulfil a long term ongoing promise of USD 100 billion in annual climate investment to developing countries. At COP28, sustainable investors will be looking for stronger guarantees that they will live up to their climate finance promises.
The energy transition
New investments must unlock financial flows to support transition, mitigation and adaptation, especially as developing economies drive forward. Indonesia, for example, is set to release plans for a USD 20 billion energy transition plan this month, while South Africa plans to unveil an implementation plan for its USD 8.5 billion Just Energy Transition Partnership (JETP). One anticipated outcome of COP28 is a commitment to triple renewables capacity globally by 2030. The recently updated IEA Net Zero by 2050 Scenario roadmap reflected upward revisions for solar energy but lower wind deployment to 2030.
The socioeconomic dimensions of the energy transition will also be in focus – how to drive a just transition addressing universal energy access and the opportunity for job growth.
Sustainable finance therefore continues to play a key role in the transition to a net zero economy, but the actions of policymakers at COP28 have the potential to supercharge their ability to effect change.
Supporting the natural world
We should also see nature featuring more prominently with specific reference to its role in adaptation, food and agriculture, as delegates attempt to push forward the agreements made as part of the Sharm-El Sheikh adaptation agenda, as well as the ambitious goals in the Kunming-Montreal Protocol.
Doubling adaptation finance by 2025 is a critical first step but we need to look at addressing a broader array of adaptation responses, including those that focus on nature-based solutions and ecosystem-based adaptation approaches. These will be critical in preserving natural life, as well as those that depend on it.
Driving future policy
The task set before policymakers at COP28 looms larger than ever, especially against a backdrop of a presidency that runs the state-owned Abu Dhabi National Oil Company (ADNOC).
It is crucial that delegates do not lose sight of the stakes. The extent to which this year’s Dubai summit delivers, or at the minimum, signals renewed commitments to ‘solutions pathways’, will drive the future policy and investment landscapes.
Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized. Certain information contained herein has been obtained from third party sources and such information has not been independently verified by GAM. No representation, warranty, or undertaking, expressed or implied, is given to the accuracy or completeness of such information by GAM or any other person. While such sources are believed to be reliable, GAM does not assume any responsibility for the accuracy or completeness of such information. GAM does not undertake any obligation to update the information contained herein as of any future date. Specific links to third party websites are being provided for informational purposes only to reference the sources of certain information reflected herein and should not be construed that GAM is endorsing the content or views presented therein nor that GAM has independently verified such information or content.
This article contains forward-looking statements relating to the objectives, opportunities, and the future performance of markets generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized. Certain information contained herein has been obtained from third party sources and such information has not been independently verified by GAM. No representation, warranty, or undertaking, expressed or implied, is given to the accuracy or completeness of such information by GAM or any other person. While such sources are believed to be reliable, GAM does not assume any responsibility for the accuracy or completeness of such information. GAM does not undertake any obligation to update the information contained herein as of any future date. Specific links to third party websites are being provided for informational purposes only to reference the sources of certain information reflected herein and should not be construed that GAM is endorsing the content or views presented therein nor that GAM has independently verified such information or content.
This article contains forward-looking statements relating to the objectives, opportunities, and the future performance of markets generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.