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COP28: Alarms, But no Surprises

Agreement marked by compromise rather than high ambition still provides stability for climate-focused stewardship, according to Lindsey Stewart, Director of Investment Stewardship Research, Morningstar.

The COP28 climate conference in Dubai highlighted all that we need to worry about regarding the growing urgency of climate action and revealed very little that we didn’t already know.

As expected, the COP28 agreement was defined by compromise rather than high ambition. But a first-time commitment to transition “away from fossil fuels in energy systems in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science” was a high point.

The first-time inclusion of a specific reference to reducing the role of fossil fuels is no doubt an important step forward for global decarbonisation. However, some would argue there’s plenty of wiggle room in that wording for parties with an interest in prolonging the status quo.

The specific reference to “energy systems” raises questions about commitments to other carbon-intensive activities such as transport and heavy industry. And it’s not difficult to see how a “just, orderly and equitable” transition could just mean a slower transition in practice if not properly managed.

Beginnings and endings

Simon Stiell, UN Climate Change Executive Secretary, said in his closing speech: “Whilst we didn’t turn the page on the fossil fuel era in Dubai, this outcome is the beginning of the end.” Granted, progress is progress. But to hit net zero, the world needs to find a way to get to the end of the end pretty quickly.

The Global Stocktake of progress toward net zero was probably the most significant outcome of the conference. It confirmed that global greenhouse gas emissions must fall by 43% in 2030 compared with 2019 levels in order to limit global temperature rise to 1.5°C.

Data from the International Energy Agency indicates that global CO2 emissions were in fact slightly higher in 2022 compared with 2019. This indicates that the world needs to reduce greenhouse gas emissions by over 7% per year over the balance of this decade – no mean feat when you consider that pandemic-era lockdowns reduced CO2 emissions by only around 5.5%.

All that being said, the absence of radical changes in the global policy framework for climate change action can be viewed as a positive, insofar as it provides stability for climate-focused stewardship action.

Difficult as it is to achieve from where we currently are, the 1.5°C target from the 2015 Paris Agreement remains intact – a boon to investors seeking ‘Paris-aligned’ transition plans from companies.

Wording “underlining the urgent need to address… the interlinked global crises of climate change and biodiversity loss” will also be welcome to the growing crowd of investors focusing on nature-related risks one year on from the launch of the Global Biodiversity Framework at COP15, and with the Taskforce for Nature-related Financial Disclosures’ reporting framework now finalised.

Build on the platform

All this is happening against the backdrop of rising expectations from clients and regulators for sustainable-labelled investments to demonstrate their credentials through stewardship.

So, in 2024, it will be important for climate-conscious investors to be seen stepping up their activity: firstly to build on the platform set by global policy makers to continue to aim for 1.5°C, but also to ensure their engagement matches the expectations of investment beneficiaries.

This is becoming a more complex landscape to navigate, with increasing disclosure expectations regarding methane emissions, net-zero transition plans, and nature related risks and opportunities, and impacts and dependencies. But, of course, urgent times call for more ambitious action.

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