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Commentary

NDCs to Take Centre Stage at ‘Action COP’

National plans must shift gears to prevent climate finance from stalling, says Lindsey Stewart, Director of Stewardship and Policy at Morningstar Sustainalytics.

London Climate Action Week marked the halfway point between the annual UN Climate Conferences – COP28 in the UAE last year, and COP29 in Azerbaijan this year. But the bright midsummer weather in the British capital didn’t match the sombre tone of many attendees and speakers, who expressed rising scepticism over whether the Paris Agreement goal of limiting average temperature rise to 1.5°C by 2100 was still feasible.

The loss of momentum on mitigation and adaptation action, and on transition finance, was frequently commented upon.

“Why are we stalling when we finished last year on a high [at COP28]?” asked one panel moderator at the Climate Innovation Forum.

Well, not everyone agrees that COP28 finished on a high. To many of those with high hopes of reaching the Paris Agreement goals the COP28 agreement looked like a compromise too far, with plans for ambitious action heavily diluted as the conference reached its end.

However, the COP28 conference did finally agree a deal to begin “transitioning away from fossil fuels” for the first time – a significant step. So, at COP29 this year, it will be important to finally tackle some of the thornier transition issues as we reach the half-way point in the 2020s.

Waiting for the first move

Yet a recurring theme at climate week was the feeling that financiers and policymakers are still each waiting for the other to make the first move to kickstart transition – whether on mitigation of carbon emissions, adapting to temperature rise that’s already locked in, or taking ‘just transition’ steps to reduce the impacts of climate change on nations that did least to cause it.

“You could argue that the energy transition has not even started,” lamented one Climate Week panellist. The limited progress made at the UN Climate Change Conference in Bonn last month certainly reflects that perception.

With all that in mind, for the current round of nationally determined contributions (NDCs), national climate action plans targeting emissions reductions by 2035 will be a key focus at COP29. “This next round of NDCs may be the most important documents to be produced in a multilateral context so far this century,” said Simon Stiell, Executive Secretary of UN Climate Change back in March. These national plans will certainly be vital in setting a firm policy context within which investors can set goals that effect real-world decarbonisation, rather than just on paper.

Bolder action

Still, some feel that the key thing that’s holding financial institutions back from taking bolder action is risk aversion. “Our financial institutions need to do better. They need to do more and take more risk,” said Ambassador Majid Al Suwaidi of the COP28 Presidency.

We’ve already seen that overreliance on investor initiative to lead the transition can lead to disappointment for those who want urgent and drastic action on climate. Looking at company shareholder meetings, for example, continued low support by many of the largest asset managers for resolutions seeking to accelerate climate action remains a source of consternation for climate-conscious investors.

But it remains clear that much bigger bets need to be taken to hit the 1.5°C goal, and a supportive policy environment is a key factor in creating the conditions in which investors can take those bets.

So after the previous ‘finance’ and ‘implementation’ COPs of recent years, the world can only hope that the Azerbaijan conference this year will be remembered as the ‘action COP’.

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