Fossil fuel phaseout?
A key success of COP28 was, for the first time, including within the final text a reference to “phasing out” fossil fuels. Whilst there were hopes that the COP29 text would build upon this and increase momentum for a fossil-fuel phaseout, the draft text shared days before COP was due to close had removed any reference to fossil fuels. Reportedly, but not unsurprisingly, this was demanded by a bloc of countries led by Saudi Arabia.
The “Finance COP” – Who and how much?
As expected, the main talking point was the New Collective Quantified Goal (NCQG) on climate finance. COP29 was dubbed the “Finance COP” as a key objective was to build upon the US$100bn per year (agreed at the Copenhagen Climate Summit in 2009) climate finance commitment for developing nations with a more ambitious financial framework.
It proved to be a good old-fashioned negotiation, with different sums proposed and duly rejected. In many respects it looked to be the 24 developed nations vs everyone else. Understandably so as is it those 24 nations that are required to provide the grant finance. Which begs the question, is that the right donor base? It was set in 1992 and excludes countries like China and Saudi Arabia who are now not only wealthy, but arguably culpable for a not-insignificant proportion of global emissions.
‘Result’?
Well, just about. There was a fractious finale. Negotiations continued past Friday’s scheduled close and into the early hours of Sunday. A deal was agreed, just not one that many seem too enthusiastic about. The final agreed annual contribution by 2035 was $300bn; more than the developed nations’ $250bn initial offer but less than the $500bn the G77 group of developing nations had sought. It is also significantly less than the $1.3tn in international climate finance that is some estimate is required.
Despite hopes to build momentum with a transition away from fossil fuels, the final text merely repeated last year’s commitment; better than a step backwards we suppose.
Ironically, Trump’s election may actually have helped end the gridlock. With the talks seemingly at a stalemate, developing nations fear about their chances at securing an improved deal at a future date is perhaps one reason for their reluctant agreement.
With talks having almost collapsed twice, we must recognise a deal that pulled the COP back from the brink as at least a partial success. A deal that continues to direct capital towards the critical challenge of our time.
Implications for sustainable investment
We reflected after COP28 that with the diversity of representation at each COP it is perhaps inevitable that agreement on the boldest action is a challenge. This was more evident at COP29 than ever before. With no major surprises, our outlook and investment thesis around renewable infrastructure and energy efficient technology remain unchanged.
We continue to identify quality, well-managed companies that support – and are set to benefit from – critical sustainability themes including the transition away from fossil fuels. Whilst domestic and political agendas skew discussions, most countries unequivocally recognise the link between the burning of fossil fuels and global warming. Those countries overwhelmingly recognise that the solution – or at least a significant part of it – is a transition to renewable energy sources. The transition is very much underway, with new global investment in renewable energy rising year on year and the contribution of renewable energy to global electricity supply approaching 50%.
The transition away from fossil fuels underpins our work to identify attractive investment opportunities to benefit from efforts to decarbonise the economy, namely across our “Clean Energy” and “Resource Efficiency” investment themes.
For further information on our approach to sustainable investment please don’t hesitate to contact the team.