COP28 is over. After much wrangling, the final agreement includes specific reference to fossil fuels for the first time, with one pension fund representative seeing it as “a key signal to asset owners”.

It is not the call for a “phaseout” of oil, coal and gas that many wanted, but still the first time that fossil fuels get a specific mention in a UN climate conference deal. In the end, the final text calls for a “transitioning away from fossil fuels” to reach net zero emissions globally by 2050. The final wording also referred to a transition “in a just, orderly, and equitable manner”.

For Laura Hillis, a responsible investment director at Church of England Pensions Board (CEPB), the first fossil fuels reference in a COP text is “a key signal to asset owners”.

“We need to be thinking about the shape of that transition: what it means on both the supply and demand side, and for our engagements with portfolio companies and asset managers,” she said.

“Critically, asset owners are well placed to keep a rapid but also just and equitable transition firmly on the agenda in the investment sector, given our responsibility to serve our beneficiaries’ interests in the long term.”


COP28 deal calls for ‘transition away from fossil fuels’

Speaking to IPE a few days before the negotiations finished, Iancu Daramus, head of sustainability at Fulcrum Asset Management, said the need to move away from fossil fuel emissions was already well understood and being acted on, even if there is more to be done.

“I would try to put things in context by winding the clock back a few years,” he says. “At COP21 in 2015 we thought the world was on track for 3-4 degrees of warming, but that number has come down. It’s not enough, of course, but it has ruled out some of the more catastrophic hothouse scenarios that still seem to pop up in the literature.”

“The work we’re doing on climate continues and it’s being driven by the view that climate risk is financially material,” Daramus added. “This is not just the result of what is agreed at COP or not because there is a broader perspective.”

“Investors will be encouraged to see recognition of the importance of an enabling policy framework for climate finance”

Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change

Daramus flagged as noteworthy that the International Energy Agency estimates pledges made at COP28 on renewable energy, energy efficiency and methane reduction would cover about 30% of the emissions gap to limiting global overheating to a safer level.

“There are all sorts of caveats to make about these commitments, but they are not insignificant announcements,” he said.

Policy importance

Stephanie Pfeifer, chief executive officer of the Institutional Investors Group on Climate Change (IIGCC), was in Dubai for COP28 as IIGCC members took part in official dialogues to outline what they need to see from countries implementing climate policies.

Reflecting on the summit, she said the reference to fossil fuels sets a new precedent that national governments now need to build on and implement.

“In the text itself, investors will be encouraged to see recognition of the importance of an enabling policy framework for climate finance, something which we have long called for,” she added.

This is exactly the reaction that the Global Stocktake text triggered for CEPB’s Hillis when it was still in draft form. She also noted “an important acknowledgement of the role institutional investors play, and language around governments strengthening policy guidance, incentives, and regulation to create enabling conditions for sustainable finance”.

Net zero investors have always said they cannot be expected to resolve the climate crisis on their own, but today there is a growing push around government policy and investors are becoming more vocal about the limits of what they can achieve without underlying policy change.

Getting capital to flow

Hillis also welcomed language in the final text about improving the financial architecture, saying “this will help to increase the flow of capital to climate solutions, including in emerging markets where private finance needs to be deployed alongside public finance to smooth the transition”.

For Danish pensions mutual firm Velliv, participating in COP28 was at least in part about calling for more blended finance to fit institutional investors’ risk profile.

“We encourage more investors, companies and governments to join the journey,” said Anders Stensbøl Christiansen, chief investment officer of the DKK300bn (€40.2bn) investor. “More capital will speed up the green transition.”

For Mark Carney, co-chair of the Glasgow Financial Alliance for Net Zero (GFANZ), the deployment of capital in emerging markets and developing economies is a real concern. He is reported to have told COP28 delegates that it is not happening fast enough and that an environment of higher interest rates was making the equation around “bankability and investability” of projects more complicated.

This is in keeping with comments by Ray Dalio, the founder of Bridgewater Associates who is reported to have honed in on the problem of rising interest rates for getting climate projects off the ground.

At boutique fund manager WHEB Asset Management, head of research Seb Beloe said COP28 defied the negative narrative around it in the lead-up but that it remained to be seen how the agreements are filtered through to national legislation and the real economy.

In this sense, COP28 was “not the most important thing this year”.

Citing Dalio’s comments, Beloe said that for the past few years, the interest rate environment was “honestly much more important from a finance point of view”. 

Select announcements and initiatives at COP28

Next steps

  • Next round of national climate action plans (Nationally Determined Contributions) is due in 2025
  • Azerbaijan to host COP29 from November 11 to 22 next year
  • Brazil has offered to host COP30 in the Amazon in 2025

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