Senior Community Advisor
The 28th Conference of Parties (COP 28) took place in Dubai in December, just before the holiday season. Amidst the hottest year on the observation record, this was the major climate event of 2023, shaping global responses to climate change. COP28 provided a unique opportunity to explore the confluence of regulatory requirements and global environmental initiatives with far-reaching impact across regions and sectors, including financial institutions. The main objective of COP28 was to take stock of the progress made by the parties on the implementation of the Paris Agreement and to agree on a course of action to dramatically reduce greenhouse gas emissions and protect lives and livelihoods.
The discussions lasted longer than expected, and the final conference statement was released only after a long night of debates between the delegates. It is the first time that the world united around a clear text on the need to transition away from fossil fuels.
COP28's agreement marks the beginning of the post-fossil era.Ursula von der Leyen, President of the European Commission
The deal ‘to transition away from fossil fuels’, struck in Dubai after two weeks of hard-fought negotiations, was meant to send a powerful signal to investors and policymakers that the world is united in its desire to break with fossil fuels, something scientists say is the last best hope to stave off a climate catastrophe. COP28 President Dr. Sultan Al Jaber called the deal "historic" but added that its true success would be in its implementation.
Initially, this was a rather unlikely-looking agreement, especially considering the controversy surrounding COP’s leadership and the fact that it was held by a major oil andgas exporting country such as the UAE and run by a president who is also the CEO of the UAE's national oil company. Due to this initial controversy, the expectations of financial institutions of the potential impact of COP28 on progress with the global response to climate change were not that high. For example, the majority of participants at the December Qorus event ‘ESG evolution: Navigating the regulatory frontier’ had neutral to negative expectations about the potential impact of COP28, as shown below.
Had there not been a UAE presidency, we would have been very hard-pressed to achieve such a clear expression of the beginning of the end of fossil fuels.Antoni Ballabriga, Global Head of Responsible Business at BBVA
Yet, the UAE leadership of COP28 was, according to some, actually the key to its success.
With the organization of COP29 in 2024 being assigned to Azerbaijan, another major oil and gas producing country, we have yet to see how serious and/or biased these countries really are about decarbonization and transitioning away from fossil fuels.
Other major agreements secured at COP28 included:
• Tripling renewable energy capacity by 2030, meaning capacity needs to accelerate to a growth rate of 16% between 2024 and 2030 to achieve the target, up from the 9% annual increase estimated between 2010 and 2024, which is achievable but very challenging considering, e.g., the current power grid capacity limitations.
• Doubling the rate of energy efficiency improvements by 2030 and accelerating the reduction of methane emissions also by 2030
• Signing of the Oil and Gas Decarbonization Charter by 50 oil and gas companies representing 40% of global production to reduce their Scope 1 and 2 emissions by 2030
• Establishment of the Net Zero Transition Charter which, like the GFANZ (Glasgow Financial Alliance for Net Zero established at COP 27 in Glasgow), aims to mobilize the private sector to proactively work on reaching net zero emissions by 2050 and set up targets and plans accordingly.
To reach the renewable energy target, there needs to be a disruptive reform of the power system.ING
Signatories to the Net Zero Transition Charter are required to:
• Publicly set net zero transition targets that are consistent with the Paris Agreement. Signatories need to maintain the credibility and transparency of the net zero goal and accept scientific review processes and third-party verification.
• Develop a solid net zero transition plan within one year of COP28. Transition plans need to align governance mechanisms and incentives and align with net zero transition objectives in both the short and long term.
• Publicly disclose greenhouse gas emissions and transition implementation status.
Scaling of climate finance also took the spotlight at COP28, with about $85 billion mobilized for mitigation, adaptation, and loss and damage, among others. Securing financing for the Loss and Damage fund was a hard-won victory by developing countries that they hoped would signal a commitment by the developed, polluting nations to finally provide financial support for some of the climate change-driven destruction such as extreme events already underway. However, the initial pledges of around $800 million are far from the estimated annual cost of climate change-related damage, which ranges in the hundreds of billions.
Implications for financial institutions and their customers:
Clear signals from Dubai supporting decarbonization, renewable energy expansion and transitioning away from fossil fuels will further intensify the work throughout 2024 on climate-related governmental policies and regulations. This will eventually cascade down and impact financial institutions and their customer portfolios.
Join us on 15 February as we discuss with leading banking experts the implications of COP28 for banks and explore the path that COP28 has paved for banks in 2024 and beyond.