Investment Institute
Sostenibilidad

COP28: Limited expectations met with some progress on climate finance

  • 02 Enero 2024 (7 min de lectura)

Key points:

  • COP28 saw agreement on transitioning away from fossil fuels, but there is still much more to be done to turn words into concrete actions
  • Increased support for developing countries was a welcome step, and of potential interest to fixed income investors            
  • We also see potential opportunities for equity investors given new pledges around food systems and sustainable agriculture

It has taken eight years - but there is finally a consensus that the world will have to move away from using fossil fuels. It was at the 2015 United Nations climate change conference COP21, which gave rise to the Paris Agreement on climate change, that the spotlight fell on the need for a dramatic reduction in the use of coal, oil and gas. Finally, 2023’s COP28 saw countries agree for the first time to “transition away from fossil fuels in energy systems” – and in a “just, orderly and equitable manner”.1

But what might be a diplomatic victory is definitely not a climate one, whatever the efforts and intense negotiations that have underpinned it, as there is still much to be done. Notably the agreement did not say to “phase them out”, which many were calling for. There are some positives though and we welcome more the announcements made in the field of climate adaptation finance, including the operationalisation of the loss and damage fund. Although not perfect, it can now work - a pre-requisite to support more large-scale financial support to developing countries alongside other initiatives announced.

  • PGEgaHJlZj0iaHR0cHM6Ly93d3cuYmJjLmNvLnVrL25ld3Mvc2NpZW5jZS1lbnZpcm9ubWVudC02NzE0Mzk4OSI+V2hhdCB3YXMgYWdyZWVkIG9uIGNsaW1hdGUgY2hhbmdlIGF0IENPUDI4IGluIER1YmFpPyAtIEJCQyBOZXdzPC9hPg==

Climate mitigation and fossil fuel

Although the world renewed its commitment to limiting global warming to 1.5° above pre-industrial times, these remain words rather than tangible actions - we had hoped for at least an intermediate milestone towards reducing oil and gas supplies, even if conditional on peak demand. This would have preserved the need to adjust to different levels of development and to integrate a fairer transition for all, while preventing the can being kicked further down the road.

Undoubtedly, this objective of “transitioning away from” fossil fuels - not “reducing” fossil fuel supply - is now written in black and white, and governments will have to follow suit with policies and actions. Acknowledging it is positive, but it is vital that it is delivered - and delivered soon. The next round of Nationally Determined Contributions in 2025 will be a key test on that front, although more broadly, the absence of progress on global carbon pricing remains a significant issue. At the end of the day, reducing reliance on oil and gas, and shifting to consumption sobriety, ultimately depends on making it uncompetitive and we are not there yet.

Regarding the Oil and Gas Decarbonisation Charter, in our view commitments remain minimal. Some 50 companies, accounting for 40% of global oil production, have signed on to the Charter2 , with national oil companies representing over 60% of signatories. Emission reduction commitments remain long term (with a goal of net zero in 2050), limited to companies’ operations (i.e., scope 1 and 2 emissions) while ending routine methane flaring by 2030 and “near zero” upstream methane emissions. In a nutshell, it leaves scope 3 (emissions found in firms’ value chains, both up and downstream) out of the commitments - although accounting for roughly 90% of the sector’s emissions - leaving to others the responsibility to contribute to the transition of the whole ecosystem/demand side.3

In the same vein, methane targets are of course key, given the materiality of the gas in global warming, but it remains more of a necessary catch-up after years of operational negligence from some players. Of note is that some US companies like Exxon have now joined the Charter alongside some national oil companies.4

The Global Renewable and Energy Efficiency Pledge included an already-announced tripling of renewables capacity to at least 11,000 gigawatts and a doubling of energy efficiency by 2030, alongside an increased mobilisation of carbon capture and hydrogen technologies. We already commented that the latter are no silver bullet and have to be restricted to just some hard-to-abate sectors.5  Nuclear energy was recognised as a key contributor to achieving net zero by mid-century, with 20 countries pledging to triple capacity by 2050. The US, the United Arab Emirates (UAE), the UK and some European countries were among the signatories, opening the door to investments in small modular reactors that could be used for power generation and wider industrial use.

  • PGEgaHJlZj0iaHR0cHM6Ly93d3cuY29wMjguY29tL2VuL25ld3MvMjAyMy8xMi9PaWwtR2FzLURlY2FyYm9uaXphdGlvbi1DaGFydGVyLWxhdW5jaGVkLXRvLS1hY2NlbGVyYXRlLWNsaW1hdGUtYWN0aW9uIj5PaWwgJmFtcDsgR2FzIERlY2FyYm9uaXphdGlvbiBDaGFydGVyIGxhdW5jaGVkIHRvIGFjY2VsZXJhdGUgY2xpbWF0ZSBhY3Rpb248L2E+
  • PGEgaHJlZj0iaHR0cHM6Ly93d3cuYXhhLWltLmNvbS9pbnZlc3RtZW50LWluc3RpdHV0ZS9zdXN0YWluYWJpbGl0eS9lbnZpcm9ubWVudGFsL3VuZGVyc3RhbmRpbmctc2NvcGUtMy1ob3ctcmVzcG9uc2libGUtaW52ZXN0b3JzLWNhbi13cmVzdGxlLXVucnVsaWVzdC1lbWlzc2lvbnMiPlVuZGVyc3RhbmRpbmcgc2NvcGUgMzogSG93IHJlc3BvbnNpYmxlIGludmVzdG9ycyBjYW4gd3Jlc3RsZSB3aXRoIHRoZSB1bnJ1bGllc3Qgb2YgZW1pc3Npb25zPC9hPg==
  • PGEgaHJlZj0iaHR0cHM6Ly9jb3Jwb3JhdGUuZXh4b25tb2JpbC5jb20vbmV3cy92aWV3cG9pbnRzL3RhY2tsaW5nLW1ldGhhbmUtZW1pc3Npb25zIj5PdXIgTWV0aGFuZSBFbWlzc2lvbiBSZWR1Y3Rpb24gR29hbHMgfCBFeHhvbk1vYmlsPC9hPg==
  • PGEgaHJlZj0iaHR0cHM6Ly9jb3JlLmF4YS1pbS5jb20vcmVzZWFyY2gtYW5kLWluc2lnaHRzL2ludmVzdG1lbnQtaW5zdGl0dXRlL3N1c3RhaW5hYmlsaXR5L2NvcDI4LXdoYXQtY2FuLWludmVzdG9ycy1yZWFzb25hYmx5LWV4cGVjdCI+Q09QMjg6IFdoYXQgY2FuIGludmVzdG9ycyByZWFzb25hYmx5IGV4cGVjdD8gfCBBWEEgSU0gQ29yZTwvYT4=

Increased support for developing countries

More concrete steps were taken in climate finance, starting with the operationalisation of the loss and damage fund which was the necessary condition to make it work. The World Bank will host it for a four-year interim period. There is still some way to go to move from theory to practice, as the US$792m financial commitments made still fall short of the amounts required – between $160bn and $340bn per year by 20306  - and could hardly be seen as a decisive step for vulnerable countries. The launch of the climate-focused investment fund Alterra and the $30bn capital already committed by the UAE is of larger scale, aimed at mobilising up to $250bn in private finance benefitting the global south.

Some geographies have been explicitly earmarked for increased financial support, such as the Philippines to which the Asian Development Bank promised to allocate $10bn for climate finance between 2024 and 2029.7

In addition, the Inter-American Development Bank is planning to triple climate financing for Latin America to $150bn over the decade.8

This should be of particular interest to fixed income investors, who will be watching this closely, as well as what comes out of the Task Force on Credit Enhancement for Sustainability-linked Sovereign Financing for Nature and Climate. New commitments include the use of climate-resilient debt clauses (CRDCs) allowing debt service to be paused to provide breathing space when countries are hit by climate catastrophes.

The first meeting will be held in January 2024 and will define the role of its members, which include major multilateral banks such as the Asian Development Bank, the Inter-American Development Bank and US International Development Finance Corporation. Notably, credit rating agencies such as Fitch Ratings indicated their intention to consider revisions to credit rating criteria for loans to ensure use of CRDCs does not impose an additional burden for borrower countries.

  • PGEgaHJlZj0iaHR0cHM6Ly9jb3JlLmF4YS1pbS5jb20vcmVzZWFyY2gtYW5kLWluc2lnaHRzL2ludmVzdG1lbnQtaW5zdGl0dXRlL3N1c3RhaW5hYmlsaXR5L2NvcDI4LXdoYXQtY2FuLWludmVzdG9ycy1yZWFzb25hYmx5LWV4cGVjdCI+QWRhcHRhdGlvbiBHYXAgUmVwb3J0IDIwMjIgfCBVTkVQIC0gVU4gRW52aXJvbm1lbnQgUHJvZ3JhbW1lPC9hPg==
  • PGEgaHJlZj0iaHR0cHM6Ly93d3cuYWRiLm9yZy9uZXdzL2FkYi1wcm9ncmFtLTEwLWJpbGxpb24tY2xpbWF0ZS1maW5hbmNlLXBoaWxpcHBpbmVzIj5BREIgdG8gUHJvZ3JhbSAkMTAgQmlsbGlvbiBpbiBDbGltYXRlIEZpbmFuY2UgZm9yIFBoaWxpcHBpbmVzIHwgQXNpYW4gRGV2ZWxvcG1lbnQgQmFuazwvYT4=
  • PGEgaHJlZj0iaHR0cHM6Ly93d3cuaWFkYi5vcmcvZW4vbmV3cy9pZGItZ3JvdXAtYWltcy10cmlwbGUtY2xpbWF0ZS1maW5hbmNpbmctb3Zlci1uZXh0LWRlY2FkZSI+SURCIHwgSURCIEdyb3VwIEFpbXMgdG8gVHJpcGxlIENsaW1hdGUgRmluYW5jaW5nIE92ZXIgTmV4dCBEZWNhZGUgKGlhZGIub3JnKTwvYT4=

Opportunities in food and agriculture

The thematic days during COP28 have led to a flurry of declarations around health, youth, poverty, nature and food systems. Food systems are one area where we especially see significant potential investment opportunities beyond energy infrastructure and renewables, through the goal to achieve climate-resilient food and sustainable agricultural production by 2030. Regenerative agriculture and sustainable production are likely to underpin further development of specific technologies extending to the reduction of water consumption and to waste recycling, that will complement actions and solutions to prevent deforestation. These are segments that equity investors can potentially address at this stage.

Whatever the progress or disappointments from COP28, a lot remains to be done to support the transition of developing countries. Investors can play a significant role here, but it won’t be enough if the US and China do not take drastic action in the field of emission reduction. The upcoming 2024 US Presidential Election is likely to be of high importance on that front.

    Disclaimer

    Este documento tiene fines informativos y su contenido no constituye asesoramiento financiero sobre instrumentos financieros de conformidad con la MiFID (Directiva 2014/65 / UE), recomendación, oferta o solicitud para comprar o vender instrumentos financieros o participación en estrategias comerciales por AXA Investment Managers Paris, S.A. o sus filiales.

    Las opiniones, estimaciones y previsiones aquí incluidas son el resultado de análisis subjetivos y pueden ser modificados sin previo aviso. No hay garantía de que los pronósticos se materialicen.

    La información sobre terceros se proporciona únicamente con fines informativos. Los datos, análisis, previsiones y demás información contenida en este documento se proporcionan sobre la base de la información que conocemos en el momento de su elaboración. Aunque se han tomado todas las precauciones posibles, no se ofrece ninguna garantía (ni AXA Investment Managers Paris, S.A. asume ninguna responsabilidad) en cuanto a la precisión, la fiabilidad presente y futura o la integridad de la información contenida en este documento. La decisión de confiar en la información presentada aquí queda a discreción del destinatario. Antes de invertir, es una buena práctica ponerse en contacto con su asesor de confianza para identificar las soluciones más adecuadas a sus necesidades de inversión. La inversión en cualquier fondo gestionado o distribuido por AXA Investment Managers Paris, S.A. o sus empresas filiales se acepta únicamente si proviene de inversores que cumplan con los requisitos de conformidad con el folleto y documentación legal relacionada.

    Usted asume el riesgo de la utilización de la información incluida en este documento. La información incluida en este documento se pone a disposición exclusiva del destinatario para su uso interno, quedando terminantemente prohibida cualquier distribución o reproducción, parcial o completa por cualquier medio de este material sin el consentimiento previo por escrito de AXA Investment Managers Paris, S.A.

    La información aquí contenida está dirigida únicamente a clientes profesionales tal como se establece en los artículos 194 y 196 de la Ley 6/2023, de 17 de marzo, de los Mercados de  Valores y de los Servicios de Inversión.

    Queda prohibida cualquier reproducción, total o parcial, de la información contenida en este documento.

    Por AXA Investment Managers Paris, S.A., sociedad de derecho francés con domicilio social en Tour Majunga, 6 place de la Pyramide, 92800 Puteaux, inscrita en el Registro Mercantil de Nanterre con el número 393 051 826. En otras jurisdicciones, el documento es publicado por sociedades filiales y/o sucursales de AXA Investment Managers Paris, S.A. en sus respectivos países.

    Este documento ha sido distribuido por AXA Investment Managers Paris, S.A., Sucursal en España, inscrita en el registro de sucursales de sociedades gestoras del EEE de la CNMV con el número 38 y con domicilio en Paseo de la Castellana 93, Planta 6 - 28046 Madrid (Madrid).

    © AXA Investment Managers Paris, S.A. 2024. Todos los derechos reservados.

    Advertencia sobre riesgos

    El valor de las inversiones y las rentas derivadas de ellas pueden disminuir o aumentar y es posible que los inversores no recuperen la cantidad invertida originalmente.

    Clientes Profesionales

    El sitio web de AXA INVESTMENT MANAGERS Paris Sucursal en España está destinado exclusivamente a clientes profesionales tal y como son Definidos en la Directiva 2014/65/EU (directiva sobre Mercados de Instrumentos financieros) y en los artículos 194 y 196 de la Ley 6/2023, de 17 de marzo, de los Mercados de Valores y de los Servicios de Inversión. Para una mayor información sobre la disponibilidad de los fondos AXA IM, por favor consulte con su asesor financiero o diríjase a la página web de la CNMV www.cnmv.es

    Por la presente confirmo que soy un inversor profesional en el sentido de la legislación aplicable.

    Entiendo que la información proporcionada tiene únicamente fines informativos y no constituye una solicitud ni un asesoramiento de inversión.

    Confirmo que poseo los conocimientos, experiencia y aptitudes necesarios en materia de inversión, y que comprendo los riesgos asociados a los productos de inversión, tal como se definen en las normas aplicables en mi jurisdicción.