COP29: From climate pledges to financial action
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Article Type
Market Updates
Topic
Responsible Investing
Published
November 07, 2024
Read time
5 mins
Authors
Anne Scott
Julius Huttunen
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COP29, running from 11th to 22nd November in Baku, Azerbaijan, takes place against a backdrop of political instability1 brought by the 2024 ‘global election super cycle’ and a newly elected President Trump poised to retract many of the climate commitments Biden’s administration looked to build upon. With record breaking global temperatures and a widening climate finance gap, this conference emerges at a pivotal moment for global climate action. The 1.5-degree target agreed by 196 countries in Paris looks increasingly challenging, making financial commitments more crucial than ever.   

Financing required for progress will remain a fundamental objective for different stakeholders at this forum. Government and policy makers, alongside the private sector, need to be in the room and more will continue to be asked of the private sector as governments seek new vehicles to fund the energy transition. As host nation and one of the world’s significant oil producers, Azerbaijan’s role adds another layer of complexity to these discussions. 

 

Key financial priorities

COP29 serves as a vital stepping stone towards COP30 in Brazil with a focus on three key financial priorities.

  • Firstly, there will be an emphasis on strengthening Nationally Determined Contributions (NDCs) - the climate action plans submitted by each country under the Paris Agreement.
  • Given this backdrop, we are likely to see increased focus on climate resilience and adaptation strategies as the reality of breaching the 1.5-degree target looms.
  • Thirdly, creating innovative financial mechanisms to mobilise the private sector for global climate action will be a central objective. 

 

Bridging the funding gap

The scale of the required investment is staggering. According to recent studies, climate finance for developing countries needs to reach USD2.4 trillion annually by 2030.1 Without adequate funding, costs could escalate toUSD1,266 trillion by 2100 under a 1.5-degree scenario - highlighting the urgency of immediate action.

 

The Climate Finance Action Fund

To address this challenge, the COP29 Presidency has announced an ambitious Climate Finance Action Fund. This initiative aims to draw voluntary contributions from fossil-fuel producers, create tax incentives for renewable energy projects, establish standards for emission reductions and promote public-private partnerships for large-scale climate projects. The success of this fund could set a precedent for future climate finance mechanisms.

 

Calls for bold action

The IIGCC CEO published an open letter in October expressing support for an ambitious New Collective Quantified Goal (NCQG), outlining key recommendations which includes private sector roles.2 Addressing the climate finance gap in developing countries especially requires mobilisation of capital by global investors. The letter offers a coherent voice from members calling for consistent policy and belief that a strong NCQG will help better align the financial system with the goal of a net-zero, climate resilient world by 2050.

 

The role of carbon markets

Article 6 of the Paris Agreement, focusing on voluntary carbon markets, presents another promising solution. However, success in this area requires addressing key challenges, such as regulatory uncertainty, market fragmentation and ensuring the quality and integrity of carbon credits.3  Successful implementation of Article 6 could enhance global climate action through improved market mechanisms and could be the key to unlocking additional private sector investment.

 

Looking ahead

Building on progress from previous COPs, particularly the Loss and Damage fund4 established at COP27 and operationalised at COP28, this year’s conference must deliver concrete action on climate finance. The intersection of public funding, private investment, and market mechanisms will be crucial in determining whether global climate goals remain achievable.

 

Sources
1What to expect from COP29 – ‘The Finance COP’
2Voluntary Carbon Markets: A Review of Global Initiatives and Evolving Models 
3Article 6 evaluation reports from Clean Air Task Force
4COP28 agrees to establish loss and damage fund for vulnerable countries

Disclosures

Authors

Anne Scott
Global Climate Solutions Lead
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Julius Huttunen
Head of ESG – Fixed Income Public Markets
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