NDCs take centre stage at Action COP – ESG Investor

To prevent climate finance from stalling, national plans need to step up a gear, says Lindsey Stewart, Director of Stewardship and Policy at Morningstar Sustainalytics.

London Climate Action Week marked the halfway point between the annual UN climate talks – COP28 in the United Arab Emirates last year and COP29 in Azerbaijan this year. But the brilliant midsummer weather in the British capital did not match the somber tone of many participants and speakers, who expressed growing scepticism about whether the Paris Agreement’s goal of limiting average temperature rise to 1.5°C by 2100 is still achievable.

A common point has been made that momentum has been lost in mitigation and adaptation measures, as well as in financing the transition.

“Why are we hesitating when we achieved a good outcome last year (at COP28)?” asked a panel moderator at the Climate Innovation Forum.

Well, not everyone agrees that COP28 ended on a high note. For many who had high hopes of achieving the goals of the Paris Agreement, the COP28 agreement seemed like too much of a compromise, with plans for ambitious action severely watered down towards the end of the conference.

However, at the COP28 conference, agreement was finally reached to begin phasing out fossil fuels for the first time – a significant step. It will therefore be important at this year’s COP29 to finally address some of the thornier transition issues as we reach the halfway point in the 2020s.

Waiting for the first step

Yet a recurring theme throughout Climate Week was the sense that donors and policymakers are still waiting for the other to take the first step to kick-start the transition – whether in reducing carbon dioxide emissions, adapting to the already established rise in temperatures, or taking “just transition” steps to reduce the impacts of climate change on those countries that have contributed least to it.

“You might think that the energy transition has not even started yet,” complained one Climate Week participant. The limited progress made at the UN Climate Change Conference in Bonn last month undoubtedly reflects this perception.

Against this backdrop, national climate plans targeting emissions reductions by 2035 will be a focus of the current round of Nationally Determined Contributions (NDCs) at COP29. “This next round of NDCs could be the most important document produced in a multilateral context so far this century,” said Simon Stiell, Executive Secretary of the UN Climate Change Panel, in March. These national plans will certainly be crucial in creating a firm policy framework within which investors can set targets that will deliver decarbonization in the real world, not just on paper.

Courageous action

Still, some believe risk aversion is the main reason financial institutions are not taking bolder action. “Our financial institutions need to step up. They need to do more and take more risks,” said Ambassador Majid Al Suwaidi, who is chairing COP28.

We have already seen that over-reliance on investor initiative to lead the transition can lead to disappointment among those calling for urgent and drastic climate action. Looking at corporate shareholder meetings, for example, the continued low support among many of the largest asset managers for resolutions to accelerate climate action remains a source of consternation for climate-conscious investors.

What is clear, however, is that we need to make far larger investments to achieve the 1.5 degree target. And a supportive policy environment is a key factor in creating the conditions under which investors can make these investments.

After COPs in recent years that focused on financing and implementation, the world can only hope that this year’s conference in Azerbaijan will be remembered as the “COP of action”.