According to the UN Framework Convention on Climate Change (UNFCCC), the agreement – which is the response to the global stocktake – is the central outcome of COP28 and must now be used by countries to develop stronger climate action plans due by 2025. The overarching aim is still to limit the global temperature increase to 1.5°C and keeping this important milestone alive.

While many feel that there are loopholes in the UAE Consensus (as the agreement is called), it does at least create a framework for the private sector to supply the significant amounts of capital required for the transition away from fossil fuels, in partnership with the public sector – whether governments (national and local) and the multilateral development banks (MDBs). 

One of the criticisms of the UAE Consensus is that it is vague about where the trillions of dollars of finance will come from to support developing countries in financing the transition and, more pointedly, adapting to climate change given their direct exposure to natural disasters, such as flooding and drought. To do this, the stocktake identifies reforming the multilateral financial architecture and establishing innovative financial structures. Blended finance, the strategic use of development finance for the mobilisation of additional finance from the private sector towards sustainable development in developing countries, was discussed extensively at COP28. It will have a key role to play in attracting a broader capital base towards projects by taking risks that other forms of capital cannot and, thereby, mobilising more funding and financing across climate-related projects, whether green or transitioning activities, as well as adaptation tools, at a reduced cost of capital.

To this end, we welcome speeches from minister Graham Stuart (Minister of State for Energy Security and Net Zero), and Chris Starck (CEO at UK Climate Change Committee), who talked about the importance of the private sector, and the role that we will have to play to accelerate the action towards net zero.

The protection and restoration of forests, mangroves, land, and oceans received commitments and pledges of over US$186m, re-affirming the required near-term action to protect and restore nature for the benefit of climate action to provide further support to the US$2.5bn mobilised during COP28’s World Climate Action Summit on 2 December. Reversing nature-loss can provide at least 30% of the mitigation action needed to keep 1.5°C within reach of 2030. 

As the President of COP28 UAE, H.E. Dr Sultan Ahmed Al Jaber said, “An Agreement is only as good as its implementation. This historic consensus is only the beginning of the road.” Hopefully the UAE Consensus has given the impetus for global action and collaboration in putting the US$85bn commitments to work.

As COP28 ends, it’s worth reflecting that we can capture the energy and the dynamism played out among delegates. While much needs to be done, the trajectory is now clearer and we will all have to step up to stay within the safe level of 1.5°C of warming, while ensuring a just transition for all communities for the best long-term sustainable outcome. We look forward to next November and COP29, hosted by Azerbaijan, where the world will be able to evaluate our progress to counter the detrimental effects of climate change over the next 12 months – something we can all contribute to, from governments, MDBs, corporates and financial institutions. 

In addition to the above, other notable developments (beyond those reported in our previous note) included in the second part of COP28:

Ahead of the meeting in Dubai, NatWest organised a seminar called ‘COP28 & Financial Markets: expectations for a critical gathering’. Hosted by NatWest’s Dr Arthur Krebbers and Dean Shahfar, the session consisted of four sustainability and investment specialists sharing their insights on progress since COP27, expectations ahead of COP28, and how outcomes of this year’s meeting could influence financial markets.

Kate McGrath from Abrdn, Malika Takhtayeva from BNP Paribas AM, Scott Cantor from the World Bank and Caroline Haas from NatWest all highlighted themes developed at COP28:

• The growing investor focus on adaptation finance;
• Financing for climate mitigation; and
• The need to channel help and funding towards developing countries, which are most affected by climate change.

View the webinar.

It has been an exceptionally busy week for publications and announcements around COP28. Below is our round-up of the most significant.

General global developments

• Global climate finance framework targets US$7trn in annual investment. The declaration, signed by 13 countries including the US, UK, France and Germany, discusses the importance of mobilising investment into climate solutions and adaptation measures towards 2030 goals.
• Close to 400 organisations from  64 jurisdictionsave committed to advancing the adoption or use of the International Sustainability Standards Board’s (ISSB’s) climate-related reporting at a global level.
• Glasgow Financial Allowance for Net zero (GFANZ) report Scaling Transition Finance and Real-economy Decarbonization, which supplements its 2022 report.
• GFANZ Final Report on Financing the Managed Phaseout of Coal-Fired Power Plants in Asia Pacific.
• The Network for Greening the Financial System (NGFS) has released a report Scaling Up Blended Finance for Climate Mitigation and Adaptation in Emerging Market and Developing Economies, focused on promoting awareness about blended finance, challenges to scaling up climate blended finance solutions, as well as relevant policy suggestions to address these barriers as part of countries’ transition to a low-carbon economy.
• The NGFS Dubai Stocktake assesses the progress and gaps in the transition of the broader financial system.
• The United Nations Environment Programme Finance Initiative (UNEPFI) and Net-Zero Banking Alliance (NZBA) report Developing Metrics for Transition Finance explores how banks may approach reporting their transition finance efforts; it highlights that some measures and indicators may not provide an holistic picture of the initiatives banks are taking to decarbonise their portfolios.
• NZBA Progress Update 2023 provides a detailed analysis of how its members are achieving their goals and creating new ones, and includes the deadline for its founding member banks to set goals for all of their highest emitting sectors.
• The International Organization of Securities Commissions (IOSCO) report Supervisory Practices to Address Greenwashing.
• The Net-Zero Asset Owner Alliance (NZAOA) published Policy Engagement Guidelines, which establish the direction for all NZAOA members and external net-zero asset owners to align their policy engagement practices with their climate commitments, and a Tool for Developing Credible Transition Plans.
• To increase sustainability-linked sovereign funding for nature and climate at COP28, leading MDBs along with other international organisations have signed a common declaration and established a worldwide taskforce.
• Building on the work of the UN Secretary-General’s High-Level Expert Group (HLEG) on Net-Zero Emissions Commitments of Non-State Entities, the TaskForce on Net Zero Policy was established with the goal of ensuring that non-state actors’ 1.5°C-aligned net-zero emissions pledges are legitimate and accountable, supported by clear regulations and coherent policy.

Carbon markets (Negotiations continue on Article 6).

• IOSCO published its Consultation Report to promote the integrity and orderly functioning of the Voluntary Carbon Markets (VCMs). The report proposes a set of 21 good practices to foster sound and well-functioning VCMs where these fall within the scope of financial market integrity (i.e .sound market structures, sound and orderly trading, and transparency of data availability and accessibility). The Association for Financial Markets in Europe is discussing its response with stakeholders.
• The Science Based Targets initiative, GHG Protocol and the Integrity Council for the Voluntary Carbon Market (ICVCM) and Voluntary Carbon Markets Initiative (VCMI) announced they will be setting up an end-to-end integrity framework providing a clear standard for project developers, intermediaries and buyers of carbon credits. They published an infographicd  as a first step.
  
• The World Bank published The World Bank Engagement Roadmap for Carbon Markets with details of how it is scaling up technical assistance and finance for countries’ carbon markets.
• The US Commodity Futures Trading Commission released a proposed guidance and request for public comment regarding the listing for trading of voluntary carbon credit derivative contracts (see CFTC press release and statements by Chairman Rostin Behnam and Commissioner Christy Goldsmith Romero).
• To support the operationalisation of Article 6 and NDCs under the Paris Agreement, six independent crediting programmes are collaborating to advance the scale and integrity in carbon markets.

Nature

• The Taskforce on Nature-related Financial Disclosures (TNFD) has published draft sector standards for eight priority sectors, supplementing its recommendations. It also published two new discussion papers on conducting advanced scenario analysis and biodiversity footprinting approaches for financial institutions.
• The ECB published a report to increase public awareness of risks associated with nature by evaluating how the euro area economy, and the bank loans that support it, affect biodiversity.

UK

• The UK government recently issued a press release providing plans for the 2023 Green Finance Strategy and announcing that Vanessa Havard-Williams will be in charge of the Transition Finance Market Review, which will begin in January.
• Baroness Young of Hornsey introduced a Private Members’ Bill on supply chain due diligence for human rights and the environment in the House of Lords.
• The Environmental Audit Committee (EAC) of the House of Commons published its report The financial sector and the UK’s net zero transition outlining the sector’s involvement in reaching net-zero greenhouse gas emissions by 2050 (see the EAC’s press release).
• A policy paper by the UK government Net zero government emissions: UK roadmap outlines the journey to central government net zero emissions, as part of the Net Zero Government Initiative.

Other updates

• A recent blog Green lending: do banks walk the talk? by the ECB explores the disconnection between banks’ environmental policies and goals and their lending activities.
• The European Financial Reporting Advisory Group (EFRAG) update confirms that Materiality Assessment Implementation Guidance and Value Chain Implementation Guidance are set to be released for 30 days’ consultation (excluding the holiday period).
• December 2023 International Sustainability Standards Board agenda and meeting papers published.

Speeches

• Speech by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB discusses the ECB’s use of its supervisory powers, including with respect to its climate and environmental risk expectations.
• Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS) speech: Getting Transition Finance Right.
• Verena Ross, European Securities and Markets Association (ESMA) Chair, discusses the organisation’s work on sustainable finance at COP28.
• Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS) and Chair of NGFS, gave a speech discussing the relationship between climate change and the work of central banks and supervisors.