UPDATE 2: SEB’s experts provide updates from COP28

UPDATE 2: 15 December 2023

The 28^th Conference of the Parties has come to an end, leaving us with The UAE Consensus – an agreement that some observers have cautiously labelled “historic”, while others said to be a “compromise”. Below, we take a look at the text of the agreement and its most interesting additions. With the help of SEB experts in the areas of sustainability and sustainable finance, we analyse the text and other outcomes of COP28 and what they might mean for us at the bank, as well as for the rest of the financial industry.

The UAE Consensus

On the morning of 13 December, it was announced that the almost 200 parties of the UN Climate Conference, after a 24-hour overrun past the predetermined deadline, had finalised the negotiations, and come to an agreement. Usually, the COP agreements are met with a more or less unified response from the scientific community, activists, and other observers. However, this year the text was divisive, even among those who closely monitor the development of the conference. Some called the decision “historic”, while other said that it would bury our hopes for reaching the 1.5 degrees, while others pointed out that these two perspectives were not necessarily mutually exclusive.

For example, the director of the Potsdam Institute for Climate Impact Research Johan Rockström, said: “No, COP28 will not enable us to hold the 1.5°C limit, but yes, the result is a pivotal land-mark.” He added that the Consensus, reached at the conference, “makes clear to finance, business and societies that we are now finally - 8 years behind Paris schedule - at the beginning of the end of the fossil-fuel driven world economy.”

As it was heighted previously, one of the main negotiation points during the previous two years, as well as at this year’s conference was the wording around either a “phase down” or a “phase out” of fossil fuels. In the UAE Consensus, the parties resolved this negotiation point by removing this wording altogether and replacing it with a call on all countries to “transition away from fossil fuels in energy systems”, specifying that the transition should be done “in a just, orderly and equitable manner”. Perhaps as a response to the earlier highlighted criticism of the lack of urgency, the text also points out that action needs to be accelerated “in this critical decade” in order to achieve net-zero by 2050.

Interestingly, the agreement also calls on the parties to phase out “inefficient fossil fuel subsidies that do not address energy poverty or just transitions, as soon as possible”, which is a new clause, not included in any of the previous COP agreements.

In addition to the resolution on fossil fuels, and among other points, the Consensus also calls on the countries to:

• Triple renewable energy capacity globally
•  Accelerate zero and low emission technologies
• Substantially reduce non-carbon-dioxide emissions, including in particular methane emissions by 2030
• Accelerate the reduction of carbon emissions from road transport, including through development of infrastructure and rapid deployment of zero and low-emission vehicles

SEB sustainable finance experts share views on the outcomes

SEB Chief Sustainability Officer Hans Beyer, who attended the conference in Dubai, shared his reflections, highlighting one thing as certain – “we will need to invest far more money than we do today into the fight against climate change, as mitigation, but also its consequences, as adaptation.” He pointed out that engagement from businesses and financial markets will be essential if we want to be successful and spoke positively of the engagement from the business sector at the conference.

Talking about the engagement of the frontier markets, Hans Beyer quoted one of the other participants of the conference, who said: “We need to empower the consumers in developing countries with sustainable choices”. He pointed out that this perspective and the focus on the better alternative was essential in ensuring a just and fair transition. “We can’t just focus on what we have to get rid of, we have to focus on what we can offer instead,” said Hans.

In turn, Christopher Flensborg, the Head of Climate and Sustainable Finance at SEB, reflected on the unifying nature of the latest COP, which some observers have criticised for giving too much space to the representatives of the “old economy”, particularly the fossil fuel industry. “The climate discussion has historically been driven by a clear vision supported by science. This drive, while righteous, has at one point become exclusive, which caused a segregation of the economy into two camps – “old” and “new”. This year’s COP changed that by creating an inclusive dialogue and reuniting the world in the goal of reaching the Paris Agreement,” he said. “I am convinced that, despite the compromises it requires, and the unease associated with accepting them, it will enable an acceleration of the transition to a more sustainable future,” added Christopher.

Thomas Thygesen, the Head of Strategy and Equities and a transition specialist at SEB, expressed an opinion similar to Hans Beyer’s. "After watching the COP28, I have a feeling that the whole phase-out discussion was a diversion. Oil will phase itself out if you replace it with something else, so perhaps the focus should be on what you are phasing in instead and why it is better than what we have?" he said. "The discussion we have now makes it sound like giving up oil is a huge sacrifice that politicians force us to do and that's what the oil industry wants us to think. If you want voters to spend what the transition will cost, I think we need to market the coming energy system as something attractive – also for the average person's energy bill," added Thomas.

Anna Douglas, a Senior Sustainability Advisor at SEB, had a different perspective. Reflecting on the process of the latest COP, she said: “I see positive signs, including the first explicit inclusion of fossil fuels. However, COP28 outcomes still lack a clear plan, with a concerning focus on systems transition over transformation. This belief in a gradual transition challenges the depth and breadth of necessary change, risking both critical timelines and societal opportunities in the shift to a low-emission future.” “Understanding the disparity between systems 'transition' and 'transformation' is crucial. Transition is of course a necessary, but preliminary, step. Transformation involves a fundamental shift in mindset, acknowledging the broader impact and opportunities of our choices. Despite these challenges, the growing consensus among countries to phase out fossil fuels and particularly how to reduce demand is promising. Pairing this with policies promoting a mindset shift towards systems transformation could make COP28 a pivotal starting point for global progress in sustainability, benefiting people, climate, and nature,” she added. “But we now need fast and decisive action, not more words!” concluded Anna.

SEB Lead Scientist in Climate & Sustainable Finance Gregor Vulturius pointed out that while it was significant that this year’s agreement has, for the first time, acknowledge the link between fossil fuels and global warming, the precise wording of this acknowledgement was not as important as the urgency and encouragement of speed in the transition. “Irrespective of whether it is a “phase down”, a “phase out”, or a “move away”, the transition itself is inevitable from a technological and, eventually, even a political point of view,” Gregor said. “What matters more, however, is the speed at which the transition away from fossil fuels takes place. If emissions don’t fall steeply already this decade, the impacts of climate change will be felt even earlier, triggering a harsher and less predictable policy response,” he added.

On other topics

While the consensus reached at the COP always takes the center stage, the conference is associated with a number of other topics and developments. In addition to the array of financial pledges that came in the beginning of the conference, and which we have highlighted in the previous updates, I would like to give some attention to the topic of carbon credits, where we didn’t see as much progress, as we had hoped. I asked Gregor Vulturius to comment on this issue.

“In 2023, the voluntary market for carbon offsets has come under serious scrutiny after several projects had been found to make inaccurate statements about the climate impact. Many hopped that COP28 could help establish a high-quality system for carbon offsets that can be traded between countries and corporations. In the end, delegates failed to achieve this objective, pushing a final decision on a UN-overseen carbon market to next year's COP in Azerbaijan,” he said.

However, Gregor also highlighted some considerable progress that has been made on the sidelines of the negotiations in Dubai: “Leading actors in the voluntary carbon market - the Voluntary Carbon Market Integrity Initiative, Science Based Targets Initiative, GHG Protocol and the Integrity Council for the Voluntary Carbon Market agreed to establish an End-to-End guidance on the use of carbon offsets to achieve net-zero emission targets. Furthermore, Sweden and Switzerland signed a declaration of intent to test the rules for international carbon markets in the field of carbon removal technologies.”

Indeed, this is a great example of an area that saw some progress because of the conference, even if it was not necessarily reflected in the official text of the agreement. Additionally, some observers have pointed out that sometimes no deal is better than a bad deal. Therefore, all we can do is wait patiently for next year to see if the parties can come to an agreement on this topic in Azerbaijan.

Another topic I asked Gregor to comment on was blended finance, which was another big talking point at the conference. “In essence, blended finance involves a combination of public, private and philanthropic finance to mobilize additional investments for climate action and sustainable development. At the last year’s COP in Egypt, proposals to overhaul multilateral financial institutions like the IMF and the World Bank had been made with the objective of leveraging additional financial support for emerging economies and least developed countries to reduce emissions and adapt to climate impacts. Negotiators picked up on this discussion and called for on multilateral development banks and other financial institutions to further scale up investments in climate action and calls for a continued increase in the scale, and effectiveness of, and simplified access to, climate finance, including in the form of grants and other highly concessional forms of finance,” he said.

Speaking of the developments at this year’s conference, Gregor said: “Overall, there were some positive signs at COP28, with developed countries having reached their goal of USD 100bn in climate finance to developing countries for the first time. However little progress was made on establishing a new climate finance target coming into force in 2025.”

UPDATE 1: 5 December 2023

It has been eventful first five days at COP28 in Dubai. We have seen many of our original expectations confirmed, with some of them exceeded, both in positive and in negative ways.

Financing pours in

The first stretch of the conference has seen a great number of financial commitments. In fact, in the first four days of COP28, the conference parties mobilized over USD 57bn in commitments to the climate agenda.[1] Let’s take a closer look at some of them.

On Friday the UAE announced a launch of a USD 30bn fund – ALTÉRRA – for climate solutions in emerging and developing markets, “with an emphasis on unlocking private finance across the Global South.”[2] Large global asset managers BlackRock, Brookfield and TPG, joined as inaugural partners on the fund and aim to help mobilize capital from other institutional investors.[3] According to the official statement, ALTÉRRA is “the world’s largest private investment vehicle for climate change action and will aim to mobilize US$250 billion globally by 2030.” The statement highlights that the fund will focus on four priorities: Energy Transition, Industrial Decarbonization, Sustainable Living and Climate Technologies.

On the same day, the president of the World Bank Ajay Banga announced that by 2025 the development lender will put 45% of its annual financing into climate-related projects.[4] "We're putting our ambition in overdrive and putting to work more than $40 billion per year – around $9 billion more than the original target," Banga was quoted as saying by Reuters. She added that the financing will be split evenly between projects focusing on climate adaptation and mitigation.

A “breakthrough” development was also made in funding for loss and damage: a fund with a purpose to help vulnerable countries adapt to the negative impacts of climate change secured USD 277.5mn from various governments.[5] According to Environmental Finance, the host of the climate conference, UAE pledged USD 100mn to the fund, with Germany matching the contribution and the UK pledging USD 50mn. The EF article highlighted that “the fund is seen as a way for economies that have historically generated the most emissions and financially benefitted from centuries of emissions-intensive industries to compensate countries which now face the worst effects of climate change” and that it was also open to private capital investments.

On Sunday it was announced that the Green Climate Fund – the largest international climate fund mandated to support developing countries in reaching their Nationally Determined Contributions (NDC’s) – reached a record funding level after receiving a boost of USD 3.5bn[6]. A pledge of USD 3bn came from the United States,[7] with Estonia, Italy, Portugal and Switzerland also making contributions.

The fossil debate continues

Fossil fuels always take center stage at the climate conference. This year is no exception. Earlier this week, the Global Carbon Project published a report, stating that global carbon emissions from fossil fuels have risen again in 2023, reaching record levels. According to the organization’s findings, “fossil CO2 emissions are falling in some regions, including Europe and the USA, but rising overall”, with an 8.2% increase in India and 4% in China. At the same time, activists present at the summit in Dubai, pointed out that just five countries - US, Canada, Australia, Norway and the UK are “on track to be responsible” for over half of new oil and gas production by 2050[8]. Activists called on the delegates to “immediately stop new fossil fuel expansion and build a fast, full, fair, and funded phase out of all fossil fuels."

The debate around the wording of the summit commitments for either a “phase down” or a “phase out” of fossil fuels continues and its outcome is among the most anticipated at this year’s conference. On Sunday this topic sparked a new controversy when British media highlighted the comments of the COP28 president Sultan Al Jaber, who said that there was no science to back up the claims that a “phase out” of fossil fuels was necessary to reach the 1.5C goal of the Paris Agreement. His statement evoked a wave of criticism from public figures across the world, many of whom pointed out that Al Jaber’s role as a chief executive of the UAE’s state oil company Adnoc might create a conflict of interest. Since then, Al Jaber reiterated his commitment to reaching 1.5C, saying that a phase out of fossil fuels was “inevitable” and “essential”, but countries need to be “real, serious and pragmatic” about it.[9]

I asked the SEB Lead Scientist in Climate & Sustainable Finance Gregor Vulturius to comment on this controversy. “As with all science, there is some uncertainty about the exact amount and share of fossil fuels the world needs even if we manage to limit global warming to 1.5 to 2 degrees. But all climate models agree that fossil fuel production and consumption will have to shrink massively in relative and absolute terms if we want to avoid the worst impacts of climate change,” he said. “Oil and gas demand will have to decline by more than 5% every year until 2050, while coal demand will have to half by 2030,” he added, citing the International Energy Agency.

Earlier this week, the European Commission announced that, in line with our expectations, the “Global Renewables and Energy Efficiency Pledge” led by the EU and UAE to triple global renewable energy capacity became one of the most widely supported at the climate summit. In fact, 121 countries committed to global targets to “triple the global installed capacity of renewable energy efficiency improvements by 2030 compared to the previous decade”. The Commission also stated that delivering on these targets will “help phase out unabated fossil fuels”.

At the same time, the media highlighted that this year’s summit beat last year’s record for the number of fossil industry lobbyists at the conference. According to an analysis done by the “Kick Big Polluters Out” coalition, over 2450 fossil fuel lobbyists were given access to the conference[10]. This news was, unsurprisingly, met with a wave of criticism, especially from activists and NGO’s.

Climate and health

While many of the themes at COP28 are continuations of discussions from previous years, there is still room for some firsts. For example, on Saturday the COP28 UAE presidency, together with the World Health Organization, announced the “Declaration on Climate and Health” with the aim “to place health at the heart of climate action and accelerate the development of climate-resilient, sustainable and equitable health systems”. Over 120 countries endorsed the declaration, which was backed up by a set of new financial commitments, including USD 300mn by the Global Fund, USD 100mn by the Rockefeller Foundation and GBP 54mn by the UK government.[11]

Gender equality in the transition

On Monday the COP28 presidency unveiled the Gender-Responsive Just Transitions & Climate Action Partnership. The partnership was endorsed by over 60 countries that committed to support women’s economic empowerment and ensure that the climate transition is done in a way that does not have a disproportionally negative impact on women. As highlighted in the statement, “according to the International Labor Organization (ILO), 1.2 billion jobs, representing 40 percent of the global labor force, are at risk due to global warming and environmental degradation.[12] Women are expected to be most severely affected due to their high representation in sectors particularly susceptible to climate change.”

ORIGINAL TEXT PUBLISHED 29 NOVEMBER 2023

This year’s context

This year, countries across the world experienced record-breaking temperatures and unprecedented impact of climate change, materialising in wildfires, droughts, floods, and storms. At the same time, the past year saw some positive developments in global climate action, such as the first ever climate legislation enacted in the United States, as well as positive political developments in Australia and Brazil. Moreover, earlier this month, the US and China came to a new climate agreement, promising to triple renewable energy capacity by 2030 and address methane and plastic pollution.

Despite the number of positive developments, scientists and activists across the world continue to sound the alarm and try to bring attention of the public to the fact that we continue on the path to a rise in temperatures far above the Paris Agreement target of 1.5°C. In fact, according to the United Nations Environment Programme (UNEP), even if all countries deliver on their outlined climate targets, the world will still be on a path to a warming of up to 3°C [1]. It is difficult to predict all possible effects that such a temperature rise will have on human society. However, we do know that the effects will, in many ways, be devastating[2].

On a more positive note, there is a high likelihood that with electric vehicles, solar, and wind power becoming more widespread, global CO2 emissions will peak already before 2025, with the more optimistic analysis predicting that emission numbers will begin to drop already in 2024[3]. Scientists warn, however, that just because we will be emitting less, doesn’t mean that there will be less greenhouse gases in the atmosphere. “Even if you pour less and less water into a bath, the bath still gets fuller each time”, writes Joe Lo at Climate Change News. Therefore, the nearing emissions peak doesn’t necessarily promise a reduction in the likelihood of the effects of climate change. Not one that would be as quick as we need it to be anyway.

The Global Stocktake

One of the most important aspects of this year’s conference will be the conclusion of the so-called Global Stocktake (GST). The GST is the official mechanism for countries to measure and report their collective progress towards the goals of the Paris Agreement. The current stocktake began at COP26 in 2021 and will conclude this year, at COP28. This process will help the conference participants to identify the gaps that exist in the global climate action plans today and, hopefully, help them set more ambitious and thorough targets in the next round of climate action plans, due in 2025.

The role of fossil fuels

Last week, the European Parliament called for a global deal at COP28 to “phase out fossil fuels as soon as possible, to keep 1.5°C within reach, including by halting all new investments in fossil fuel extraction”. In fact, the wording around a “phase out” or a “phase down” of fossil fuels has been one of the central topics of COP negotiations for the past two years. At COP26 in Glasgow, countries agreed to “phase down unabated coal power”, following demands from China and India to change the wording of the Glasgow Climate Pact from a “phase out” to a “phase down”. At COP27 in Sharm El-Sheikh, a coalition of 80 countries pushed for the wording of the agreement to be amended to include all fossil fuels, not only coal. Their effort didn’t prove to be successful.

Undoubtedly, discussions around the countries’ commitments to a phase down or a phase out of fossil fuels will continue in Dubai, especially considering that the GST synthesis report highlights the need to “phase out unabated fossil fuels”. However, activists and the media have already raised their doubts about how much we can expect from the UAE presidency at the conference on this topic, with the BBC reporting that “UAE planned to use climate talks to make oil deals”.

In the previous years, the conference has been criticised heavily for the high number of fossil fuel lobbyists among attendees. It was reported that a record number of over 600 fossil fuel lobbyists attended COP27[4], and it is expected that the record will be broken again this year[5].

What else to expect

There are several themes that are expected to receive special attention at COP28. These include, among others, climate adaptation, loss and damage, clean energy, and food systems.

Climate adaptation is about making societies more resilient to the inevitable impacts of climate change, while loss and damage is about addressing the losses that will be induced by the changing climate. At COP27 last year, countries agreed to set up a loss and damage fund to assist poorer nations in dealing with the negative consequences of climate change. At COP28, countries will be expected to agree on how much money will have to go into this fund. Last year it was estimated that to be successful, climate action in developing countries would require $1 trillion a year of external investments[6].

Another anticipated outcome of COP28 is that the countries will adopt a climate adaptation framework, where they will give a clearer definition to the Paris Agreement’s global goal on adaptation. Observers are hoping that such a framework will increase the global adaptation capacity and enable countries to effectively measure the progress on this topic. Moreover, it will give a clearer direction to adaptation finance, which is currently lacking significantly, compared to what the expected needs will be in the future[7].

As mentioned earlier, United States and China have agreed to triple renewable energy capacity by 2030. In fact, the European Union, together with the United States and the UAE’s COP28 presidency, have made a proposal for all countries to set a similar goal, in addition to setting a target to double energy savings in the same time frame. It is expected that this proposal will have a widespread support at the summit, with the G20 countries already backing the idea[8].

One topic that will be relatively new in the main spotlight of the COP this year is food systems, with a focus on agriculture. The agricultural sector, especially animal agriculture, is one of the highest emitting sectors of the global economy[9]. Earlier this year, the COP28 presidency launched the Food Systems and Agriculture agenda, calling on countries to align national food systems and agricultural policies with national climate strategies by 2025[10]. It will be interesting to see if this effort will materialise in more concrete steps during the conference in Dubai, and if we will see a widely supported commitment to fixing food systems on the global climate agenda.

Why is the conference important to SEB

As stated in our purpose, SEB has a strong ambition to accelerate the pace towards a sustainable future for people, businesses, and society. To do so, we need to continue being at the forefront of the global sustainability agenda. Events such as the UN Climate Conference shape the development of this agenda and determine the way capital will flow into climate action. Being in tune with this development will allow us to continue providing our clients with the best responsible advice and capital and shaping the future for generations to come.

SEB Chief Sustainability Officer Hans Beyer will travel to Dubai to attend the conference and represent SEB on the ground. “I’m going because it’s such a central function of the agenda setting for the world’s progress within the area of climate”, said Hans Beyer. “This time, my visit will be of exploratory nature. However, as many of our core customers regularly attend the conference and note its importance, it is worth assessing if we should participate more actively in the future,” he added.

Lina Norder, one of the SEB representatives in the EU platform on sustainable finance, highlighted the role that COP might play in levelling the global regulatory playing field. “On climate policy, the EU has moved quick and early, which directly impacts us and our clients. It will be interesting to see if the regulatory environment in the rest of the world will begin to move in the same direction after the conference,” she said. 

Gregor Vulturius, Lead Scientist in Climate & Sustainable Finance at SEB, also pointed out the investment and business opportunities related to the global event. “The summit will help corporations and the financial industry understand future policy priorities, investment needs and business opportunities,” he said.