After two weeks of discussions, COP29 ended in the early hours of Sunday, with moderate success.
Over the two weeks, delegates and negotiators came to the table to agree on key issues such as climate adaptation and carbon credit trading, and a climate finance deal was reached at the last hour.
Ariana Griffa, senior policy manager at the Institutional Investors Group on Climate Change (IIGCC), was on the ground in Baku, Azerbaijan, for the United Nations summit.
“We always knew that it was going to be a very difficult COP because of the backdrop of the geopolitical tensions and concerns around the COP presidency being in another petrostate,” she said.
After a fortnight of intense negotiations, delegates at the ‘Finance COP’ agreed to triple the annual amount of climate action financing for developing countries, resulting in the $100bn previously agreed in 2022 at COP26 being raised to $300bn.
The agreement on what is formally known as the New Collective Quantified Goal on Climate Finance (NCGQ) also called on all actors to work together to scale up finance to developing countries, from public and private sources, to $1.3trn per year by 2035.
Griffa said it was disappointing to see that investors were generically included in the text of the final NCGQ agreement and mentioned only once.
“The discussion on MDBs working together with private capital is still in development”
Jon Johnson, PKA CEO
The text of the NCGQ decision notes that while there is enough money around to meet global climate action financing needs, there are barriers to unlocking this “and that governments, through public funding and clear signals to investors, are key in reducing these barriers”.
Griffa and the IIGCC had hoped that the NCGQ would move beyond purely financial targets, with a greater focus being given to the role policy can play.
“Unfortunately, the final text fails to recognise the importance of the policy environment,” said Griffa. “Particularly the specificity of how policy can help create the enabling environment and calling on parties to take action on that.”
While described as “an insurance policy for humanity” by Simon Stiell, executive secretary of UN Climate Change, the agreed figure fell short of what economists who advise the UN on climate finance say is needed, however.
Prior to COP29, the Independent High Level Expert Group (IHLEG) on Climate Finance said it believes $2.3-2.5trn of finance is needed per year for emerging markets and developing countries (ex-China) by 2030 from public and private sources, rising to around $3.5trn by 2035.
Public-private tie-ups
Jon Johnson, chief executive officer of PKA, the Danish occupational pension fund for the social and healthcare sectors, was also on the ground for COP29, and he expressed optimism about the potential for public-private partnerships to scale up investments in developing countries.
“It’s important to note the importance of global participation at COP29,” he said. “Despite current geopolitical tensions, it was incredible to see the presence of all major countries including Russia, China, the US, and developing countries from Africa, Asia, and South America coming together.
“The discussion on multilateral development banks (MDBs) working together with private capital is still a discussion that’s in development,” he said.
Looking to COP30 in Belém, Brazil, Johnson said he felt there was momentum building to see more partnerships between the private and public sectors to drive investments towards developing countries.
Pension funds and NDCs
Responsible investors and pension funds are increasingly aware of the need for stronger policy advocacy to meet the goal of keeping the increase in the global average temperature to 1.5°C by the end of the century.
Looking ahead to February 2025, almost 200 governments will have to tighten their national climate action plans, with new targets for 2035 and stronger ones for 2030.
The Church Commissioners’ Olga Hancock, who attended the summit on behalf of the Net Zero Asset Owner Alliance (NZAOA), stressed the importance to investors for countries to agree to highly ambitious NDCs.
For Hancock, the main aim of NZAOA at this year’s COP was to bridge the gap between the finance sector and the negotiations, something she added has been so far lacking in COP talks.
The NZAOA has in the past put out statements calling for MDB reform and supporting blended finance structures, to mobilise capital from the private sector to emerging markets.
“By scaling blended finance structures that leverage public capital, together with the private sector, we can accelerate the net zero transition and counter energy security and geopolitical risk,” said Hancock.
Ahead of the summit, the IHLEG called for a major transformation to mobilise private finance towards emerging markets and developing countries to meet climate goals.
Manfred Schepers, CEO of ILX, an emerging market private credit manager, said he felt the “penny dropped” at COP on how crucial MDBs will be in mobilising capital to developing countries.
“This issue of de-risking the emerging market sector is an important issue for retail investors and insurance companies,” he said, adding that pension funds are able to invest in sub-investment grade emerging market risk.
“We’re not saying that they should allocate significant allocations of their $10trn+ AUM to this development finance asset class, but if they could allocate 1%, that would make an enormous difference to overall climate finance in emerging markets,” he said.
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