What to look out for at COP28
Context and urgency for COP28
The upcoming COP28, set to take place in Dubai in November 2023, marks a significant moment in climate change negotiations [1]. Recent catastrophic weather events have heightened the need for decisive action. Floods in Libya [2], wildfires in Canada [3], and unprecedented heatwaves globally [4]highlight the increasing urgency to address climate change. The Dubai conference is unique, including the first “Global Stocktake” since the Paris Agreement. This presents an opportunity for nations to critically evaluate and enhance their efforts in combating climate change.
Key areas of focus at COP28
Transformational response to the Global Stocktake: The Global Stocktake is a mechanism established under the Paris Agreement to assess collective progress towards its long-term goals every five years [5]. This assessment involves a comprehensive evaluation of countries' actions in terms of mitigation, adaptation, and financial commitments to address climate change. The stocktake process has transitioned from a technical to a political phase [6], culminating at COP28. Here, countries will need to acknowledge gaps in their current efforts and agree on substantial next steps. This includes focusing on sectors such as energy, transport, and land use, ensuring all financial flows align with the Paris Agreement goals.
Accelerate systems transformation: Addressing the climate crisis requires a complete overhaul of global systems and sectors. This includes changes in how the world produces and consumes food and energy and how cities are designed. A crucial aspect of this transformation is the shift away from fossil fuels. The discussions at COP28 will centre on strategies to phase out fossil fuels and enhance alternative energy sources like wind and solar. The role of carbon capture technology will also be debated, focusing on its limited and strategic use. The International Energy Agency has highlighted the need for rapid and significant reductions in energy-related emissions [7], emphasising the importance of renewable energy deployment and fossil fuel alternatives.
Respond to increasingly severe climate-related impacts: The escalating cost and frequency of climate-related disasters have made it imperative for COP28 to focus on adaptation and support for those who suffer loss and damage [8]. A crucial aspect will be the operationalisation of the Loss and Damage Fund, established at COP27 [9]. This fund is intended to help nations that are disproportionately affected by climate change but have contributed the least to the problem. Key decisions at COP28 will include determining the contributors and recipients of the fund and establishing its governance structure.
Delivering climate finance: Significant financial resources are required to achieve global climate goals. COP28 will focus on addressing the shortfall in climate finance, aiming to reach $4.3 trillion in annual climate-related finance flows by 2030. This includes meeting existing finance commitments and establishing a new global climate finance goal for the post-2025 period. The discussions will also involve how private sector investment can be harnessed for climate adaptation.
As the host of COP28, the UAE is focused on making significant progress in climate finance [10]. Key aspects include:
Scaling up climate financing for low-carbon and climate-resilient infrastructure, especially in developing countries;
Addressing the shortfall in the promised $100 billion annual climate finance commitment to developing nations;
Fully operationalising the Loss and Damage Fund to support climate-vulnerable nations;
Potential reform of Multilateral Development Banks to mobilise climate finance more effectively; and
Addressing the role of the voluntary carbon market in generating revenues for developing nations, with a focus on forestry resources and integrity challenges.
Implications for ESG Disclosure
Directors and corporations need to be attentive to COP28 outcomes due to their substantial impact on ESG disclosure:
The decisions made at COP28 will guide decision-making processes, offering certainty on government policies supporting a net zero future. These outcomes will provide essential signals to industrial markets, influencing strategic investment and decarbonisation pathways, and may lead to new national and regional regulations impacting corporate governance.
An increase in global climate ambition is necessary to close the emissions gap, with a focus on decarbonising the global energy system. Ongoing discussions at COP28, particularly about the phase-out of fossil fuels and scaling up renewable energy, will be key. Board directors should assess how these changes will impact their organisations' net zero pathways and consider playing a more active role in initiatives like the Fossil to Clean campaign [11].
Discussions at COP28 will centre on unlocking climate mitigation and adaptation finance, emphasising the need for just and equitable transition. This includes consolidating the 'Loss and Damage Fund' from COP27. Board directors should evaluate how their organisations can contribute to blended financing solutions in emerging economies [12] and understand the impact of the Loss and Damage Fund on communities where they operate and the associated climate risks and opportunities [9].
COP28 will also address the decarbonisation of supply chains, a crucial area for large corporations. Board directors need to be aware of their organisation's Scope 3 emissions—emissions from the value chain, both upstream and downstream. They should be prepared to act upon COP28 decisions related to supply chain sustainability, aligning their strategies with the progress made in this area.
The need for robust and transparent ESG disclosure has never been more pressing. As the world grapples with the challenges of climate change, corporations are increasingly under scrutiny to demonstrate their commitment to sustainable practices. Solid ESG disclosure goes beyond mere compliance; it is about providing stakeholders with a clear, comprehensive understanding of how an organisation is managing its environmental, social, and governance risks and opportunities. This level of transparency is crucial for maintaining investor confidence and public trust, especially in a landscape where greenwashing allegations can significantly harm a company's reputation.
COP28's outcomes will likely necessitate a re-evaluation of roles and responsibilities within organisations, particularly in terms of governance. Board directors will need to ensure that their organisations not only comply with new regulations and standards but also genuinely integrate sustainability into their core business strategies. This may involve revisiting risk management frameworks, investment policies, and long-term strategic planning to align with the heightened global focus on sustainability. A clear understanding of roles and responsibilities is essential for the effective implementation of these strategies, ensuring that all levels of the organisation are working towards common sustainability goals.
For more information, contact Alex Stathakis at astathakis@rennieadvisory.com.au.
References
[1] United Nations Framework Convention on Climate Change, “COP28 UAE,” 2023.
[2] ABC News, “Libya floods wipe out quarter of the city of Derna, officials estimate a death toll more than 5,000,” 13 September 2023.
[3] NASA Earth Observatory, “Tracking Canada’s Extreme 2023 Fire Season,” 21 October 2023.
[4] D. Carrington, “'Gobsmackingly bananas': scientists stunned by planet's record September heat,” The Guardian, 5 October 2023.
[5] United Nations Framework Convention on Climate Change, “Implementation must accelerate to increase ambition across all fronts, taking an all-of-society approach to make progress towards the Paris Agreement goals and respond to the climate crisis, finds technical report on first global stocktake,” 8 September 2023.
[6] United Nations Framework Convention on Climate Change Secretariat, “Technical dialogue of the first global stocktake: Synthesis report by the co-facilitators on the technical dialogue,” 2023.
[7] International Energy Agency, “Net Zero Roadmap: A Global Pathway to Keep the 1.5C Goal in Reach, 2023 Update,” 2023.
[8] R. Newman and I. Noy, “The global costs of extreme weather that are attributable to climate change,” Nature Communications, vol. 14, no. 6103, 2023.
[9] United Nations Framework Convention on Climate Change, “Transitional Committee on Loss and Damage Makes Progress at third Meeting,” 8 September 2023.
[10] G. Jain and J. Elkind, “Climate Finance to Be Front and Center at COP28,” Center on Global Energy Policy at Columbia | SIPA, 14 November 2023.
[11] We Mean Business Coalition, “Fossil to Clean,” 2023.
[12] International Energy Agency, “Scaling Up Private Finance for Clean Energy in Emerging and Developing Economies,” 2023.
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