The path for sustainable investment post-COP28

The completion of COP28 has presented a mixed bag of outcomes. While the conference’s results pose significant challenges to the Paris Agreement’s ambitious goals, they also open the door to a range of positive and innovative climate actions. For asset managers, understanding these dynamics is crucial in navigating the evolving landscape of sustainable investment.

Photo by COP28 / Andrea DiCenzo

The pledge: A step forward with room for more

COP28’s pledge to move away from fossil fuels, while lacking in specific targets and timelines, marks a positive ideological shift. However, to truly honour the 1.5°C goal of the Paris Agreement, definitive action is needed. Asset managers must focus on investments that directly support global temperature goals amidst this uncertainty.

The conference acknowledged the importance of financial support for developing nations but fell short of concrete commitments from developed countries. Asset managers can fill this gap by advocating for and investing in projects that support financial transition in these regions.

COP28 missed crucial opportunities to mandate equitable climate action and set clear methane emissions targets. Asset managers also have a role to play here, emphasising equitable investments and engaging on methane reduction strategies.

Adaptation and transitional fuels

The vital framework for adapting to climate change effects remains pending post-COP28, highlighting the need for proactive investment in adaptive technologies and infrastructure. Asset managers should prioritise resilience in their portfolios, preparing for the unavoidable realities of a changing climate.

The contentious inclusion of “transitional fuels” like natural gas in the agreement raises questions about the commitment to reducing greenhouse gas emissions. This clause suggests a potential compromise of climate goals post-2050, urging vigilance to ensure that  investments align with genuine emissions reduction.

The future for the fossil fuel industry

Despite the slow pace of consensus-based work at COPs, numerous other avenues for climate action are emerging. International regulations, such as the EU’s carbon border tax, are starting to penalise dirty production, while methane limits block imports of gas produced with excessive methane leaks. Climate clubs are another innovation, where nations collaborate to accelerate green actions and penalise polluters.

The establishment of a new task force at COP28 to discuss taxation on fossil fuels and international aviation and shipping is a significant step. Reducing the staggering $7tn a year in fossil fuel subsidies could cut global emissions by 34% by 2030. This shift is already underway in countries like Nigeria and Canada, signalling a realignment of global fiscal policies towards sustainability.

“To those who opposed a clear reference to a phase-out of fossil fuels in the Cop28 text, I want to say that a fossil fuel phase out is inevitable whether they like it or not. Let’s hope it doesn’t come too late.”

António Guterres

Developed countries must do more

While COP28 presents both challenges and opportunities, it’s clear that the end of the fossil fuel era will require efforts beyond the scope of its suppliers. Asset managers are in a pivotal position to drive change. By integrating the lessons of COP28 and leveraging the emerging tools and movements in climate action, they can help steer the world towards a more sustainable, equitable, and prosperous future. The road ahead is complex, but with collaborative effort and innovative thinking, significant progress is within reach.

Lead image: Dr. Sultan Al Jaber, COP28 President onstage during the Closing Plenary at the UN Climate Change Conference COP28. Photo by COP28 / Christopher Pike.