Whilst COP is effectively a meeting of nations and world leaders to discuss our collective climate challenge, the necessity of engaging the private sector at COP only increases, writes Luma Saqqaf, Founder of Dubai-based AJYAL Sustainability Consulting.
On the one hand, private sector engagement at COP28 is important because decisions made by national leaders will affect business. On the other hand, in the face of climate change and the amount of funds needed to deal with it, the fact remains that governments cannot fund the investment needed to solve climate change alone.
Businesses, and the private sector generally, are crucial to reaching common climate goals. Corporates need to both understand their responsibilities and support the funding required to reach climate goals.
With COP28 already underway, there are certain themes emerging which businesses can expect to be at the top of agendas: climate ambitions, climate finance and carbon markets.
This COP28 sees the very first global stocktake since the Paris Agreement. The global stocktake evaluates the progress made by each country towards its Nationally Determined Contributions (NDCs). We can very much anticipate the results that we are unlikely to reach the 1.5°C goal and more measures are needed. The draft version of the Stocktake published ahead of COP28 highlights the role of businesses and financial actors in an “all of economy, all of society” approach, and in addressing adaptation and resilience, as well as focusing on mitigation.
One of the key ambitions of the COP28 presidency is to get new commitments on a number of measures including tripling renewable energy capacity and reaching near zero methane emissions by 2030. The first weekend has seen a key announcement on methane, with 50 oil and gas companies representing 40% of global oil and gas production making the pledge to cut methane emissions and eliminate routine flaring.
These latest net zero and methane pledges will not come as a surprise to corporations, but inevitably create new investments and requirements for strategic shifts in some sectors, creating investment opportunities.
A sector that is largely committed to climate progress holds many of the keys to climate finance: fund and asset managers. Take the Glasgow Financial Alliance for Net Zero (GFANZ) for example. Its members representUS $70 trillion in banking financial assets and US$80 trillion in assets under management.
However, amongst the countries that need climate finance the most are countries whose credit risk for political and/or economic instability means many of these funds are not available to them.
Just finance – the concept intended to unlock some of these issues – was touted heavily as a solution in Sharm El Sheikh COP27. It rests on the need for many players, most notably the multilateral development banks (MDBs) to come into projects to provide some level of de-risking that enables private sector funding of climate projects of developing countries. This may require MDB reforms and subsequently, the COP28 Presidency has placed this topic amongst its agenda priorities.
Indeed, several initiatives have already been announced in COP28 under this banner. One example is the Global Green Bond initiative spearheaded by the EU and a number of development banks. It intends to provide public sector and MDB funding to de-risk projects in emerging markets to enable the private sector to invest.
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Missing our global target is highly likely if no further measures are taken. Carbon markets are seen as one tool that could help accelerate the climate transition by allowing businesses to invest in developing sustainable practices and projects.
This thinking is certainly taking hold in the MENA region. A few markets have already been announced, the most recent of which is the Dubai Financial Market carbon exchange with participation by verified projects from the UAE and internationally. Other regional markets include Abu Dhabi Global Market (ADGM), the Egyptian carbon market and a Saudi carbon exchange expected in the first quarter of 2024.
Article 6.4 of the Paris Agreement provides a structure for a carbon credit market on which greenhouse gas emission reduction or removals may be transferred internationally. Discussions of Article 6.4 and its operationalisation will be important themes at COP28 as well as its potential impact on voluntary carbon markets.
To conclude, there is opportunity at COP28 for corporates to play their part in their nations’ climate ambitions, unlock climate finance to fund vital projects and look to the opportunity of carbon markets to reduce their own emissions.
The message for business is clear – climate action makes sense for business and the planet. Recognising the limitations of governmental funding alone, COP28 emphasises the pivotal role of businesses and the private sector in achieving common climate goals. Businesses that lean in now to understand the discussions and outcomes from COP28 will be best positioned to turn collective climate challenges into opportunities.