COP28, the largest COP to date and the hottest year on record, focused on the future of the world's climate.
Eight years on from the Paris Agreement, countries and other stakeholders made the first explicit call for a transition away from fossil fuels at this year’s COP summit. For investors, there are also implications beyond the headlines.
In the final month of the hottest year in recorded history, negotiators and leaders from around the world convened in Dubai for the 28th annual Conference of the Parties (COP28) to discuss the world’s climate agenda. It was the largest COP to date, with 100,000 attendees representing leaders from governments, civil society and the private sector.
Eight years have passed since the landmark Paris Agreement was adopted in 2015. This year’s COP saw the culmination of the world’s first “global stocktake”, through which countries and other stakeholders reflected on the global progress made since 2015 and identified the gaps, with the goal of establishing a clear plan of action to reach net zero carbon emissions by 2050.
Key agreements and commitments
For the first time, following negotiations that came down to the final hour, diplomats from nearly 200 countries approved a global pact that explicitly calls for “transitioning away from fossil fuels”, and doing so in a “just, orderly and equitable manner.”
Beyond this significant deal, which was included in the final text, a number of other commitments were made over the course of the two-week conference, including:
Major methane commitment: On the fourth day of the conference, a cohort of approximately 50 oil and gas producing countries and companies pledged to achieve near-zero methane emissions by 2030. Given methane’s extreme potency (30 times the warming potential of carbon dioxide), the reduction of its emissions has been a key focus. On the backs of this pledge, $1 billion in grant funding was announced from some of the highest emitting countries in the world.
Commitments to expand renewable energy: As part of a coordinated effort to incorporate transition fuels into the energy mix, 22 countries, including the US, Canada, the United Arab Emirates, and Sweden, committed to triple their nuclear capacity by 2050. Signatories also agreed to triple the deployment of renewable energy sources such as wind and solar power and double the rate of energy efficiency improvement by 2030.
Agreement on loss and damage fund: The opening session of COP28 began with the formal establishment of a fund to support developing countries dealing with the effects of climate change. With 10+ countries pledging to contribute, the fund stands at close to $800 million and has a board of 26 members, primarily leaders of developing nations.
Investment themes beyond the headlines
This year’s COP was significant not just for its commitments and negotiations, but also for the sheer volume of climate talks happening at the official COP Expo and all around the city of Dubai. Attendees from the private and public sectors convened at conferences, round tables, and networking events, and while a wide range of topics were discussed, three key themes stood out from an investment standpoint.
Investment in climate adaptation is vitally needed. While attention and investment have poured into efforts to mitigate climate change, focus is increasing on the need to adapt to an already changing climate. The loss and damages fund is one concrete example of the growing recognition of the disproportionate effects of climate change on developing countries and the need to support recovery efforts.
For the first time, a dedicated Health Day was included in the COP agenda, highlighting the interconnected challenges of climate change and human health. These challenges manifest in a number of ways, and drive needs including a climate-resilient water supply and air quality enhancements.
Investment in adaptation strategies can also involve preventative measures to anticipate climate events. For example, one third of the world’s nations do not have access to early warning systems for climate-related disasters, which can typically be eight times more fatal for those with inadequate preparation time.
Blended finance1 will present substantial opportunities for grant makers, private investors, and development finance organizations to invest in climate solutions. In the first four days of COP28, $57 billion of capital was announced from a variety of sources across the climate capital stack. The United Arab Emirates announced a $30 billion climate fund, Alterra, which will invest private capital in emerging markets in the Global South. Meanwhile, the Green Climate Fund (GCF), launched in 2010 via the United Nations Framework Convention on Climate Change, invests in public and private projects in developing nations through grants, debt, and equity instruments, demonstrating the range of climate financing options. At this year’s COP, GCF received six new funding pledges, bringing total pledges to a record $12.8 billion2.
From a capital demand perspective, an estimated $4.3 trillion of investments in clean energy will be required annually up until 2030 (and increasing to $5 trillion annually afterwards). As we noted earlier this year, government involvement and the range of opportunities available make the energy transition an attractive long-term investment for commercial-oriented investors – with investment opportunities ranging from energy suppliers (such as solar PV cell and wind turbine makers) to those decreasing the demand for energy (batteries), and those providing enabling technologies (semiconductors).
The rise in artificial intelligence (AI) will unlock technologies for a variety of climate sub-verticals. According to a BCG study, AI has the potential to contribute a 5-10% mitigation of global greenhouse gas emissions by 2030. Companies that utilized AI for their climate action plans were found to be able to curb their emissions by approximately 13%. At COP28, the UN Climate Change Technology Mechanism initiated a challenge to identify and support the development of AI-powered climate solutions.
One vertical that can benefit from AI is agricultural technologies. Crop management decisions, intelligent irrigation systems, and precision farming are all examples of processes in which AI can be implemented to streamline agriculture practices. Notably, investments in agricultural AI are expected to increase at a 23.1% compound annual growth rate from 2023 to 2028. Another potential use is in waste management. The majority of plastic waste in the U.S. ends up in landfill. Utilizing AI-informed robotics, this waste could be sorted and a greater proportion of high-value recyclable plastic recovered.
Learn more
Global efforts to tackle climate change are creating opportunities for investors across a wide range of sectors and themes. Call your J.P. Morgan team to find out more.
1 Blended finance is the strategic use of development funds, such as those from government aid and philanthropic sources, to mobilize private capital for social and environment results, such as improving infrastructure, education, agriculture, healthcare, and more. Blended finance strategies are designed to encourage members of the private sector, such as companies and investors, to invest in activities and projects that can achieve both financial returns and positive social and environmental outcomes. https://www.usaid.gov/sites/default/files/2022-05/BlendedFinanceStarterKit1.pdf
2 https://www.greenclimate.fund/news/cop28-green-climate-fund-reaches-record-funding-level
