Jan 23, 2023 ESG

More work ahead for COP28

Recap of the World Climate Summit 2022

Michael Lewis

Michael Lewis

Head of Research, ESG

World Climate Summit 2022: More work ahead for COP28

Undeniably, last year's COP27 (Conference of the Parties) world climate conference in Sharm El-Sheikh, Egypt in November 2022 fell short of many expectations. As with its predecessor, COP26 in Glasgow, Scotland, negotiations around the goal of reducing greenhouse gas emissions and meeting the Paris climate agreement's 1.5-degree target proved difficult. Hopes that COP27 participants would make clearly specified voluntary commitments to phase out the use of coal, oil, gas and other fossil fuels were also not fulfilled.

In the end, the conference was dominated by an international fund to repair climate damage, which developing countries in particular have been calling for some time. This loss and damage fund aims to compensate poorer countries in particular for the costs incurred as a result of climate change, such as rising sea levels or irreversibly destroyed ecosystems.

Meanwhile, COP27 also showed that financing to mitigate the impacts of climate change can only be improved if reforms are made to streamline COP negotiations as well as the mandates of public financial institutions such as the World Bank.

Results in detail:

Financial assistance for developing countries most affected.
The establishment of a "Loss and Damage Fund" in the final declaration, which is intended to compensate individual countries for climate damage, is a success for the developing countries. They have repeatedly argued that they are often among the least responsible for climate change, but usually have to bear the most serious consequences. The fund is a crucial step in addressing the growing risks associated with extreme weather events - most recently visible, for example, in the extreme flooding in Pakistan[1]. However, it has not yet been clarified according to which criteria the fund will compensate and, more importantly, how much the donor countries will pay in. Although a start has been made with pledges from Canada, New Zealand and the EU[2], in the course of 2023, more certainty on the operational nature of the fund and capital commitments will hopefully become more transparent allowing the focus of the discussions at the next climate summit - COP28 in Dubai in the United Arab Emirates - can once again re-focus on the main issues, such as setting more ambitious targets for reducing greenhouse gases.

In addition, climate finance provided and mobilized by developed countries to developing countries is still too low. For example, the target to reach US$100 billion of annual climate financing by 2020 may only likely be reached in 2023, or three years behind schedule. And as things stand today, the climate financing shortfall amounts to approximately $17 billion. COP28 in Dubai will therefore provide a progress report on whether such financing requirements have been fulfilled.

Removal of investment barriers for private investors
Another key theme of the COP27 negotiations was improving incentives for private sector investment to mitigate climate change. Proposals to reform the World Bank and International Monetary Fund (IMF), as well as steps to release multilateral development bank funds more quickly and fruitfully are welcome since Initiatives such as the public sector first-loss provisions can help crowd-in private sector capital. At COP27, for example, it was proposed that supranational financial institutions such as the World Bank make climate change a fixed criterion of their lending strategy and be able to hedge exchange rate and individual project risks, for example. So far, these issues have discouraged private investors from investing in measures to mitigate climate change. COP28 will be another opportunity to revisit this debate[3].

Reducing scope 3 emissions via supply chains
International companies are increasingly recognizing that their supply chains can account for up to 80 percent of their climate impacts. US multinationals, in particular, are therefore taking steps to reduce their indirect CO2 emissions that occur throughout their value chain - so-called Scope 3 emissions. Solutions to address this problem, but also the reporting of emissions, are therefore increasingly becoming the focus of investors in order to provide companies with targeted support. The International Sustainability Standards Board (ISSB), which was established at COP26, recently launched an initiative to make the measurement, assessment and reporting of companies' climate emissions more transparent and comparable, and COP28 is expected to see further progress in this regard[4].

Food security
Greater efforts are also needed to reduce food insecurity. After all, climate, water use and agriculture are inter-related. So far, this topic has not been a central point of discussion at past UN climate summits. Yet agriculture is responsible for at least 24 percent of all greenhouse gases[5] and is also extremely vulnerable to the effects of climate change, either through floods or droughts[6]. In this respect, the report by leading international food producers and agribusinesses, under the auspices of the 'Sustainable Markets Initiative Agribusiness Task Force' just before the start of COP27 was a welcome step in the right direction. The report highlights the scaling opportunities that regenerative agriculture methods have to offer. And the multiple benefits this will confer for example in our land storing more carbon and water in the soil[7].

Outlook for COP28:
The next global climate summit in Dubai can have the potential to create a new level of awareness to address climate challenges. The United Arab Emirates as host country could provide important impetus for this. The UAE is committed to climate-friendly agriculture, aims to become a leading exporter of hydrogen, and is a pioneer in helping developing countries switch to renewable energy. Ultimately, however, success in climate protection will be measured by the participants' actual commitments to reduce emissions - and for this, all COP28 participants will have to set a clear course.

Important Information
All opinions and claims are based upon data on 11/01/23 and may not come to pass. This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Forecasts are not a reliable indicator of future performance. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect.

DWS International GmbH, CRC 094019

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