The 29th Conference of the Parties (COP29) will be held from November 11th to 22nd in Baku, Azerbaijan. Agreement on new climate finance targets is a top priority on the agenda, with calls for countries to update their national climate commitments ahead of COP30. Here’s an overview of what this means for investors.
Approximately 50,000 government officials, policymakers, investors and non-state actors arrive in Baku to discuss climate goals, financing and implementation strategies to keep the 1.5°C temperature target within reach. We are planning to talk.
New climate finance targets are expected to dominate the headlines and give COP29 the title of ‘Financial COP’. The new Collective Quantitative Goal (NCQG) for climate finance will provide funding to accelerate climate action in developing countries, replacing the previous target of $100 billion per year by 2020, which developed countries have lagged behind. This is extremely important for mobilization.
The leaders will discuss ways to provide financing to developing countries to help them mitigate and adapt to climate change and transition to low-emission, resilient economies.
Also on the agenda is the new Climate Finance Action Fund (CFAF) announced by the COP29 Presidency in July. It aims to leverage voluntary donations from fossil fuel producing countries and companies to support climate change projects in developing countries. Although innovative, its success will depend on mobilizing significant and sustained contributions for years to come.
including private sector
The NCQG can increase the quality and quantity of public finance provided by developed countries to help developing countries fight climate change. Clarifying the role of the private sector in global climate goals will further mobilize vital private finance.
New joint quantitative targets must recognize the important role of all financial stakeholders.
Strong political signals from COP29, particularly recognizing the role of the private sector in the NCQG, will give investors direction on climate change ambitions beyond 2025 and demonstrate countries’ commitment to addressing fiscal disparities. It will be.
Research shows that developing countries, excluding China, will need to scale up climate finance to US$2.4 trillion per year by 2030, with US$1 trillion needed to invest in clean energy alone. Failure to meet this demand could cost up to $1,266 trillion by 2100 in a 1.5 degree scenario, the Climate Policy Initiative warns.
For the NCQG to work effectively with the private sector and facilitate the inflow of private capital into emerging markets and developing countries, all parties including institutional investors, banks, private investors, and multilateral development banks (MDBs) must It is necessary to recognize the important role of financial entities.
Furthermore, the NCQG should “speak” to the private sector by sending clear policy signals that enable increased private investment in climate action with clear timelines and transparent mechanisms for implementation. be. This could include reviewing financial regulations that can hinder the flow of capital to developing countries, as well as supporting the implementation of climate change policies and sustainable financial frameworks.
In an open letter, our CEO Stephanie Pfeiffer expressed support for an ambitious NCQG on climate finance and detailed her wishes. The letter emphasizes the private sector’s readiness to work with policymakers to unlock the finance needed for a net-zero and climate-resilient world by 2050. The NCQG can help adjust the financial system to achieve this.
Make NDC investable
This COP comes at a critical time for countries to tackle climate change. Countries are expected to update their Nationally Determined Contributions (NDCs) early next year in time for COP30. The United Arab Emirates (UAE), Azerbaijan and Brazil (the ‘Troika’) are expected to announce their NDCs at COP29, pledging to lead the way in planning for 1.5°C.
Modern NDCs offer countries the opportunity to develop more comprehensive and investable plans that attract long-term private investment.
Our report published earlier this year highlighted the potential of NDCs to boost private investment. Countries need to develop climate action plans to define decarbonization and adaptation strategies, but private finance is essential for implementation.
Currently, the quality and details of NDCs vary from country to country and often lack the necessary information on policy implementation to guide investment decisions. Investors are seeking insight into technical and sectoral opportunities and policy prospects to assess countries’ progress towards achieving decarbonization goals.
Modern NDCs offer countries the opportunity to develop more comprehensive and investable plans that attract long-term private investment. Potential to secure additional funding to meet climate change goals by enabling investors to better understand the policy landscape, assess investment risks and opportunities, and accelerate efforts to support implementation. There is.
Insufficient financing for mitigation and adaptation efforts in developing countries will undermine NDC ambitions, delay global climate action, pose long-term systemic risks to global financial stability and threaten investors. There are risks that could affect our earnings.
Discussions on the NCQG and NDCs therefore need to proceed in parallel, and COP29 is the perfect stage to ensure the participation of private finance in these discussions.
Opportunities for investors
The COP provides a unique opportunity for private financial institutions to connect with policymakers, government representatives and other key stakeholders to make their voices heard and outline the challenges they face in their decarbonization portfolios. By working closely together, we can shape the path forward.
With finance at the center of the COP agenda, there is an opportunity to engage the private sector more effectively and help close the climate finance gap. Decisions at COP29 will set the tone for how the public and private sectors will work together to finance sustainable projects, particularly in emerging market and developing countries.
Commitments have been made and implementation is underway. Investors are now hoping that the right policy signals in this defining decade will spur new action.
If you would like to join our working group and be the first to see insights and analysis, why not speak to one of our Investor Relations Managers today to learn more about joining IIGCC?
