This year’s United Nations Climate Change Conference in Dubai was bound to be contentious. Hosted in an oil-rich country just months after what the most recent science suggests was the hottest September in recorded history, COP28 was never going to please all stakeholders.
COP28 president Sultan al-Jaber only fanned the flames with a pre-conference claim that there is “no science” indicating that a phase-out of fossil fuels is needed to restrict global heating to 1.5 degrees Celsius.
The remark sparked significant criticism from climate scientists and environmental advocates, and a day later, U.N. Secretary-General Antonio Guterres used his opening address of the World Climate Action Summit to refute al-Jaber’s comments.
“We cannot save a burning planet with a firehose of fossil fuels. We must accelerate a just, equitable transition to renewables. The science is clear: The 1.5-degree limit is only possible if we ultimately stop burning all fossil fuels. Not reduce. Not abate. Phase out – with a clear timeframe aligned with 1.5 degrees.”
— António Guterres, un SECRETARY GENERAL
This clash in perspectives signals that global leaders still have many hurdles to overcome to meaningfully collaborate on achieving the goals set out by the Paris Agreement at COP21 in 2015.
Despite conflicting visions for what transitioning to a low-carbon economy should look like — including a lack of consensus on “phase down vs. phase out” — there were still some noteworthy outcomes from this year’s conference.
International collaboration to support vulnerable nations
Day 1 of the conference saw a positive development for global co-operation on addressing the physical impacts countries in the Global South are already experiencing due to climate change. The launch of the “loss and damage fund” saw several wealthier industrialized nations (which are responsible for the majority of global emissions) pledge more than US$700 million to help the most vulnerable and poorest countries keep up with the rising costs associated with extreme weather events. Environment Minister Steven Guilbeault announced that Canada will initially commit approximately US$12 million toward the initiative.
These pledges are a step in the right direction — initial talks of developing a loss and damage fund started during last year’s COP, but no significant progress had been made up until now — but the international community still has a long way to go. Climate-related loss and damage in developing countries is already greater than US$400 billion annually, and is expected to grow.
Just Transition guidance for financial institutions
The loss and damage fund resulted from a broader theme at COP28: the need for the steadfast execution of the Just Transition. Defined by The International Labour Organization (ILO) as “greening the economy in a way that is as fair and inclusive as possible to everyone concerned, creating decent work opportunities and leaving no one behind,” the framework has been around since the 1980s and has roots in the trade union movement.
This year, the UN Environmental Programme’s Finance Initiative (UNEP FI) and the ILO released a roadmap for the financial sector to promote the Just Transition. The report, “Just Transition Finance: Pathways for Banking and Insurance,” provides financial institutions with emerging best practices for integrating the Just Transition into their decision-making and business practices to ensure alignment with globally agreed-upon human rights frameworks.
Some of its key recommendations include:
- Mapping and assessing the social risks and opportunities facing financial institutions as a result of the climate transition in order to understand the context-specific nature of how Just Transition principles should be applied.
- Putting people at the heart of institutional strategy and decision-making through social dialogue and stakeholder engagement.
- Engaging in strategic partnerships to catalyze action for a Just Transition through industry initiatives and other stakeholders.
Canada at COP28: moving beyond commitments
Throughout COP28, Canada made three announcements aimed at demonstrating its willingness to move beyond commitments and toward action on reducing emissions in line with limiting global warming to 1.5 degrees.
The first came in the form of strengthened methane regulations for the oil and gas sector that would prohibit venting gas into the environment and subject certain sites to more frequent leak-detection monitoring. The proposed rules introduce an audit system, requiring facilities that produce larger emissions to obtain annual third-party audits to validate their numbers. Given that methane is a short-lived greenhouse gas with 80 times the warming power of carbon dioxide, actions that cut methane emissions offer the fastest path to reducing overall warming. With these strengthened regulations, the federal government hopes to achieve at least 75 per cent methane emissions reductions by 2030.
A few days after the methane announcement, Canada introduced its long-awaited greenhouse gas emissions cap for oil and gas. The framework proposes the establishment in 2030 of a national cap-and-trade system that would limit emissions from the sector to 35 to 38 per cent below 2019 levels. SHARE CEO Kevin Thomas welcomed the cap in an interview with Investment Executive.
“Clarity on emissions reduction pathways will enable more informed investment planning and risk management, and that’s central to every institution’s investment process.”
— Kevin thomas, share ceo
Lastly, Canada announced its intention to introduce a federal nature accountability bill in 2024. The bill would establish an accountability framework for the federal government in fulfilling its nature and biodiversity commitments under the Kunming-Montréal Global Biodiversity Framework (GBF). While historically, conversations around nature and biodiversity have been discussed in isolation from climate change, this announcement at COP28 is an encouraging step in acknowledging the role nature plays in keeping a 1.5-degree future within reach.
Global Stocktake signals a transition away from fossil fuels
Going into COP28, one of the most important agenda items was the development of the Global Stocktake (GST). Broadly speaking, the GST refers to an evaluation of how much progress countries are making towards meeting the goals of the Paris Agreement. In September, the United Nations published technical findings indicating that the world is falling short of reducing emissions in line with a 1.5-degree scenario. At COP28, countries gathered to put together a final response to the GST, outlining a blueprint on what countries need to do to accelerate climate action.
The inclusion of the phrase “transitioning away from fossil fuels” in the final text has left many with mixed feelings; while it’s historic that the term “fossil fuels” made it into a COP text, critics believe “transitioning away” does not go far enough in pushing for a more complete phase out of fossil fuels.
In his closing speech, UN Climate Change Executive Secretary Simon Stiell described the outcome as “the beginning of the end” for the fossil fuel era.
“Now all governments and businesses need to turn these pledges into real-economy outcomes, without delay.”
— simon stiell, un climate change executive secretary
The outcomes of the GST will be critical as it gives clear directions to countries drawing up their next climate action plans, which will be submitted at COP30 in Brazil in 2025.
Takeaways for investors
“What is clear coming out of COP28 is that we all have a critical role to turn pledges into action — and as a strong and clear business voice, investors are uniquely positioned to take the wide view on climate action; to see transition encouraged, leveraged and managed across asset classes and the companies we engage; and to lend our voice to supporting the regulations and legislation that the federal government is putting in place.”
— Amanda Carr, SHARE associate director of climate advocacy
The voice of investors is now more important than ever. Institutional investors are uniquely positioned to address the climate crisis in a meaningful way, through investment policies, active engagement with portfolio companies on emissions reductions and the development of both investor and corporate climate action plans.
For Canadian investors, the regulatory announcements made at COP28 will serve as useful tools to push for increased action on near-term 2030 emissions reduction targets and make sure that both risks and opportunities are landing appropriately across issuers. Now is the moment to expand our voices and influence, to support our asset managers to engage on climate and to lend our investor voice to the stakeholder input on critical climate policies and regulations. We at SHARE look forward to acting together with you and having impact in this turn-around decade for our planet.
This post was written by SHARE staff: Michael Veniez, Research Officer, and Joanne Lau, Engagement Research Specialist.