COP29: Short term interests "Trump" the long-term necessity

In week one of the summit, dubbed the 'Finance COP', negotiations have been much less productive than last year. While there have been bright spots, it would be foolish not to acknowledge that this year's sentiment for progress is weak.

Lacklustre response from some G7 countries

Firstly, many countries did not send a senior delegate this year, and absences were noted from the leaders of China (Xi), the US (Biden), and India (Modi) who have all attended in previous years. Additionally, with Trump’s impending return to office and having vowed to withdraw from the 2015 Paris accord, it is no surprise that the UN’s climate change agenda and global co-operation could be under threat.

This can already be seen via some of the political friction at the conference where we witnessed Argentina exit early after a phone conversation with Trump only a few days in. We’ve unfortunately also seen France's climate minister refusing to return in the first week after being criticised by the host country, Azerbaijan, for supporting Armenia, a country Azerbaijan has been locked in deadly conflict with for decades. There has also been some slightly alarming rhetoric unwinding last year's commitment to pledge to transition away from fossil fuels with Saudi Arabia suspected of walking back from a commitment made just a year ago.

Geopolitics has influence on COP29

The landscape for geopolitics appears to have revealed itself to be one of great instability, and the impact on transitioning towards a net-zero world remains in the balance. It is worth reiterating that these conferences aim to solve the challenges of global climate issues. Just days before the conference Copernicus Climate Service announced that 2024 was “virtually certain to be the hottest year on record”. Seeing a lack of global collaboration does appear to be a setback to these aims, let alone the big issues of transition finance and investment.

The focus of solving global climate issues has been spotty at best. So far at COP29 there are more than 100 items on the agenda with still no text for around half of them at this stage. With that said, there have been some constructive examples from leading countries and commitments.

Positive takeaways from COP29 so far

Firstly, writing from a London office, it’s been pleasing to see that the United Kingdom showed up ahead of the game, presenting their updated nationally determined contributions (NDCs) three months before the deadline. The UK has pledged an 81% reduction in emissions by 2035 compared to 1990 levels, reaffirming its commitment to international climate finance with £3bn earmarked for nature, including £1.5bn for forest conservation. More details on these pledges will be published in February 2025 as part of the UK’s Seventh Carbon Budget and our previous article on Labour’s UK green finance plans can be found here.

We also witnessed unveiling a set of six new voluntary carbon market principles by the UK government to ensure higher integrity within the market, which has been welcomed as almost two-thirds of UK businesses believe that carbon credits will be required to meet their sustainability goals and nine in ten large UK businesses have already purchased carbon credits. It is expected that a full announcement will be made by the UK later at the conference in Baku. This declaration is also in line with an endorsement of a global carbon market framework, made by attendees at COP29, which aims to establish clearer standards for trading carbon credits.

Brazil, set to be next year’s host, also put their hat in the ring by announcing a new climate goal, aiming for a 59% to 67% reduction in economy-wide green house gas emissions by 2035, compared to 2005 levels.

Other positives include the Chinese Vice Premier Ding Xuexiang giving a more expansive definition of China’s climate finance than he’s previously put forward.

What are the prospects for the green transition?

Despite some green shoots for progress, the non-collaborative political rhetoric surrounding COP29 does present challenges. The US election has further destabilised the near short-term picture for the green transition, with oil and gas majors likely to be provided with an extension of their license to operate, a marked contrast to conversations at COP28 last year.

How long this extension of fossil fuel support could last for is one of the resounding questions that many watching the COP29 will want to be addressed. Whilst the global energy composition continues to move away from fossil fuels, the phrase ‘disorderly transition’ seems very poignant at this stage of COP 29 for onlookers. This means long-term investors need to remember that fossil fuels do not represent a permanent answer for the future.

The opportunity to buy and hold responsible investments is still attractive for those who have long horizons, and the following days are likely to provide more information around the longer-term commitments towards transition finance – we may even discover that countries were initially posturing but broadly remain supportive.

Week one at COP29 certainly has not provided confidence but hopefully a full diplomatic storm can be avoided in the coming days and greater clarity around the global trajectory for tackling climate change, and the impact of that on investments can be illuminated.

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