How COP28 Targets will Impact Boardrooms: Implications for Businesses & Investors

by Hassan Zaheer, Chief Operating Officer – at PTR Inc.

For a long time, I have always been very interested in our progress against climate change, and the role Conference of Parties (COP) plays in bringing global stakeholders together. This year was the first time I was able to attend the conference myself as it happened in Dubai.

COP conferences play a crucial role in advancing global climate action and shaping international agreements to address the challenges of climate change. They have emerged as pivotal platforms for nations worldwide to converge, deliberate, and take decisive action against the existential threat of climate change. With 28 conferences held to date, each iteration has marked significant milestones in shaping international agreements and accelerating the transition to a sustainable future. Let's delve into the key agreements and pledges from some of the most prominent COPs and the transformative outcomes of COP28.

UNFCCC’s Conference of the Parties (COP) Over the Years​
The Kyoto Protocol, arising from COP3 in 1997, established binding emission reduction targets for developed nations, marking a pivotal global initiative against greenhouse gas emissions. It was the first major agreement at the time that set targets for reducing GHG emissions. At COP15 in 2009, the Copenhagen Accord, while informal, emphasized limiting global temperature rise to 2°C above pre-industrial levels. Developed nations committed to supporting developing countries, acknowledging the collective responsibility to address climate change impacts.

However, it was COP21 in 2015 that marked a paradigm shift with the historic Paris Agreement. This groundbreaking accord aimed to limit global warming to well below 2°C, striving for a 1.5°C threshold. Nations submitted nationally determined contributions (NDCs), outlining tailored climate action plans, signifying a collective commitment to a sustainable future. The most recent COP26 in 2021, held in Glasgow, witnessed the culmination of global efforts with the Glasgow Climate Pact. Building upon the Paris Agreement, COP26 reaffirmed commitments to enhance NDCs, increase financial assistance to developing nations, and phase out unabated coal power—a crucial step towards a carbon-neutral future.

COP28: Key Themes & Milestones Achieved​
COP28, held in Dubai, UAE in 2023, marked a watershed moment with its action-oriented agenda, delivering tangible outcomes across various sectors. It marked a significant step forward with specific target and commitments and concluded with progress on energy transition, climate finance, food systems transformation and nature. Some of the key milestones and agreements reached at the conference were:

First Global Stocktake (GST): One notable achievement was the inaugural Global Stocktake, evaluating progress towards the Paris Agreement's long-term goals. Evaluation of Progress was made against the long-term goals of the Paris Agreement (keeping the global temperatures below 1.5°C). Emissions gap, between where emissions are heading under current NDCs and where they should be by 2030 for 1.5°C pathway, was highlighted to be 38-45% of global annual emissions.

Transition Away from Fossil Fuels: For the first time in 30 years, the parties agreed on a statement which talks about a transition away from fossil fuels in energy systems to achieve net zero by 2050 marking a significant movement on this front.

Global Renewable Energy & Energy Efficiency Pledge: Over 124 countries pledged to triple the world's renewable energy capacity and double the energy efficiency by 2030. Renewable energy is the leading energy transition through decarbonized electrification. If power grids allow, this increase would mean a significant reduction in GHG emissions till the end of this decade.

Oil & Gas Decarbonization Charter: UAE and KSA announced the charter with 50 oil and gas companies responsible for 40% of global production, pledging to achieve net-zero emissions from oil and gas production by 2050.

Reducing Methane Emissions: Methane, one of the most potent GHG (80 times more potent than CO2), was also discussed at COP28. 155 countries pledged to cut methane emissions by at least by 30% by 2030, with $1 billion in new grant funding.

Declaration on Sustainable Agriculture, Resilient Food Systems & Climate Action: The nexus between climate action and agriculture was underscored, with 159 countries pledging to integrate food systems into their NDCs by 2025 and revisit the USD 700 billion of agricultural subsidies being spent every year to practices that reduce GHGs.

Operationalization of the Loss and Damage Funds: Another highly significant milestone was the USD 792Million committed by several major countries including UAE, Germany and US, to support vulnerable nations disproportionately affected by climate change. This marked a substantial breakthrough after 30 years of debate and negotiation, but still a drop in the ocean (USD 100 Billion per year commitment in COP15).

Climate Finance as enabler of Climate Action: Over $85 billion in climate change has been pledged by governments for mitigation, adaptation, and loss and damage amongst other things to mobilize fair and equitable climate action.

Youth Inclusion and Climate Justice: Youth inclusion and climate justice took center stage, emphasizing the imperative of intergenerational equity in decision-making processes. Youth organizations emphasized the need for climate justice and meaningful inclusion in decision-making processes. Leading up to COP28, events were organized to incorporate youth policy demands in the conference negotiations.

Global Alignment on Climate and Biodiversity: A commitment was made to align the agendas of climate COPs with those of the Convention on Biological Diversity, recognizing the interconnectedness of climate and biodiversity conservation efforts. This represents a step forward in promoting nature conservation and restoration.

Overall, COP28 will be considered an important COP with several key milestones achieved under UAE’s presidency. However, as we get to the post COP28 time, it is crucial for businesses and investors to understand, what do these announcements mean for their future.

COP28: Key Considerations for Businesses & Investors​
As we move forward, almost a quarter after COP28, it is important to understand that the impact of agreements made at the conference and policy decisions leading from that would vary a lot from industry to industry and from company to company. For example, a large automotive companies will experience a drastic impact from the push towards decarbonization of road transport as the value chains adjust to cater to that. On the other hand, impact on electrical infrastructure manufacturers is in the form of increased investments and equipment demand. Broadly summarizing for all businesses, following four key areas are what I believe the businesses should consider evolving in the face of economic changes due to climate action.

1. Use of Renewable Energy:

It is important for businesses to re-evaluate their energy use by assessing the opportunities and risks of incorporating renewable energy into business operations. The significant investment around the world in renewable energy will impact global energy markets and future energy prices. Boards and executives should track cost implications and assess this impact across their organizations’ value chains.

2. Climate Targets and Implementation:

Businesses must respond to stakeholders' demands for transparency in transition plans and climate commitments. This includes adapting to changes in climate reporting. Additionally, attracting and retaining talent, especially from younger demographics, necessitates a commitment to sustainability practices. Additionally, as governments and corporations prioritize procurement from sustainable companies, businesses would need to align with these policies to secure contracts and maintain market competitiveness. Developing a clear transition plan is crucial for organizations to decarbonize business operations and meet climate targets.

3. Regulatory Implications:

Board directors and c-suite executives should engage with policy makers and keep an eye on the continuously evolving policies to understand how their organizations can contribute to national plans and request regulatory and financial support. Other implications to consider are that governments around the world may implement stricter regulation like carbon pricing to incentivize emission reductions. Companies will need to factor in these regulations into their business models and actively invest in carbon reduction strategies.

4. Climate Finance:

With significant capital allocated to climate finance around the world, the growth of green economy unlocks new opportunities in areas like renewable energy infrastructure, resilient power grids, and climate resilient infrastructure. Investors seeking long-term returns should explore these emerging high growth markets. On the flip side of the coin, companies seeking growth capital should consider the increasing preference of investors for companies with high ESG score. Companies with strong sustainability credentials and clear plans to deal with the transition to a low carbon economy will be more attractive to investors.

 

Conclusion

COP conferences serve as catalysts for global climate action, fostering collaboration, innovation, and accountability. As we navigate the complex challenges of climate change, COPs remain beacons of hope, guiding humanity towards a more sustainable and equitable future.

One of my mentors once said: “There are two sides of this change though. An opportunity side and a cost side.” As the leaders of the business, I believe it is the responsibility of the boards to prepare their business to benefit from the opportunities rather than be impacted by the cost side.