COP29: Show Me the Money!

Islands of agreement cannot disguise a rising sea of disappointment, piling pressure on COP30 to restore a spirit of multilateralism.

Today’s CIO Weekly Perspectives comes from guest contributor Sarah Peasey.

Set against a backdrop of geopolitical instability and political disruption, expectations were low going into the 29^th UN Climate Change Conference of the Parties to the Paris Agreement (COP29).

It represented an opportunity for countries to enhance their Nationally Determined Contributions (NDCs) before the next commitment round in February 2025; it was anticipated that the COP28 “transitioning away” language would be maintained; efforts to increase energy storage capacity and grid infrastructure were expected to gain support; and agreement on the details of the Article 6 carbon market was on the agenda. But success was always likely to be judged on the outcome of negotiations for the New Collective Quantified Goal (NCQG)—the key question of how much help developed countries would give the developing world on climate finance.

In the event, leaders from major economies failed even to turn up, the post-election U.S. delegation was watered down, the host country’s president seemed intent on defending fossil fuels and picking fights with other countries, and developing countries were left demanding “Show me the money!”

In our view, current negotiation strategies to secure funding for the developing world are ineffective and this casts doubt over the entire COP process. The failure of COP29 challenges the global community to rethink and reformulate its approach to climate action.

Finance Tensions, but a Carbon Markets Breakthrough

The NCQG left much unresolved, including the amount of contribution, timeframe, contributor base and the structure of the goal. The commitment by developed nations, led by the European Union (EU), Australia, the U.S., the U.K., Japan, Norway, Canada, New Zealand and Switzerland, to provide $300bn per year until 2035, was heavily criticized by developing countries who had been looking for at least $1tn per year. A stated intention to work toward $1.3tn per year via a wide range of financing sources was light on detail and greeted skeptically. The EU and U.S. aimed to expand the donor base for climate finance to China, which is classified as a developing economy, but while it is open to voluntary contributions, it resists becoming an official donor.

On a more upbeat note, significant progress was made on operationalizing and implementing Article 6 of the Paris Agreement, including agreement on Article 6.2, which establishes the rules to enable countries and companies to trade carbon credits bilaterally or multilaterally. Crucially, the rules detail how a country selling a credit can appropriately deduct it from its national carbon ledger, thereby preventing the double-counting of the same credit—although concerns remain around monitoring credits’ overall environmental value.

Mixed National Climate Action Plans and Rising Focus on Adaptation

Some headlines on the next iteration of NDCs were encouraging, as several countries announced details ahead of the February 2025 deadline.

Mexico committed to net-zero emissions by 2050, which means the entire G20 has now set net-zero pledges. Finland called upon the G20 to show leadership by setting the most ambitious 1.5°C-aligned NDCs possible, and the U.K., whose Prime Minister was one of the few heads of government to attend COP29, announced a new target of cutting emissions by 81% against 1990 levels, by 2035. Indonesia, the world’s largest coal exporter, announced plans to phase out all fossil fuel power plants by 2040. This positive momentum was only partly offset by Saudi Arabia’s refusal to countenance any text inferring a transition away from specific sectors, such as fossil fuels.

With the United Nations’ State of the Climate 2024 report providing a backdrop of worrying statistics on global temperatures, loss of glacier and sea ice and rising sea levels, COP29 brought significant focus on increasing financing for climate adaptation. Because adaptation investments typically create value by reducing future costs rather than generating profits, and often benefit multiple stakeholders rather than individual firms or households, government support may be necessary to attract private capital. Nonetheless, interest is growing, particularly from a regulatory standpoint. For example, the Network for Greening the Financial System (NGFS) released a new note addressing the importance of adaptation priorities for central banks and supervisors, and emphasizing the need to increase adaptation finance.

Talking Taxonomies and Other Highlights

China and the EU announced a reboot of their 2021 Common Ground Taxonomy, with a set of Multi-Jurisdiction Activity Tables covering more than 100 economic activities in China, the EU and Singapore. This Multi-Jurisdiction Common Ground Taxonomy (MCGT) serves as a technical reference for financial institutions, investors and corporations, allowing them to assess green activities based on common criteria.

It could also be a guide for other jurisdictions developing their own green taxonomies, especially in the developing world—although the lack of alignment between the three individual taxonomies at the start of the process underlines the challenges investors face when attempting to interpret and use different taxonomies around the world to validate climate solution capital allocation decisions.

Elsewhere, COP29 also brought us a pledge from 40 countries to accelerate deployment of energy storage systems and refurbish grids; a commitment from 30 states to reducing methane emissions from organic waste as part of the broader Global Methane Pledge; a new International Transition Plan Network, as well as a global guide for insurers on transition planning; and the Baku Call on Climate Action, which aims to address climate-related conflicts and provide support for nations with high humanitarian needs.

Eyes on Brazil

COP29 highlighted the obstacles in the way of meaningful climate action and agreements and underlined the need for more collaborative and inclusive solutions.

Developing nations increasingly have to choose between debt repayment and funding climate resilience efforts. Many say they cannot commit to more ambitious NDCs without more clarity on the amount and forms of financial support coming from the developed world. But that seems a remote prospect, given the inward focus of many governments in wealthy countries after a year of elections where all incumbent governments facing elections lost vote share. These tensions were a major cause of the faltering of the COP process in Baku, with some senior negotiators labelling COP29 the worst in a decade.

Next year’s COP30, in Belém, Brazil, was intended to conclude the COP trilogy, following the commitment to a “transition away from fossil fuels” in Dubai and the achievement of realistic financing goals for developing countries in Baku. However, with Saudi Arabia spearheading a bloc of Arab nations opposed to the transition from fossil fuels, and a diluted finance agreement for developing nations, the Brazilian COP presidency now faces huge pressure to restore the spirit of multilateralism.