Presidency discussions included language shifting away from the phase out of fossil fuels towards getting rid of ‘fossil fuel emissions’ at the 10-day conference, widely considered the precursor to the annual Conference of the Parties in Dubai later this year.
Investors and climate experts will watch this proposed wording change closely, especially as the alternative carbon capture and storage technologies (CCS) suggested are largely unproven at scale.
There were also talks of new targets for renewables development, energy efficiency, and green hydrogen as part of the response to the UN Global Stocktake (GST), which featured in discussions throughout.
“The view was that it must result in a clear, forward-looking action plan for countries and stakeholders if we are to accelerate progress at the pace and scale required,” said Michael Button, our Real Economy Lead on the ground in Bonn.
IIGCC members: Read our briefing on The Paris Agreement Global Stocktake.
The feedback was far from unanimous though with some nations expressing their frustrations as negotiations closed on 15 June.
Alongside this, financing adaptation and resilience to climate risk remained a key topic for non-state actors, with IIGCC delegates outlining the importance of integrating physical climate risk into valuations.
The road ahead
CCS technologies are central to the Presidency’s proposal to move away from targeting the phase-out of fossil fuels. Investors should note that while they may well have a role to play, particularly for hard-to-abate sectors, as yet they offer no quick-fix solution.
Experts continue to stress that all credible pathways to net zero are predicated on phasing out fossil fuels, with G7 energy leaders recently confirming their commitment to do so – though they stopped short of setting a clear deadline.
Discussions also highlighted a proposed target to triple renewables by 2030. This is an encouraging sign for observers, reflecting recent International Energy Agency findings that solar investment alone is set to overtake oil production investment this year.
Targets to double rates of energy efficiency and the availability of clean hydrogen were also raised, signposting the important role they will play in negotiations at COP28.
However, some delegates made their disappointment felt. On the final day, the Samoan delegation shared a statement on behalf of the Alliance of Small Island States (AOSIS) which included the sentence that “We are shocked by the lack of momentum, stagnation and in some cases even regression that we encountered during this session.”
With last year’s conference framed by the intense debate over loss and damage, it seems clear that negotiations in Dubai will not be smooth sailing either.
Physical climate risk
In parallel with headline discussions, Mahesh Roy, IIGCC Investor Practices Programme Director and co-lead for the finance workstream in the Marrakech Partnership for Global Climate Action spoke on a panel moderated by current COP27 High Level Climate Champion, Dr Mahmoud Mohieldin.
Mahesh outlined three routes to scaling up adaptation and resilience finance that the Sharm El-Sheikh Adaptation Agenda Taskforce will focus on in the months ahead:
- Building systemic resilience by integrating physical climate risk assessments into all investment decisions
- Making the investment case for adaptation solutions and mainstreaming as investable climate solutions, highlighting nature as the preferred solution
- Mobilisation of the insurance sector, including assisting the most vulnerable
This work will support Dr Mahmoud and the new COP28 UN Climate Change High-level Champion, H.E. Razan Al Mubarak, in the run-up to COP28. The first point may be most relevant to institutional investors.
“Physical climate risks affect business continuity, which affects cashflows, which affect valuations,” Mahesh explained to the panel: “But currently physical climate risk assessment in finance is poor.”
Drawing on studies from the Coalition for Climate Resilient Investment, Mahesh pointed out that if physical climate risk is assessed and can be mitigated, future cashflows can be bolstered and valuations can increase as a result.
The good news is that the sector can integrate this ‘bottom up’ approach into existing due diligence practices now, he said, building resilience through the corporates and communities in which they invest.
From the ‘top down’ Mahesh called for the adoption of mandatory physical climate risk assessments through policy and planning, particularly where there is public co-financing.
A bigger role
Looking at the event more broadly, our team noted that non-state actors like IIGCC had more opportunities than ever to play a bigger role and join discussions.
There was also more focus on financial flow alignment, reflecting the growing urgency to close the investment gap in adaptation and resilience. The IPCC recently reiterated that required funding is between three to six times more than current levels.
Bonn 2023 has given attendees a better understanding of the discussions ahead, though the ambition of debate leaves many nation-state delegates and climate experts asking for more.
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