Australia's Minister for Climate Change and Energy, Chris Bowen, recently highlighted the crucial need for maintaining high ambition in climate negotiations, a sentiment echoed by numerous investors closely monitoring the COP29 summit in Baku, Azerbaijan. The summit's significance is amplified by its timing, coinciding with the "biggest election year in human history," in which over 80 countries, representing nearly half the global population, will head to the polls in 2024. This unprecedented political landscape has already influenced climate policy in major global players, adding complexity to the negotiations.
A key expectation from investors attending this "finance COP" centres on clear policy signals, particularly regarding Nationally Determined Contributions (NDCs). NDCs, outlining each country's emissions reduction targets under the Paris Agreement, are scheduled for updates in early 2025. Therefore, the outcomes of COP29 serve as a crucial leading indicator of future climate commitments. Teju Akande, Climate Change Manager at Border to Coast Pensions Partnership, noted that COP29 provides a vital platform for nations to demonstrate their intent to submit enhanced NDCs, bolster adaptation strategies, and showcase tangible progress on previous pledges.
This focus on ambition is underscored by a joint statement signed by over 500 institutional investors prior to both COP16 and COP29. This statement outlined investor demands, including a significant increase in the ambition reflected in NDCs. Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change (IIGCC), emphasised that COP29 offers governments a prime opportunity to address these investor concerns.
However, for asset owners, ambition requires granular detail. Investors are not simply seeking headline targets; they require clear signals translating into actionable investment strategies at the industry level. A spokesperson for the Canadian asset owner CDPQ highlighted the need for government policies that provide sector-specific guidance, promoting decarbonisation solutions across various industries. While progress has been made in certain sectors (e.g., power generation, electric vehicles), significant gaps remain in hard-to-abate sectors and agriculture.
The UK's recent update to its NDC, ahead of the February 2025 deadline, offers a compelling example of ambitious climate action. The commitment to reduce greenhouse gas emissions by 81% relative to 1990 levels by 2035 sets a high benchmark and potentially inspires similar action from other nations. Pfeifer lauded this "early, ambitious step," highlighting its potential ripple effect in building confidence and encouraging greater commitments globally. The IIGCC, however, also stressed the importance of a detailed delivery plan, particularly for sectoral decarbonisation, to attract private finance and effectively leverage NDCs in emissions reduction.
The policy signals emerging from Baku will be meticulously examined by investors as they anticipate the forthcoming NDC updates. A consensus in Baku, if achieved, will be crucial in shaping future climate policy ambition. The urgency of the situation was underscored by UN Climate Change Executive Secretary Simon Stiell, who called for decisive action, urging an end to "hand-wringing" and a focus on delivering tangible results. The investor community, keenly observing the events in Baku, will undoubtedly share this sense of urgency as they await the unfolding policy landscape.