Post-COP28 Analysis – Outcomes and Implications for Investors: Navigating the Green Wave

The 28^th Conference of the Parties (COP28) recently concluded at the end of 2023, marking a crucial step in the global effort to combat climate change and fast-track the energy transition, helping to slash emissions before 2030. It is vital for investors to be aware of the far-reaching implications and realise that substantial work lies ahead in the coming decade.

The highlight of COP28 was the event culminating in a landmark moment as 199 nations agreed to a deal calling for a “transition away” from fossil fuels. What is particularly momentous is that this is the first time fossil fuels have been explicitly referenced in United Nations (COP) documents. Hailed by the UN as “the beginning of the end for the fossil fuel era”, this agreement reflects the collective commitment to limit average global heating to 1.5C above pre-industrial levels – a pivotal move in aligning actions with the ambitious climate goals.

Although the key commitment to transition away from fossil fuels in energy systems has taken centre stage, there have been many other important pledges, declarations, and outcomes that are just as important to investors.  COP28 also included the establishment of a loss and damage fund for the most vulnerable countries, a crucial step in addressing the disparities in climate impacts. Furthermore, $57 billion of capital was announced from a variety of sources to invest in climate solutions.

However, challenges and criticism were not absent during COP28, with some directed at the hosting country, the United Arab Emirates, a major oil exporter. Notably, the failure to reach an agreement on activating Article 6 of the Paris Agreement, allowing the trading of carbon credits, was a setback. Article 6 has the potential to significantly reduce the total cost of implementing nationally determined contributions by 50%, according to the International Emissions Trading Association.

Another proposed solution discussed at COP28 was taxation, with a task force launched to explore international taxes funding green investment in emerging economies. The need for revenues to address climate challenges efficiently and fairly, without burdening the vulnerable, led to discussions about taxes on business or first-class airline tickets, financial transactions, and windfall profits from oil and gas, for example.

In conclusion, COP28 outcomes demonstrate progress, but challenges persist. Investors must navigate uncertainties, seize opportunities in the evolving green landscape, and contribute to financing the transition to a sustainable future. Many of the topics discussed will have wide-reaching implications for investment portfolios – some small, some great.

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The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.