Investment - Articles - What can investors really expect from controversial COP28

From the outset, this year’s United Nations climate change conference, COP28 has been steeped in controversy, namely because of insufficient progress made towards reducing carbon dioxide emissions – which reached a record high in 2022[1] - and because of its Emirati presidency.

 By Virginie Derue, Head of ESG Research at AXA IM

 COP28 is in many ways an important milestone, as it will respond to the first so-called global stocktake - the most comprehensive assessment of the world’s collective progress towards the 2015 Paris Agreement goals.

 The global stocktake follows two years’ analysis informed by the Sixth Assessment Report of the UN Intergovernmental Panel on Climate Change (IPCC). The report’s conclusions are alarming. It warns the direction of travel in terms of keeping global warming significantly below 2°C above pre-industrial times is off track - and that the chances of triggering climate tipping points are rising.[2] The study also found that in regard to financing the fight against climate change, investment flows to reduce emissions and increase adaptation efforts need to be some three to six times higher than what they are today.

 The stocktake: what to watch

 The UNFCCC’s global stocktake starkly highlights that much more action is needed – and needed now, on all fronts – from emissions reduction to the stemming of deforestation and greater financing.

 Three points are worth highlighting in our view:

 • The stocktake insists on systems transformation that are required across all sectors, aimed at implementing both supply and demand-side measures. This is to be emphasised, as too often there is a sole focus on the oil and gas industry and the broader picture – including the demand side - often receives insufficient attention from society or some investors.

 • In contrast to deforestation and coal, the stocktake is not prescriptive on requiring a reduction in oil and gas production by 2030.[3] This does not preclude reduction efforts or at least a stabilisation, but it implicitly obliges to take some distance from 1.5° scenario implications.

 • Carbon capture is presented as a valid option in the near term, in hard-to-abate sectors, though not across the board[4].

 The Emirati presidency’s priorities

 The Emirati’s priorities are neither disruptive nor transformational. They boil down to a strong emphasis on increasing mitigation and adaptation solutions, stepping up renewable capacity targets, advocating more equitable access to finance and calling for the operationalisation of COP27’s Loss and Damage Fund, which is aimed at providing funding for vulnerable countries hit hard by climate disasters.[5]

 Unsurprisingly, the Emirati defend a holistic energy transition that still includes hydrocarbons, insisting on energy security concerns while also having several dedicated thematic working groups around nature and oceans, food and agriculture, health, education and women’s rights.

 There is, of course, a clear incentive for Gulf countries to try to monetise their oil and gas reserves as much as they can before demand and prices start to decrease. But there are obviously significant divergences between increasing supply by 2030, trying to stabilise it, and even cutting it. Comments by UAE Sultan Al Jaber on the energy transition and the role of ADNOC (Abu Dhabi National Oil Company) leave few doubts as to its continuing focus on oil and gas production in the medium term[6].

 More broadly, the precise commitments taken at COP28 will enable us to judge whether ambition has been strengthened or whether the can is kicked further down the road.

 No silver bullets

 We also have some reservations about the strong focus on hydrogen and carbon capture. Hydrogen and carbon capture technologies are not silver bullets, namely because of their use likely to be restricted to hard-to-abate sectors like steel or long-haul shipping for the former, and the questionable cost effectiveness and infrastructure requirements associated with the latter[7].

 In the majority of industrial sectors, an actual reduction of emissions must be orchestrated in the first place, contrary to what the Emirati programme on carbon capture seems to propose. The oil and gas sector in particular should not rely too heavily on this technology and should instead adapt its business model.

 On those fronts, we would have hoped for more ambitious targets from the UAE presidency. While oil majors are the usual target of non-governmental organisations, they only account for a minor part of global production, less than 15% versus above 40%[8] for national oil companies, such as ADNOC. Such national oil companies have the technological and financial capacity to step up investments and foster change, and the Emirati presidency could lead by example here.

 Our expectations

 Our expectations for COP28 are limited, not because of the Emirati presidency per se, but more broadly because of the lack of international consensus over priority actions and the increased multipolarity of the world that is slowing international collaboration.

 We hope the controversies related to the COP28 presidency prove wrong, and if we do not see a decisive move towards a gradual decline in fossil fuel production, that at least COP28 should mark critical progress towards wind and solar through underlying energy infrastructure investments.

 As investors, we cannot replace government action. However, we will continue to push for more government action through advocacy, while engaging with the private sector so that across the board, it reduces emissions and contributes to changing the whole ecosystem and demand patterns.

 [[1]] CO2 Emissions in 2022 – Analysis – International Energy Agency
 [2] Heading towards 2.4–2.6°C global warming, and possibly limiting it to 1.7–2.1°C should all long-term net zero targets be effectively implemented
 [3] “Net zero CO2 energy systems require the phasing out of all unabated fossil fuels over time”; “the timing of phase-outs will differ for different contexts and fuels, and the phase-out of any unabated coal power needs to be accelerated in this decade”.
 [4] “Methods of CO2 removal can further reduce net CO2 or GHG [greenhouse gas] emissions in the near term, counterbalance residual emissions from hard-to-abate sectors”
 [5] COP28 Presidency and Leadership - COP28 UAE / COP28 President-Designate | H.E. Dr. Sultan Al Jaber - Bio (
 [6] COP28 President-Designate | H.E. Dr. Sultan Al Jaber - Bio (
 [7] Hydrogen and the energy transition: One molecule to rule them all? | AXA IM Corporate (; Carbon Capture and Storage: Hiding dirt under the rug or a real clean up? | AXA IM Corporate (
 [8] Source: AXA IM / Urgewald 2022 database


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