Legal briefing | 15 Nov 2024 |

Travers Smith's Sustainability Insights: What does COP29 tell us about the UK's green growth ambitions?

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A regular briefing for the alternative asset management industry.

The 29th Conference of the Parties (COP29), which kicked-off this week in Azerbaijan, was overshadowed by the re-election of Donald Trump – and some unfortunate comments by the President of the host nation. Indeed, some influential figures have argued that the annual conference is no longer "fit for purpose" and needs an overhaul. But COP29 could still be an important milestone in the global fight against climate change. (Our COP29 explainer gives some further background.)

In the run-up to the summit, many people wanted COP29 to be the 'Finance COP'. A key agenda item is agreement of a New Collective Quantified Goal on Climate Finance (NCQG). The NCQG –introduced by the Paris Agreement – will replace the existing $100 billion p.a. commitment to climate finance with a more ambitious target.

While it will not be finalised during the summit itself, it is crucial to the success of COP29 that a larger NCQG is ultimately agreed. UN projections suggest that developing countries require around $1.1 trillion a year for climate finance from 2025, rising to around $1.8 trillion by 2030. Current investment levels are way below what is needed.

The return of the former President to the White House endangers these ambitions. It is expected that he will initiate the (second) withdrawal of the US from the Paris Agreement – changing the landscape for international co-operation on climate change (Argentina has also hinted that it might follow the US.)

But there is another challenge for this climate finance: the 1992 United Nations Framework Convention on Climate Change (UNFCCC) currently excludes some of the largest economic powers – such as Brazil, China and India. To achieve the level of investment needed, the NCQG contributor base under the UNFCCC needs to be expanded.

This is a massive task. With the threat of tariffs from the US looming, and when domestic politics is a priority for many governments, pressure to make greater contributions from the public purse will be resisted. As we have written previously, that makes private finance absolutely critical – and partnerships between government and investors will be key. As the COP29 President Mukhtar Babayev said on the first day of the conference: "without the private sector, there is no climate solution".

As the Institutional Investors Group on Climate Change (IIGCC) said recently, "the NCQG can bring all parts of the financial system together". The IIGCC says that private investment must be in the spotlight, but policymakers need to foster an environment which facilitates long-term investment decisions, supported by clarity on regulation, incentives, and government guarantees for riskier projects.

        
    
"Significantly, while many world leaders sat it out, the UK's Prime Minister did make the trip to Baku – and he took the opportunity to re-affirm Britain's commitment to the international climate agenda."

It remains hard to predict what the future looks like for green investments in the United States – much will depend on the future of the Inflation Reduction Act, which has benefitted many "red states" – but Europe certainly has an opportunity to benefit from more investments in sustainability focused products and assets. As alternative asset managers have increasing capital available for investment in climate solutions, Europe's resolute commitment to the climate agenda is vital.

The UK is certainly vying for its share of that investment. A welcome degree of political stability over the next five years, strong signals that green growth is a government priority, and some early announcements indicating a willingness to partner with private investors – including those in the private markets – are all positive.

Significantly, while many world leaders sat it out, the UK's Prime Minister did make the trip to Baku – and he took the opportunity to re-affirm Britain's commitment to the international climate agenda, clearly aspiring to global leadership. In particular, he announced an increase in the UK's interim emissions reduction target in line with the recommendations of an independent committee.

If the UK's new industrial strategy – which is focused on growth and productivity – supports the UK's legally binding commitments to reduce greenhouse gas emissions, it could address two problems at the same time. The industrial strategy's consultation document mentions "net zero" 47 times, strongly indicating that the government sees the green transition as central to future growth – framing the climate challenge as an opportunity to address financial woes. That framing is also clear in plans – confirmed this week – to create local government "mega funds", which could have access to £354 billion to deploy in multiple ways, including on green energy infrastructure.

As the signatories to the Paris Agreement review their commitments in advance of COP30, some will use the opportunity to map out long-term investment plans with initiatives to crowd-in private finance. Countries that act decisively are likely to benefit most – and the UK clearly wants to be among them. But innovative public-private partnerships will be essential, and continued engagement between policymakers, regulators and private market investors will be needed to tackle the current barriers to investment.

Read Simon Witney Profile