28-10-2024 10:54

What will make COP29 a success? Key issues to follow

While we expect a more muted stock market reaction in the run-up to COP29 this year, compared to previous years, the UN climate summit will nonetheless be an important gauge of climate policy momentum. Here are the key areas to watch.
Flame Towers in Baku, Azerbaijan
Flame Towers in Baku, Azerbaijan

The next UN Climate Change Conference, COP29, will take place in Baku, Azerbaijan on 11-22 November. In past years, COP has been a driver of share price performance in the 30-day runup to the event. This year, we expect a somewhat muted performance ahead of COP, which this year is seen as more of a transition event in preparation for the all-important COP30 next year in Brazil. Nevertheless, COP29 remains an important gauge of global climate policy momentum, especially in today’s geopolitical context, so a strong outcome could drive a post-COP share price performance.

Climate finance will take the front seat this time, with COP29 being dubbed the “Finance COP.” Here are three key areas likely to be seen as barometers of success. 

1. An agreement on the new climate finance target

Currently, developed countries contribute USD 100bn/year towards developing countries’ climate mitigation and adaptation. The target is set to expire in 2025, and COP29 needs to agree on a new target (the so-called New Collective Quantified Goal, or NCQG). The original one was set out in 2009 and is insufficient to cover the countries’ climate finance gap, which is estimated at USD 0.5-1trn/year. Expect thorny negotiations around the size of the new contribution, list of contributors (e.g. what role for China?), timeframe and terms of provision, yet this is a crucial item to get engagement from developing nations.

Climate finance will take the front seat this time, with COP29 being dubbed the “Finance COP.” 

2. New Nationally Determined Contributions (NDCs)

Under the Paris Agreement, every five years countries need to submit new climate targets (Nationally Determined Contributions or NDCs) and these are due in February 2025. The revision will be mainly a responsibility for next year’s COP30, but COP29 has an important role in creating momentum, with early nations “setting an example.”

3. Growing the “loss and damage” fund

Last year, the key terms of something resembling an “insurance fund” for developing countries suffering from the impact of climate change – the so-called “loss & damage” fund – were agreed. So far, however, only USD ~0.6bn has been pledged. Growing the fund, possibly via linking it to NCQG negotiations, as well as agreeing on the terms of involvement of the private sector, will be key in this area.

Other areas to watch

In addition to these key themes, a few other outcomes would also be seen as breakthroughs. Last year, an agreement to “transition away from fossil fuels” was reached. Avoiding backsliding on this ambition, ideally advancing it, will be crucial. Another area of focus is Article 6 of the Paris Agreement, i.e. the creation of international carbon markets. A breakthrough in this area would help resolve a gridlock that has been going on for years. Meanwhile, progress needs to happen around climate adaptation - preparing for the impacts of climate change - with the operationalisation of the existing adaptation framework.

Author

Name:
Marco Kisic
Title:
Head of ESG Research, Nordea Equities
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