The COP29 climate summit in Baku, Azerbaijan, has been dubbed the "finance COP” because its primary objective is to come up with a new and ambitious agreement for climate-related transfers from rich countries to poor countries.
But that moniker could have been given to almost any of the other recent United Nations gatherings of world leaders: the COP26 confab in Glasgow in 2021 focused on enlisting institutional investors in the fight against global warming; the crowning achievement of the gathering in Sharm El-Sheikh the following year was a fund to help developing nations face the devastation of climate change; and at last year’s COP28 event, the United Arab Emirates announced a $30 billion venture to fund emissions reductions projects in partnership with BlackRock, TPG and Brookfield Asset Management.
Whether it’s Azerbaijan’s manat, or dirhams, pounds or dollars, every climate conversation circles back to how much it will cost — and who’s going to pay.
In Baku, that means fighting over a so-called collective and quantified goal for climate finance. That’s the new post-2025 ambition that’s supposed to replace a target set in 2009 for developed countries to provide $100 billion annually by 2020. The earlier goal has proven controversial since it wasn’t met until 2022, and represents just a fraction of the money needed.
Even if the new target were to be set at as much as $1 trillion a year, as some of the most climate-vulnerable states have proposed, that would barely scratch the surface. New research published this week by law firm A&O Shearman details an annual $6 trillion investment gap through 2030 to decarbonize the global economy at a pace required by the Paris climate agreement, to say nothing of the cost of adapting to a warmer, more volatile world.
Moving from the billions to the trillions will only be possible by involving the private sector. Yet while COP28 in Dubai drew many of Wall Street’s top leaders, from hedge fund billionaire Ray Dalio to BlackRock CEO Larry Fink, COP29 is set to be a much more low-key affair.
This year, banks including JPMorgan Chase, Deutsche Bank and Barclays have sent delegations to Azerbaijan, though these typically include members of their sustainability teams as opposed to senior executives. And that might be the appropriate choice given the more technical nature of this year’s discussion, said Adair Turner, who previously ran the U.K.’s financial regulator and is now chair of the Energy Transitions Commission.
Financiers in attendance "will be those who want to interface with people actually building the new energy system, rather than people making grand statements,” he said.
The biggest opportunities for Baku may not be "on these grand political statements,” Turner said. "We’re not going to get a tightening of the ‘transitioning beyond fossil fuels’ statement, but what we could get is some very concrete things about technologies,” such as commitments to scale up battery storage and grid interconnections, he said.
Daniel Hanna, group head of sustainable and transition finance at Barclays, who has traveled to Baku, said he was "looking forward to talking about the progress that’s been made on climate finance, while recognizing that we need to collaborate to move faster and smarter on scaling the next wave of climate technologies, investing in adaptation and finding new public-private models to scale capital into the Global South.”
For Turner, who spoke with Bloomberg Green on the first day of COP29, "the single most important thing” to secure at Baku is "a bigger role for development banks.” And right on cue, on Tuesday, the world’s largest multilateral development banks (MDB) announced a new goal to raise $120 billion in annual climate finance for developing nations by the end of the decade — a significant increase on the $75 billion gathered in 2023.
MDBs can use their balance sheets to reduce the risks private investors face when allocating funds to nascent technologies and countries, where high credit risks and corruption typically result in a punitive cost of capital.
"Many institutional investors are fiduciaries of retirement assets with a duty to focus on returns, and a lot of climate projects just don’t fit that profile without some risk-sharing or guarantees,” said Cara Williams, global head of ESG, climate and sustainability at Mercer. "We hope to see agreements on more public private partnerships announced at COP29 to de-risk investments and make it easier for private capital to be allocated to sustainable-finance projects.”
And with many developed governments "under pressure fiscally,” making a modest contribution toward bolstering the MDBs "ought to be the easy win,” Turner said."The amount of money that’s required to increase the capital resources of the World Bank are really relatively small compared with other things, so it ought to be the win-win here,” he said.
Of course, there are very few easy wins in climate. And that’s especially so with former U.S. President Donald Trump, who has repeatedly downplayed climate change while promoting fossil fuels, returning to the White House.
Speaking of which, one of the main drivers behind the right-wing campaign against environmental, social and governance strategies — other than Big Oil and its lobbyists — has been Trump himself.
Now that he’s on the way back to the White House, experts expect him to try to finish off ESG. That would mean blocking Securities and Exchange Commission rules for corporate and fund disclosures, and Labor Department requirements on pension funds, according to Rob Du Boff, a senior analyst at Bloomberg Intelligence.
The new administration is also expected to put limits on ESG-related shareholder proposals filed during proxy season, he said. "The bottom line is the Trump administration is anxious to undermine these ESG-related initiatives,” Du Boff said.
ESG fund managers are being urged to keep their lawyers very close, as Trump’s return threatens to turbocharge the yearslong Republican Party assault. Few asset classes suffered as painful a blow in the hours after Trump’s election victory as those associated with ESG.
But the sell-off may be a bit too deep. Hedge funds clinging on to bets against Tesla lost billions of dollars as they felt the fallout of the special relationship between Trump and his richest fan, Elon Musk.
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