NAZMEERA MOOLA: Good COP, bad COP — it all depends on action

Conference of the Parties (COP) international climate meetings are always a balance between hope, expectation and reality, especially when it comes to emerging markets. This year the gathering takes place over two weeks in Dubai, starting on November 30. 

Ahead of COP28 it’s hard to quantify progress to date. COP26, held in Glasgow in 2021, entrenched the need to include emerging markets in the transition to net zero, reflected in the announcement of an arrangement between SA and four donor countries to work together on a Just Energy Transition Partnership (JETP) to raise a total of $8.5bn in climate financing to accelerate SA’s energy transition.  

COP27 in 2022, in Sharm-El-Sheikh, moved into specifics. Though most of us in the private finance sector only discovered COP in Glasgow, our expectations were raised and we arrived in greater numbers in Egypt. There was certainly greater representation from Africa. This was “Africa’s COP”, after all.  

At COP27 the JETP produced offspring, with similar initiatives announced for Indonesia, Vietnam and, in a different form, Egypt. While SA’s partnership involved discussions between governments, the subsequent JETPs were to be private sector led and/or co-ordinated. Big themes at COP27 were blended finance, loss and damage, and the private sector. We expect all of these to feature at COP28, which we anticipate will attempt to be about execution.  

The private sector role in leading the implementation of the energy transition is a key focus area of the United Arab Emirates’ (UAE) COP28 presidency. Progress has already been made by this presidency, with the $4.5bn announcement at Africa Climate Week: four UAE institutions pledging to finance 15GW of clean power by 2030 in partnership with Africa50.     

We will continue to talk about blended finance, but probably without a lot more progress. This is mainly due to the absence of loss mitigation capital. It is impossible to blend without this. Credit to the UK government for announcing a $2bn replenishment of the Green Climate Fund (GCF). This is a major boost to a fund that at present has $12.8bn committed to projects. 

While the GCF performs a critical role, it is not the answer to closing the funding gap in emerging markets. It is increasingly focused on channelling capital into areas where there is none — not where there is an insufficient amount. As a result, to access its capital any projects or funds must operate in difficult jurisdictions or be doing difficult projects.   

This will not do much to introduce the big pool of developed-market asset owners to climate investment in emerging markets. It also won’t make much of a dent in the annual funding gap for the emerging-market energy transition, which the International Energy Agency (IEA) estimates will be $850bn a year by 2030.    

In a rising global interest rate environment, which is unfriendly to emerging markets, it would be transformative for multilateral development banks and development finance institutions to provide first loss capital to catalyse developed-market investors into emerging markets. While this is not necessary to enhance risk-adjusted returns in middle-income countries in the long term, most developed-market asset owners are unfamiliar with emerging-market corporate debt and project finance debt, which will provide the bulk of the financing for the energy transition globally. 

It would be easier for asset owners and their consultants to take that leap now; the planet cannot afford for us to wait. Catalysing this investment would help narrow the gap between perceived risks and realised risks in the short term, thus spurring the vital growth of the emerging-market transition asset class over the medium term.   

My best hope for COP28 is that we see the UAE lead in establishing funding initiatives where a country partners with private institutional savers from around the world to spur climate financing for projects that have clear revenue streams behind them. The $4.5bn is an excellent start. More needs to happen. 

So, in gauging what we expect of COP28, I am left with three words I would use as classifications. There’s aspiration. Here, I include private sector-led financing for the emerging-market energy transition, a large second close for the Green Climate Fund, and progress on the Loss and Damage Fund.   

Then there’s speculation. Here, there is for now no progress on the JETPs, and the reform of the multilateral development banks is a work in progress.

And, finally, there’s hesitation. Nationally determined contributions will remain inadequate on the part of developed and emerging markets. 

In this world of geopolitical dislocation it looks like it’s down to the private sector and a resolute UAE COP28 presidency to fight for the wins. 

• Moola is chief sustainability officer at Ninety One.