Perspectives are falling into place about the achievements and limitations of the 2023 United Nations climate change conference or COP28, where nations agreed to transition away from fossil fuels. The European Parliament, to name just one institution, declared that “this outcome is really historic”. UN Climate Change Executive Secretary Simon Stiell said in his closing speech at the conference that “this outcome is the beginning of the end” for the fossil fuel era.
His follow-up call on governments and businesses to turn pledges made into real-economy outcomes without delay does emphasise that COP28 has not produced binding, time-tabled resolutions. But it has pushed up the tailwinds driving climate change and sustainability policy so high that tacking against them is going to be less and less feasible.
Certainly, more could have been done at COP28, but more is already being done elsewhere. And facts on the ground, let alone floods and other extreme weather events, are moving at such a pace that high-level multilateral diplomacy is struggling to keep pace. For policymakers, nothing has brought home the folly of dependency on fossil fuel imports as effectively as the war in Ukraine and other recent threats to supply chains.
The transition away from fossil fuels is not going to be smooth sailing. “This process is likely to be jagged and messy from a geopolitical standpoint,” according to an article in the January issue of Foreign Affairs. It says that “geopolitics and foreign policy will both shape and be shaped by climate change and efforts to accelerate the clean energy transition”.
The positive aspect is that not only are geopolitical forces moving outside the high level summit space, so too are technological and business forces. Increasingly, these are making sustainable solutions the smart business solutions. The falling prices of clean energy and the massive buildout of capacity are only part of the impetus. Meanwhile, international financial regulations are moving into new realms of sustainability reporting and tracking, a trend unlikely to be reversed or derailed when the main developments have already happened.
For institutional investors, the signals around sustainability should be louder than ever. There is absolutely nothing happening that should induce institutions and asset owners to mitigate their climate-related risk calculations for the years ahead. Quite the reverse in fact. Institutions themselves can help the transition, or be buffeted by it. The change in any case is inevitable.
