Pledges, blended finance, and ISSB standards: key takeaways from Finance Day at COP28
Only five days since its launch date, COP28 (i.e., the annual summit where almost every nation gathers to discuss and decide on climate policy) has already given us a number of headlines: countries have agreed on a loss & damage fund to compensate developing countries for climate impacts, half of the world’s most relevant oil and gas companies have agreed to reach net zero methane emissions by 2030, and COP28 President (as well as CEO of Adnoc, the UAE’s state oil company) has claimed that there is no-science” behind demands to phase-out fossil fuels, despite the scientific consensus pointing in the contrary direction. However, Day 5 (December 4th) was the day for finance. We’ve summarised the three main takeaway points below:
Pledges, pledges & pledges
Climate target commitments seem to keep coming, with many banks leading the charge. In the run up to COP28, BNP Paribas had pledged to phase out financing towards metallurgical coal, further aligning its portfolio and the steel industry with a net zero pathway. On the green product side, UAE banks have jointly pledged to leverage $200bn towards green finance, which could take different forms such as green/social loans or sustainability-linked loans. However, there is a consensus that without an agreed-upon methodology to decide what’s truly green, many banks are at risk of greenwashing. With the new anti-greenwashing rules by the FCA entering into force in late May 2024, banks will need to assess their product line to ensure products are marketed and operated fair, clear, and not misleading. As promised during our last ESG blog post, we are preparing a deep dive into the greenwashing rule to help you navigate the FCA’s expectations.
Blended finance presents a new opportunity for emerging markets
Blended finance consists of structures that mix public and private funds to mobilise capital to areas where the private sector alone cannot reach due to high capital risk. In other words, it leverages safety from the public sector via guarantees or insurance, moving the risk profile of projects to ensure that the transition financing gap is closed in emerging markets. Alterra, a climate fund launched during Day 2 with $30bn and Blackrock, TPG & Brookfield as launch partners, has an allocation of $5bn to provide risk mitigation capital to incentivise investment flows towards the Global South. Expect further announcements of vehicles with similar characteristics, which may signal a positive outlook for sustainable investing in emerging markets.
ISSB’s IFRS S1 & S2 will become the global reference disclosure framework
A declaration of support for ISSB by 400 organisations from 64 jurisdictions, including up to 25 stock exchanges, has made even clearer that IFRS S1 & IFRS S2 will be the reference sustainability reporting framework of the future. With many national legislators such as Japan, Australia, the UK, or Brazil referencing the disclosures as baseline or inspiration for their sustainability reporting requirement regulations, this latest round of support during Finance Day at COP28 has made it even clearer that companies need to start adapting their systems to this framework.
We will only be able to completely judge the success of COP28 after the summit is over in mid-December. However, the conference has confirmed that the direction of travel is clear for the finance sector: the quality (and not quantity) of green products is in the spotlight, opportunities in emerging markets are growing, and disclosures are unifying behind the standards developed by ISSB. Send us a message if you want to get ahead of any of these developments.
