The Conference of the Parties (COP) is the assembly of nations that have ratified the UN Framework Convention on Climate Change (UNFCCC), established in 1992.[1] With less than a month remaining until COP 29 (11 - 22 November 2024) in Baku, Azerbaijan, what can we anticipate from this year’s global climate conference?
What happened in the previous COPs?
Historically, several COPs have had significant impacts on regulations related to carbon pricing, emission reduction targets, and climate risk disclosure. For example, the Kyoto Protocol 1997 (COP3) laid the foundation for carbon pricing, the Paris Agreement 2015 (COP21) set global climate targets and catalysed disclosure frameworks, while the Glasgow Climate Pact 2021 (COP26) further embedded carbon markets and risk disclosure into financial regulations. These COPs have most significantly shaped current business regulations around emissions and climate risks.
COP may involve long-term goals and high-level negotiations, but the agreements forged at these conferences often lay the groundwork for national regulations. When countries commit to new climate goals at COP, they typically follow up by enacting domestic laws and regulations that affect businesses, such as:
Carbon pricing, taxes, or cap-and-trade schemes.
Emission reduction targets for key industries (energy, transportation, manufacturing).
Requirements for climate risk disclosure, which companies must follow to stay compliant in global markets (e.g., Corporate Sustainability Reporting Directive (CSRD) in the EU, and global sustainability reporting rules IFRS-ISSB).
These policies can lead to increased operational costs for businesses, especially if they rely on high-carbon processes, forcing shifts in investment and business models.
Policy actions and market responses
Policy actions and market responses have echoed the impact of COP as well. For instance, the development of green taxonomies—classification systems that define what constitutes environmentally sustainable economic activities—has been indirectly influenced by COP outcomes, though COP itself doesn't directly create these frameworks.
However, the global agreements and climate goals set at COPs have played a crucial role in pushing governments and regulators to develop taxonomies as part of their efforts to meet climate targets. More financial institutions commit to net-zero targets, which means capital is directed toward clean energy, sustainable businesses, and industries aligned with COP ambitions.
Future COPs are likely to continue influencing taxonomy development, as financial markets need clear, consistent standards to support climate action. COP discussions on mobilising private finance will likely push more countries to adopt or refine green taxonomies, helping businesses and investors better align with global climate goals.
What should we watch for at COP29?
As outlined in the Global Stocktake released in the last COP (28 in Dubai), finance is a critical enabler of action.
COP29 has been called the “Finance COP”. Representatives from all countries will set a new global climate finance goal, known as the “new collective quantified climate finance goal” (NCQG), to replace the 2009 target of mobilizing $100 billion annually by 2020. COP29 aims to unlock more climate investments from various sources and improve the quality of this finance.
The Climate Finance Action Fund (CFAF), to be launched at COP29, will be capitalised by voluntary contributions from fossil fuel-producing countries and companies, with Azerbaijan as a founding contributor. Contributions will be based on a fixed sum or production volume from oil, gas, and coal. The fund aims to mobilise private sector investment and de-risk projects, with a focus on climate action in developing countries.
CFAF will attract private sector funding and offer concessional and grant-based support for natural disaster recovery. With an initial capitalization goal of $1 billion, and at least 10 countries contributing as shareholders.
The establishment of CFAF may lead to the need for standardised definitions and criteria for projects that qualify for funding. This could encourage countries and organisations to develop or refine their green taxonomies to align with CFAF's objectives, promoting consistency in how sustainability is defined across various jurisdictions. We could foresee a cross-regional taxonomy development like the EU-China Common Ground Taxonomy.
As of 2023, 15 Asian countries have implemented or updated their Green Taxonomies. Ongoing disclosure guidelines for green project proceeds, including CAPEX, are applicable to green bond issuers.
The full two-week agenda and thematic plans:
There is so much more to unpack during COP 29, stay tuned for our further guide to COP 29 as it unfolds, focusing on what’s driving the global agendas towards climate actions and their implications and challenges for businesses around the world.
Action Points for Businesses:
Monitor Regulatory Developments: Stay informed about outcomes and agreements made at COP29 to adapt strategies accordingly. For example, China’s upcoming plans to expand its national Emissions Trading System (ETS) to include more high-emission sectors like steel and cement. The U.S. Inflation Reduction Act introduces various incentives for renewable energy and electric vehicles. Subscribe to get your ESG/sustainability regulatory updates from GC Insights to get regular reports like “The New Sustainability Reporting Landscape in APAC” material to your businesses.
Set and Publicise Climate Targets: Establish science-based targets and share commitments to enhance transparency and accountability that align with COP 29. Check out our “Quick Guide to Setting Science-Based Targets with SBTi”
Explore Funding Opportunities: Investigate new green finance options and partnerships that can support sustainability initiatives. Read more from our latest “Sustainable Finance: Emerging Trends & Best Practises” and discussions around “Is Green Financing still a Cheaper Way to Raise Money?”
Collaborate with Suppliers and Partners: Work closely with suppliers and industry partners to align sustainability practices across the supply chain. Read our recent guides here: “Navigating New Supply Chain Sustainability Regulations: Assess and Improve Your Readiness”
Innovate and Invest: Focus on R&D for sustainable technologies and processes that can meet the growing demand for eco-friendly solutions. Companies like Siemens, and Covestro are investing heavily in R&D for sustainable technologies and materials, to stay ahead of the curve in a rapidly evolving market. Read our whitepaper on "How Sustainable Materials are Shaping the Future of Circular Economy". Get in touch with us today (info@gc-insights.com) to explore the market of sustainability innovations.
[1] https://unfccc.int/process-and-meetings/what-is-the-united-nations-framework-convention-on-climate-change
[2] COP29 Presidency Action Agenda Letter: https://cop29.az/en/pages/cop29-presidency-action-agenda-letter
Cover image from "What is COP29?", Azerbaijan. Accessed October 14, 2024. https://cop29.az/en/pages/what-is-cop29