AllianceBernstein: Reflections on COP28: Opportunities Amid Challenges

NORTHAMPTON, MA / ACCESSWIRE / December 20, 2023 / AllianceBernstein

Investors are warming to opportunities stemming from climate change, and other takeaways from COP28.

COP28, the latest United Nations Conference of the Parties on climate change, delivered mixed results on some key agenda items but provided new insights into climate-related opportunities and the initiatives needed to implement them. For investors, some of the most interesting discussions concerned opportunities in the form of transition finance, adaptation, blended finance, carbon markets and nature-based solutions.

Funding challenges - especially against a difficult global backdrop of looming elections in the US, Russia and elsewhere, high debt burdens and interest rates, and rising geopolitical tensions - were readily apparent. But so were potential opportunities for climate-related investment.

Investors Warm to Opportunities and Solutions

The need for mitigation and adaptation - particularly in hard-to-abate industries such as steel, cement, transportation and energy - appeared to resonate strongly with investors. Opportunities included scaling up technologies such as clean hydrogen, energy storage, carbon capture and storage, and direct air capture and storage, using government support (through policies such as the US Inflation Reduction Act) and blended finance.

To that end, the COP28 Presidency unveiled the Global Decarbonization Accelerator, a set of initiatives focused on scaling up new energy systems, targeting noncarbon greenhouse gas emissions and decarbonizing energy systems today.

Among market-led developments, the Institutional Investors Group on Climate Change finalized its guidance on climate solutions, while several firms predicted the emergence of financial products, including exchange-traded funds, that claim to address the physical risks of climate change.

According to global consulting firm McKinsey, helping higher-emission industries and economies pivot to a lower-carbon economy would involve spending US$275 trillion on physical assets for energy and land-use systems between 2021 and 2050.¹ The average annual spend of US$9.2 trillion would be US$3.5 trillion more than the current outlay. The transition would be universal, significant and front-loaded, with uneven effects on sectors, geographies and communities, even as it creates growth opportunities.