Turning climate talk into climate action

COP28 was big by any measure. From Dubai’s colossal expo city and the 100,000 attendees reported to have been registered in the ‘Blue Zone’, to the 400,000 registered for the Green Zone, this was a gathering like no other. Our collective ambition? To turn climate talk into climate action.

The negotiated?outcome ?was seismic news, calling on countries to start "transitioning away from fossil fuels" and "in a just, orderly and equitable manner, accelerate action in this critical decade, so as to achieve net zero by 2050."

Yet, tensions continued to underpin progress in Dubai: the fossil fuel lobby was out in force, conflicts of interest loomed large over the COP Presidency, and immediate steps to protect emerging and frontier economies, vulnerable people and nature, in the face of climate change largely absent. Reinforcing the urgency of accelerated climate action at scale, the first Global Stocktake raised "alarm and serious concern."

That said, there were key milestones of progress at COP28. The ?#JustTransition ?Work Programme elevated human and labor rights for the first time. The launch of the Loss and Damage Fund – a construct 30 years in the making – attracted $700m in seed commitments, signaling the important role that catalytic finance from the private sector will play in bridging the financing gap across emerging economies.

For institutional investors, transition finance took center stage. For Mercer, the release of our thought leadership at COP28 on ‘transition today’ ? on the role investors play in partnering for transition , mobilizing capital flows into Africa, and the state of transition assets ? helped us to actively lead at many investment- and insurance-focused events. Our own effort to turn climate talk into action, Mercer’s Catalytic Investment Exchange [1], brought together deal sponsors of green infrastructure projects, in Africa and globally, with asset owners at COP28; we remain committed to playing our part in supporting collaborative efforts to getting climate projects off the ground.

Evolving approaches to transition investment

Mercer believes a wider definition of transition is needed today. Increasingly, carbon reduction is being considered as a prerequisite to investment in economies with emissions yet to peak. To effectively mitigate emissions and greenhouse gases globally, we believe that investment must seek to ensure adaptation to the physical impacts of climate change; champion the role of nature; adopt circular economy approaches and support principles of equality for sustainable development.

Through our 2023 Global Asset Manager Survey of asset managers – collectively managing US$30 trillion – we highlighted that while 58% of managers committed to net zero targets have allocated less than 5% of their total assets, nearly a quarter (23%) of managers to have set a net zero target have committed more than half of their assets towards a net zero pathway.

Institutional investors represent the largest pool of capital within the private sector, yet recent estimates that their combined contribution to average annual investment flows into climate finance (including mitigation and adaptation financing) is just 0.01% of their asset base.[2]

Assets are in transition, but the scale of transition-oriented investment needs to expand exponentially.

Collective learning and collaboration

At COP28, collaboration between institutional investors, companies and industry stakeholders reached new levels.? Mitigation and adaptation solutions seeking to respond to the physical risks of climate change showcased how to move capital away from high emission assets with low transition capacity. Investments into low- or zero-emitting assets with high transition value featured prominently, alongside approaches to tackling the most high-emitting sectors with companies promoting, for example, green steel and lower carbon cement.

The timeline for building and implementing solar energy at industrial scale is now less than 18 months from plan to installation – compared to a coal fired power station, which can take 10 plus years to build.

This type of comparison and analysis was shared in countless presentations, assessing the resource and carbon footprints of renewable technology, demand for critical minerals and environmental and social impacts relative to traditional fossil fuel generation.

Broadly, new technologies were deemed to be four times more resource and carbon intensive from a zero baseline, relative to 20 times more resource intensive if using fossil fuel generation. The momentum behind the growth and innovation across new and evolving solutions and technologies was thrilling to witness first hand - windows made of photovoltaic cells, microgrids and green hydrogen being used to power hospitals – epitomized by the host country’s renewable energy centerpiece, the Noor solar installation, the largest in the world.

At COP29, the core pillars of transition and finance will remain central to closing the trillion-dollar gap to fund a green economy and progress towards a net zero outcome.

Next year, the New Collective Quantified Goal for finance will bring nations together once again, continuing our collective progress towards the full transition that we are all part of, to safeguard and protect a fragile future.

Helga Birgden , Global Chair, Sustainable Investment

See our important notices: https://www.mercer.com/solutions/investments/important-notices/

[1] Mercer, and its affiliates, is not acting as an underwriter of the deals or functioning as a broker-dealer or agent of the deal sponsors.

[2] Climate Policy Initiative. Global Landscape of Climate Finance 2021, 2021.

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