Did COP28 make progress on recognising the importance of nature?

We are pleased to see a significant focus on nature at COP28 this year, with one of the main objectives of the conference being to put nature, people, lives, and livelihoods at the heart of climate action. We set out below a series of key nature-related messages that emerged from COP28 and contemplate the consequences for asset managers.

Progress on reviving credibility of carbon markets

“Nature-based solutions to address climate change are a critical tool in the international response to the twin biodiversity loss and climate crises, and the voluntary carbon market is an important mechanism to channel finance to these solutions.”¹

This year has seen intense scrutiny of voluntary carbon markets (VCMs). Verra, the world’s largest certifier for carbon credits in VCMs, faced allegations that more than 90% of the rainforest carbon offsets it had approved did not represent genuine carbon reductions.² One high profile example was the collapse of the credits associated with Zimbabwe’s Kariba REDD+ Forest Project.³

Since the adoption of the Paris Agreement at COP21, there has been an outstanding clause regarding carbon market frameworks. Article 6 of the Paris Agreement outlines an international regulatory framework for carbon trading among states and private actors, divided into two mechanisms:

• Article 6.2: A de-centralised mechanism for countries to transfer their emissions reductions or removals to other countries – these traded credits are called Internationally Transferred Mitigation Outcomes (ITMOs); and
• Article 6.4: A centralised global carbon market, overseen by the United Nations, where developers of emissions reduction and removal projects will be able to trade credits – known as A6.4ERs – with companies, national governments and individuals.

It is the latter that is particularly relevant. Progress on enacting Article 6 was made at COP27, with a document drafted outlining how carbon trading would function, but further decisions were delayed to this year’s conference. At the first week of COP28, we saw a real push to revive the credibility of carbon markets. This included:

• The world’s six leading independent carbon crediting standards announcing a collaboration to increase the impact of activities under their standards;
• The US Commodity Futures Trading Commission approving proposed guidance regarding the listing for trading of voluntary carbon credit derivative contracts;
• The Board of the International Organization of Securities Commissions (IOSCO) launching a Consultation Report outlining a set of Good Practices to promote the integrity and orderly functioning of the VCMs; and
• A coalition of 15 countries published a roadmap for strengthening and scaling investment in forest carbon results and credits.⁴

We hope that this momentum will continue, given the critical importance of nature-based solutions in keeping 1.5C in reach. This standardisation will also play an important role in giving investors the confidence to allocate capital towards nature-based solutions.

Food and agriculture

Several heads of state from countries including China, Brazil, the US and the UK, made a joint declaration on ‘Sustainable Agriculture, Resilient Food systems and Climate Action’.⁵ This recognises the critical role agriculture plays in contributing to global greenhouse gas (GHG) emissions and the importance of supporting a transition to regenerative agricultural practices to underpin food security and livelihoods. This includes a commitment to:

• Scale up resilience and mitigation activities.
• Promoting food security and nutrition
• Supporting agricultural workers
• Strengthen water stewardship
• Protecting and restoring important ecosystems

While this ambition is laudable, the statement lacks specific goals or targets that will enable these aspirations to be met.

By contrast, a separate coalition of Brazil, Cambodia, Norway, Rwanda, and Sierra Leone supported a series of more stretching targets⁶ for transforming food systems.

The FAO (Food and Agriculture Organization of the UN) meanwhile has published a roadmap⁷ to achieve 1.5 degrees while meeting Sustainable Development Goal 2 (SDG2) – to end hunger and malnutrition by 2030. This includes specific actions and targets such as cutting methane emissions from livestock by 25% and zero gross deforestation by 2035.

Oceans recognised as a key pillar of climate mitigation

The ocean generates 50% of the oxygen we need, absorbs 25% of all carbon dioxide emissions and captures 90% of the excess heat generated by these emissions.⁸ It is central to stabilising the Earth’s climate. The WWF estimate that $8.4 trillion could be at risk over the next 15 years if we continue down a “business as usual” trajectory due to declining ocean health and climate change.

Marine-based industries can be both inhibitors and enablers of the climate transition. A shift is required from fossil-fuel intensive industries, such as shipping and industrial fishing, to a more sustainable use of ocean resources for economic growth, improved livelihoods and ocean ecosystem health. Solutions such as marine renewable energy and sustainable aquaculture are being proffered as positive contributors. COP28 aimed to shine a spotlight on the importance of the oceans in the climate context, with a specific Ocean Pavilion hosting more than 70 events.

Despite the ‘Blue Economy’ having an estimated $2.5 trillion annual turnover – equivalent to the world’s 7^th largest economy – SDG14: Life Below Water remains the most underfunded Sustainable Development Goal. Recent reports suggest that $175 billion per year is needed to achieve SDG14 by 2030; and yet, between 2015 and 2019, just below $10 billion was actually invested.⁹

Among investors, interest in Blue Economy is high, but industry expertise is low. However, we anticipate that with this greater appreciation of the interlinkage between climate mitigation and sustainable ocean management, in addition to the recent signing of the legally binding UN High Seas Treaty in September 2023, we could be at a pivotal moment for oceans.

Looking ahead to COP16

With COP28 now over, the final text from the Presidency underlines “the urgent need to address, in a comprehensive and synergetic manner, the interlinked global crises of climate change and biodiversity loss in the broader context of achieving the Sustainable Development Goals, as well as the vital importance of protecting, conserving, restoring and sustainably using nature and ecosystems for effective and sustainable climate action”. The final text also:

• Emphasises the importance of reversing deforestation by 2030 and notes the need for financial resources to promote incentives for reforestation.
• Invites parties to preserve and restore ocean ecosystems.
• Notes the importance of circular economy approaches.
• Encourages the implementation of integrated, multi-sectoral solutions, such as land-use management, sustainable agriculture, resilient food systems, nature-based solutions and ecosystem-based approaches.
• Urges action towards several nature linked targets for 2030, including attaining climate resilient food and agricultural production.

Colombia has offered to host COP16 (Convention on Biological Diversity) next year, after Turkey withdrew its presidency following the devastating earthquakes that shook the country earlier this year. Parties to the convention will need to publish their National Biodiversity Strategies and Action Plans to meeting the goals of the Global Biodiversity Framework ahead of that conference.

These action plans will give important signals to investors about the policies that individual countries will implement to support a nature positive future.  This will indicate the strength and speed of transformation required in industries with very high impacts on nature such as agriculture, energy, and materials. Importantly, this will help us to assess investment risks and opportunities associated with that transition.

¹ High integrity is the only way forward for the carbon markets | Fauna & Flora (fauna-flora.org)

² Revealed: more than 90% of rainforest carbon offsets by biggest certifier are worthless, analysis shows | Carbon offsetting | The Guardian

³ South Pole exits troubled Kariba carbon project over quality concerns – Sustainable Views

⁴ CCS1123938356-001_PN7845451_Charlie-Speller-Forest-Climate-rpt-Accessible-1-1.pdf (forestclimateleaders.org)

⁵ COP28 Declaration on Food and Agriculture

⁶ The Alliance of Champions for Food Systems Transformation

⁷ inbrief-roadmap.pdf (fao.org)

⁸ The ocean – the world’s greatest ally against climate change | United Nations

⁹ ACCELERATING INVESTMENTS IN SDG 14 AND THE SUSTAINABLE BLUE ECONOMY | Department of Economic and Social Affairs (un.org)