The Global Stocktake
Operationalisation of the Loss & Damage Fund
Insurers in the Spotlight
Finance
Nature, Biodiversity and Food
Renewable Energy
Shipping
Construction and the Built Environment
Youth
The Climate Reality
Collaboration

The Global Stocktake

As set out in our pre-COP28 piece, this year's COP marked the first official GST under the Paris Agreement. The pressing question was whether the political response to the GST would adequately address the significant gaps highlighted in preceding technical assessments. This included the need to cut greenhouse gas emissions by 45% by 2030 relative to 2019 levels, an absence of adequate adaptation plans, and substantial shortfalls in climate finance.

The decision on the GST is available here. Key points include:

• Mitigation: Much debate was centred around whether the final text would include a 'phase-down' or 'phase-out' of fossil fuels. In the end a compromise was reached as parties agreed to 'transition away' from fossil fuels in energy systems.
  
  Other commitments include phasing out 'inefficient fossil fuel subsidies', 'tripling renewable energy capacity globally' by 2030, and 'substantially reducing' methane emissions by 2040.
  
  The wording, as often is the case to achieve consensus, could be tighter – no timeline is set for some key commitments; 'transitioning' is open to interpretation and not as strong as 'phase out'; and a inclusion of only a "phase-down of unabated coal power" will be disappointing for many.
  
  However, the direction of travel is perhaps clearer than it was - the consensus of the international community is to move away from fossil fuels. Notably, it is the first time a decision at a COP has included wording on the future of fossil fuels.
  
  
• Adaptation: The final text has been criticised by many for a lack of progress on adaptation. There is an emphasis on establishing early warning systems and nature based solutions. Most importantly, it includes a set of targets for 2030, developed through a two year work programme launched at COP26, in pursuit of the 'global goal on adaptation', established by Article 7 of Paris Agreement. The targets cover, amongst other things, water, food, climate related health impacts and the resilience of infrastructure. Non-party stakeholders (i.e. non-state actors) are 'invited' to support such targets.
  
  
• Finance: Pledges were made to various climate funds. The Loss and Damage Fund (operationalised at COP28 – see further below) raised US$792m by the end of the conference, and the Adaptation Fund another US$187m. The Green Climate Fund, mandated to support developing countries implement their nationally determined contributions (NDCs), received six new pledges during COP28, meaning its second replenishment has reached a record total of US$12.8bn for the next four years. While contributions are welcomed, the GST decision also highlights that these pledges fall short of the growing demand: adaptation finance needs of developing countries are estimated at US$215-387bn annually until 2030, and US$4.3 trillion per year needs to be invested in clean energy until 2030.

Operationalisation of the Loss & Damage Fund

A major breakthrough at COP28 was the agreement to operationalise the Loss & Damage Fund. This was agreed on the first day of the conference, putting an end to decades long negotiations.

"This agreement marks an important milestone in negotiations and the ability of the international community to come together on this issue should be celebrated. We know, however, that some estimates suggest loss and damage in developing countries as a result of climate change are close to $400bn annually, so there remains a significant shortfall. It's important to remember that the Loss and Damage Fund is not about liability or compensation, and communities in the Global South and elsewhere suffering as a result of climate change will continue to seek recourse for compensation elsewhere. Responsibility for climate change, and issues of climate justice, will continue to be subject to consideration by judicial bodies worldwide." (Duncan Strachan, Partner, DAC Beachcroft)

Insurers in the Spotlight

Hilary Clinton called for insurance reform to ensure the industry does not withdraw cover from riskier regions. A large number of insurers signed up to collaborate with the Task Force launched under the Joint Declaration on Credit Enhancement of Sustainability-linked Sovereign Finance, aimed at boosting sustainability-linked sovereign financing for nature and climate for lower income countries.

"In my experience, insurers want to play a key role in supporting the transition to net zero, as well as improving the resilience of those most vulnerable to climate change. The difficulty with providing such support is ensuring it is financially viable and governments have the financial strength to support insurers in their efforts. I have been impressed by the innovative solutions, products and collaborations that insurers are pursuing to overcome these hurdles." (Helen Faulkner, Partner and Head of Insurance, DAC Beachcroft)

Finance

The COP28 UAE Declaration on Climate Finance was issued by 13 countries representing 40% of global GDP. The declaration was made up of 10 commitments aimed at making finance available, accessible and affordable. One of those was to unlock private finance, as 'the largest source of financial flows for climate action'.

There was also a strong show of support for the International Sustainability Standards Board (ISSB) sustainability standards, with 400 organisations from 64 countries declaring their support to advance the adoption or use of the ISSB’s Climate Standard as the climate global baseline. Erkki Liikanen, Chair of International Financial Reporting Standards Foundation Trustees, made a commitment on behalf of the organisation to implement a capacity building programme to assist developing countries adopt and use the ISSB's Standards; advance jurisdictional adoption of the standards; and advance new standard setting initiatives to build the global baseline of sustainability-related disclosures. The UK is in the process of endorsing the ISSB sustainability standards – any push for greater harmonisation of sustainability disclosure standards at the international level should be welcomed.

"We know regulators, in particular the Financial Conduct Authority and Financial Reporting Council in the UK, alongside other stakeholders, are scrutinising corporate sustainability disclosures. It is important that directors remain engaged with these disclosures. The risk of greenwashing is very real and increasing." (Sarah Crowther, Partner, DAC Beachcroft)

Nature, Biodiversity and Food

158 parties signed a declaration on Sustainable Agriculture, Resilient Food Systems and Climate Action, committed for the first time to integrate agriculture and food systems into countries' NDCs and national adaptation plans.

There was also a strong acknowledgment of the role of nature in the final decision on the Global Stocktake, both with respect to mitigation, including the importance of meeting the target of the Kunming-Montreal Global Biodiversity Framework, and nature-based solutions to support adaptation. A Joint Statement on Nature, People and Climate was signed by both the Convention on Biological Diversity COP15 Presidency and the COP28 Presidency, alongside 18 countries, committing to implementing an integrated approach for climate and nature action in their national plans and strategies. Nature, Land Use, and Ocean Day on Day 10 of the conference included initiatives on mangrove restoration and a show of strong support by businesses and financial institutions for science based targets for nature and the TNFD framework.

"It is really encouraging that the interdependency between climate and nature is now receiving increased recognition. Clients need to be aware that, like climate change, nature and biodiversity present physical, transition and legal risks to their businesses. Equally, there are also huge opportunities for insurers to support initiatives aimed at halting biodiversity loss and promoting its restoration." (Toby Vallance, Partner, DAC Beachcroft)

Renewable Energy

As set out above, the GST included a call on parties to triple renewable energy capacity globally and double the global average annual rate of energy efficiency improvements by 2030. 123 countries signed the Global Renewables and Energy Efficiency Pledge reaffirming a commitment to contribute to this target. A separate declaration to triple nuclear energy was supported by 22 governments, including the UK, France, UAE and US. An 'Energy Change Makers Award' highlighted 29 'game-changing innovative solutions' that had the potential to be replicated and scaled elsewhere, aiming to foster private sector collaboration in delivering innovative and scalable decarbonisation projects globally. Solutions include thermal energy storage, carbon capture technology and a 'round-the-clock' renewable energy project. 

"Insurers are being called upon to support and facilitate the transition to net-zero. Underwriting new renewable technologies is paramount. While emerging technologies can create risks to insurers, these can be mitigated by carefully considered policy wording." (Julian Miller, Partner, DAC Beachcroft)

"Renewable energy represents a considerable investment, both in terms of new projects and the expansion of existing ones. Insurers have a critical role in supporting the development of these projects. However, this is only possible with appropriate risk management. The balance between new technology and AI on the one hand and potential losses and accumulation risks on the other will be one of the challenges of the future." (Christina Eckes, Partner, BLD Bach Langheid Dallmayr)

"With China's decades long infrastructure and property driven growth model almost coming to an end, global supply chains continuing to diversify, and the rapid development of the country's renewable energy industry, it is unsurprising (but encouraging) to see China’s emission profile starting to change. Domestically, transitioning to renewable energy could be increasingly viewed as an opportunity rather than a burden, and we can expect China to continue its effort in this respect." (Nelson Wang, Head of China Desk, DAC Beachcroft)

Shipping

The shipping industry also had a significant presence at COP28, acknowledging not only shipping's contribution to global GHG emissions but also the vital role it can play in facilitating global trade in green energy, and the great strides the industry has made towards decarbonisation. 

While progress is being made at the international regulatory level, several of the world's largest carriers made it clear at COP28 that they wanted faster progress. The CEOs of Maersk, MSC, Hapag Lloyd, CMA CGM and Wallenius Lines issued a joint declaration setting out their views on four 'fundamental regulatory and economic elements' necessary for a viable legal framework. These echoed the kinds of mid-term measures proposed at the International Maritime Organisation, including an effective emissions pricing mechanism, but also went further by calling for a deadline for the banning of newbuild fossil fuel vessels and a pooling option to aggregate environmental performance. The coming together of competitors to provide a unified voice on decarbonisation was a common theme at COP28, with several collaborations announced, including multiple green shipping corridors.

"The joint declaration reflects broader concerns in the industry about the need to close the price gap between fossil and alternative fuels, and to incentivise investment in shipping support systems, most notably green fuel producers and the infrastructure necessary to develop and deliver green fuel in the scale, volume and geographies required to support a global industry. It also points to a growing consensus that more and better regulation can act as an important signal to shipping stakeholders, and provide a degree of certainty in an industry that is facing rapid change." (Joanne Waters, Legal Director, DAC Beachcroft)

Construction and the Built Environment

27 countries, including the UK, aim to make 'near-zero and resilient buildings' the new normal by 2030. The building sector accounts for almost 40% of global energy related CO2 emissions, 50% of extracted materials and one third of global waste. There was also a Cement and Concrete Breakthrough launched by Canada and the UAE, endorsed by the UK, Ireland Turkey and Germany, which aims to promote 'clean' cement and ensure near-zero emission cement production is established in every region of the world by 2030.

"The launch of the Buildings Breakthrough pledge at COP 28 demonstrates the construction sector's global commitment to the transition to net zero. This sector is at the forefront, holding immense potential for transformational change. It also represents a significant investment opportunity and is fundamental to our economic growth domestically. To that end, it is hugely positive to see industry bodies working together with our government to push initiatives that will bring benefits to the entire lifecycle of the project. We continue to work with the sector and look forward to greater clarity and support from the government around these targets, to help the sector achieve these laudable aims." (Rebecca Austin, Partner, DAC Beachcroft)

Youth

Youth voices at COP28 were louder than ever, with hundreds of young civil society delegates attending from around the world and 100 young delegates selected from under-represented groups by the COP28 Youth Climate Champion, Her Excellency Shamma Al Mazrui.

The equitable phase out of fossil fuels, improved stakeholder engagement, and intergenerational climate justice were just some of the key themes presented in youth-held dialogues. There was also a renewed commitment to green education, evidenced by the establishment of the first greening education hub and the graduation of the first cohort of 100 International Youth Climate delegates, in collaboration with YOUNGO, Harvard and the UNFCCC.

Youth side-events highlighted that young people are champions of international law; Pacific Islands Students Fighting Climate Change were at the summit, building momentum on their successful campaign for an International Court of Justice advisory opinion seeking to clarify state obligations relating to environmental treaties, human rights, and intergenerational equity. While not legally binding, such an advisory opinion would be instrumental in providing legal certainty and heavily influence political processes.

At the Leaders’ Event and the Student Energy Summit, youth demanded that businesses and organisations bring greater ambition to the table.

"Young people are our future leaders, and their voices are integral to our just transition to net zero. Businesses should ensure meaningful engagement with youth is facilitated to foster innovation and accelerate action. Insurers, in turn, are uniquely positioned to role model these efforts for their clients." (Phoebe Nikolaou, Solicitor, Wotton + Kearney)

"One of the big challenges facing insurers is attracting and retaining young talent. A highlight of my own role is helping to ensure colleagues remain up to date with climate developments and risks facing our clients. Showcasing the sector's commitment to tackling climate change and developing innovative products to support the transition could be an effective solution to this issue. Opportunities for graduates to work on climate issues are really attractive." (Koye Adeyeye, Trainee Solicitor, DAC Beachcroft)

The Climate Reality

While progress was made during the negotiations, a stark reminder of the climate crisis that we are already facing was never far away. The World Meteorological Organisation released a report on the first day of the conference indicating that 2023 is set to the be the warmest year on record, with average temperatures around 1.4°C above pre-industrial levels. 2024 is set to be another record year. UN Secretary General Antonio Guterres told COP 28 delegates that "We are living through climate collapse in real time". 

"The climate has changed and continues to do so – the direction of travel is clear. We will continue to see more extreme weather events – floods, droughts, wildfires and heatwaves. We have seen increased litigation against companies who fail to properly adapt to these evolving but foreseeable risks. Companies must have comprehensive governance and plans in place to ensure resilience to this new normal and to mitigate their exposures in the event that their organisations suffer climate related losses at some future point ." (Simon Konsta, Partner, DAC Beachcroft)

Collaboration

A significant moment, not seen before at a climate COP, was the coming together of 2,000 signatories to sign a letter which called for the COP28 Presidency and Parties to deliver a 1.5 °C outcome to the GST:

"We – CEOs, mayors, governors, investors, Indigenous peoples, health professionals, young people, faith leaders, scientists, athletes and more – stand in courage and resolve with the COP28 President and all Parties in bringing us together behind a rapid response plan to the Global Stocktake."

While there are inconsistencies and frustrations at the positions of some governments, the momentum and collaboration among civil society, business, investors and others provides a sign of hope. Change is not just driven by international negotiations, but the actions of other stakeholders who drive innovation towards a more sustainable future.

COP29 is taking place in Azerbaijan from 11 to 24 November next year – keep your diaries clear.

With special thanks to contributors Christina Eckes, Partner, BLD Bach Langheid Dallmayr and Phoebe Nikolaou, Solicitor, Wotton+Kearney, both members of our Legalign alliance.