Private sector crucial for COP28 success
There are different views on the success of last year's COP27. But if you look at it through the lens of the developing countries across Africa and the Middle East, you will see it was successful.
As promised, COP27 made voices - of Africa specifically and the developing world - heard on climate issues. It managed to make loss and damage an agenda item in terms of funding, the details of which continue to be discussed throughout this year.
But since COP27, the geopolitical situation and specifically war in Ukraine continues to cast its shadows on the world, reminding us that we still do not have the technology at scale to switch off the fossil fuel tap.
It results in decisions like that of Bulgaria voting to roll back plans to decarbonise the country's energy sector or the recent breaking of HSBC’s pledge to “seek to withdraw” from funding fossil fuels - by granting a $340m loan for an energy company to expand a coal mine in Germany.
It is against this backdrop that the UAE hosts COP28 - the second COP in a row to be hosted in the Middle East and North Africa. So what do we hope for it to achieve?
Increased private sector engagement is a key aspect of the climate change discussion. First, because the amount of money needed to address climate change is too large for governments alone to fund, even with the help of development banks and philanthropy.
Governments will need to rely on private sector finance in the form of banks, financial institutions, insurers and investors at large.
Second, any commitments that countries make to reduce emissions in reality have to be equally implemented by the private sector anyway.
For that to happen, we need companies to understand what the climate means for them and the impact it has on their business. That is then translated into reporting and enabling investors to assess the resilience of companies and price the risk into their investments.
In the Middle East and North Africa region, where I am based, despite the fact that many companies have started to produce sustainability reports, a closer look shows we are still very far from companies truly appreciating what climate means for businesses and how it will impact them today, tomorrow and in 10 years’ time.
COP28 represents another opportunity for better engagement on how this crisis affects the private sector and how businesses should incorporate all this information into their models to become more resilient and more investible.
The Middle East and North Africa region’s influence is growing, as evidenced by two COP summits in a row being held in its countries. That has certainly raised awareness of the topic regionally.
However, in order to see private sector engagement at the levels we are seeking, the private sector needs clarity on the direction of travel. That is clear government policies on how they will tackle climate issues; which sectors will be affected and in what order; and the legislative policy that will be pursued. These are all needed to provide investors the long-term view that enables them to make investment decisions.
Bringing the private sector in, as discussed above, is one thing, but setting out government policies is another.
There is still too much focus on mitigation (efforts to reduce emissions) over adaptation (the often difficult adjustments in ecological, social and economic systems in response to climate policies).
While mitigation itself can be seen as an adaptation and resilience tool by seeking to alleviate the intensity of the risk, we cannot ignore the fact that as we move to achieve net zero by 2050, the world on a daily basis has to grapple with the impact of not being there already.
We need to consider how to protect communities and economies from issues like the already rising sea levels, increased heat and droughts and the resulting shortage of food and water. We need to invest in irrigation and water technologies and improve resilient crops - the list is quite long.
The UNEP’s 2021 Adaptation Finance GAP Report estimated adaptation finance needs in developing countries will reach $140bn to $300bn per year by 2030, and $280bn to $500bn per year by 2050. We saw financial institutions commit $130tn to achieve net zero at COP26. A significant portion of this money needs to be channelled to adaptation finance.
In its Just Finance initiative, the Egyptian presidency of COP27 tried to overcome the biggest hurdle in adaptation finance, namely that most of these projects are not in investment grade countries, or are too high-risk for the private money risk profiles needed. Egypt itself was able to secure around $25bn in financing for adaptation projects that were mixed with mitigation and credit enhancement techniques.
All eyes are on COP28 and the delivery of our wishlists with its vision, announced only recently by the presidency, of being the “COP of solidarity, bridging the gap between North and South, a COP that includes all segments of the community: public and private sector; and a practical COP that focuses on getting it done across adaptation, mitigation, loss and damage and finance”.
Luma Saqqaf is Chief Executive of Ajyal Sustainability Consulting.
