As the United Nations Climate Change Conference starts in Dubai this week, with an early breakthrough made on the climate disaster fund, Craig Cameron, portfolio manager of the Templeton Global Climate Change Fund, outlines five themes to be tackled at COP28, focusing on renewables.

After the 28th edition of COP began in Dubai this week, Craig Cameron at US-based investment manager Franklin Templeton thinks the event offers the first test of the 2015 Paris Agreement’s influence on government actions on tackling climate change.

The first-ever Global Stocktake – a progress report of sorts for member countries’ climate policies – has been published to coincide with this year’s COP. “The grades are woeful, showing that current policies and actions fall well short of what is needed to align 2030 emissions with a 1.5C warming scenario,” Cameron said in a note. 

“While it is not groundbreaking news to know we’re not currently on track for the 1.5C target, the findings unveiled at COP28 can be leveraged to accelerate ambition in the next round of climate action,” he added.

At COP27 last year, an agreement was also made to establish a loss and damage fund to aid poorer countries cope with climate disasters. Progress on turning an agreement into action has been slow, but a breakthrough on this new fund was made at the start of the COP28 on Thursday which COP28 president, Sultan Ahmed Al-Jaber, said sent a positive signal for the talks. Nevertheless, some groups think it is too early to celebrate the fund’s early adoption, as there are still some unresolved issues.

The event, taking place at the end of a year in which the pursuit of Net Zero policies remains often politically controversial, has created an opportunity for wealth managers to work out how such issues should shape their asset allocation strategies.

Outlined below are five topics which Cameron wants addressed at COP28.

Urgency and ambition for both policy and action
The window for meaningful accordance with the Paris Agreement pathways is closing – we are now more than halfway between the agreement of 2015 and 2030, when many targets need to be achieved to remain on track. For emissions to track a 1.5C pathway, it is estimated that annual emissions need to fall around 43 per cent from 2019 levels by the end of the decade.

During COP28, UN member states will have the opportunity to respond to the findings of the first Global Stocktake, and Cameron hopes the severity of the report card plus the plan to reproduce this stocktake every five years, will be enough for the response to recognize the need for significantly more urgency, ambition, and cooperation from political leaders.

As investors seeking to invest in companies providing solutions which contribute to a reduction in emissions, he sees significant upside potential in many of these companies from more ambitious legislation and targets.    

Electric vehicle rollout and investment
The current electric vehicle adoption rate, measured as a percentage of new vehicle sales, was around 14 per cent in 2022, and is on track to reach around 18 per cent this year. The growth in electric vehicle adoption has been significant, supported by both consumer behavior and policy. However, it remains well below the International Energy Agency’s (IEA) estimate that 65 per cent of new car sales will need to be electric by 2030 to stay on track with the net zero ambitions, Cameron said. This means that the growth in electric vehicle adoption needs to roughly double from here on to stay on track with that scenario. This could be achieved through both falling sales of traditional vehicles or accelerating sales of electric vehicles. While recent newsflow around the electric vehicle sector has been mixed, he believes that falling prices – and potential new legislation and commitments – can help to re-accelerate the market through the remainder of the 2020s.

For investors focused on climate change, Cameron believes that an increase in electric vehicle adoption presents a huge economic opportunity, not only for the manufacturers and suppliers of electric vehicles, but also in adjacent industries and sectors including lithium extraction, aluminium production, auto parts, and batteries.

Powering the growth of renewables
Ahead of COP28, the COP28 president, Sultan Ahmed Al-Jaber, was urging agreement on new goals for renewable energy as well energy efficiency, which may serve as a pointer to the types of agreements this year’s event may be targeting as a sign of ‘success’. The goals are not small; Al-Jaber has been urging COP28 members to agree to goals of tripling renewable energy capacity by 2030 while doubling the rate of energy efficiency improvements, Cameron continued.

This need comes at a point of pain for the renewable energy sector, suffering from rising interest rates and soaring costs, which have impaired the economics of new projects, all while the price of energy from fossil fuels has risen. To some extent, the UK government took the lead on this in early November, announcing an increase to the maximum price it was willing to pay to future offshore wind farm auctions by 66 per cent, Cameron said. Despite the rise, this remains well below the price that end consumers are paying for power, highlighting the ‘room’ for higher renewables pricing in an environment of higher energy prices. More support like this will be needed globally to achieve the ambition Al-Jaber and COP28 are seeking to achieve, he added. 

Progress on funding between countries
One area highlighted by the Global Stocktake is that despite global emissions continuing to rise, emissions from countries considered ‘developed’ have already peaked. While some developing countries have already started to reduce their emissions, it is a big ask for developing countries which have already built reliance on cheap fossil fuels during the growth of their economy to switch course as urgently as required.

At COP27 last year, an agreement was made to establish a loss and damage fund to aid those exact countries. Progress on turning an agreement into action has been slow, but a breakthrough on this new fund was made at the start of the COP28 on Thursday which Cameron, together with other investment managers, has been calling for. Swiss private bank Union Bancaire Privée said it wanted to see concrete details emerge at COP28 of a loss and damage fund.

Furthering carbon capture technologies and nature-based solutions
A whole range of technologies and solutions will be needed, not only to get back on track for a 1.5C target, but to help mitigate years of excess emissions and offset the areas of the economy that are hardest to decarbonize, Cameron continued. Efficient, cost-effective carbon capture technologies could help mitigate some of the challenges we face from the energy transition, such as renewable energy intermittency, or the sunk cost of decades spent building a fossil-fuels-based infrastructure. However, funding and support is needed to invest in and scale these technologies. This is another area that needs more urgency and greater ambition, he said.

Moreover, carbon trading, credits and markets are essential for companies to reduce emissions in an effective way, and a formal acknowledgement of this would be the first step in legitimizing these pathways. An agreement on the long-term fungibility of credits would be a welcome first step in the implementation of these decarbonization alternatives, provided that they are well regulated and audited to help ensure truly meaningful carbon sequestration. Cameron believes that very few decarbonization technologies can create broader positive societal and biodiversity benefits in the way that nature-based solutions can.

See more here about COP28 and what wealth managers expect and what they hope for.