COP28, currently taking place in Dubai, marks a critical junction for global efforts to address climate change. Irina Velkova looks at the key implication of the finance day from this year’s event and explains what firms can take away from it.

More than ever before, COP28 has brought world leaders, policy makers, activists, and businesses into one location to discuss and implement strategies for mitigating the threat of climate change. This year aims to hold institutions to account and ensure they're responsibly improving sustainable finance, managing their financial risks, and meeting their climate targets.

Day four of the event, termed finance day, took a closer look at the private sector. The agenda going into the day was to increase investment into sustainable technologies, funding for mitigation and how to reassess financial efforts to help regions most impacted by climate change. In general, the discussion was positively influenced by consideration of the most vulnerable and impact on indigenous peoples.

Climate finance

A key focus of the day was the topic of transitional finance. There were a variety of discussions held on how to adapt to a shifting economy as we push towards net zero. Looking at the key challenges for firms, decision making processes remains the priority, highlighting the need for improved data, talent and transition products internally to ease the transition. There was a lot of talk pointing to the fact that firms need to develop pathways to net zero and present it at a very granular level if we're to achieve real progress in transition.

The President of the UAE also announced a USD 30 billion fund for global climate solutions, as well as a USD 700 million in funding to help lower-income countries cope with the loss and damages accepted by global warming. In turn, governments will have to prioritise long-term gains and set granular targets to ensure lower-income economies reach their climate targets.

For UK firms, there will need to be closer engagement with the Government and regulators alike to unlock the investment opportunities of climate adaptation. Long-term climate strategies will need to take priority, and regulators will expect greater transparency and data from firms to meet these climate targets. Moving forward, firms will need to ensure that your organisation has sustainable, systematic climate goals, and highlight your commitment to net zero.

Voluntary carbon markets

Voluntary carbon markets were another key talking point this year. Carbon markets are trading systems to buy and sell carbon credits to help firms compensate for greenhouse gas emissions and seen as necessary tools to help nations hit their climate commitments. However, the carbon market is currently deemed 'the wild west' due to its lack of regulation. COP28 is the opportunity to provide the required regulatory clarity and transparency around this issue.

This year, we saw the introduction of a joint framework calling for the scaling of voluntary carbon markets. High-integrity, project-based carbon markets are essential to meeting net zero, with the goal of establishing a market that's credible and sustainable. In preparation, firms will need to ensure that they have strong climate plans in place to meet these targets and are ahead of the curve for regulatory action.

Gender equality

Gender inclusion was also a primary discussion point on day four. Global leaders highlighted the significance of diverse perspective to drive social equality and improve decision making, and  specifically, the need for women in senior management positions. None of this is new, but it gets a different impetus when reinforced at this particular forum. In contrast to expectations, day four at the conference offered multiple events led by women, and for women, a lot of them having a regional focus too.

Net zero

COP28 also saw the introduction of a new taskforce on net zero policy. The taskforce aims to hold firms accountable in meeting their net zero emissions commitments and aligning with regulatory policy. In turn, the goal is to develop a collaborative space that encourages insightful dialogue and insights among policymakers in advancing net zero policy to assess support and improve regulation to meet climate targets.

For firms developing a transition plan, this taskforce will be a spotlight on developing a sustainable climate initiative. Changing regulation means there will need to be a strong action plan in place, outlining the long-term sustainability and net zero targets clearly. This should feed into the processes, challenges, and framework of the firm moving forward.

Closing the gap

Closing the net zero finance cap was also widely discussed. Bold action is needed in finance to ensure we reach our global climate goals. Mark Carney, the UN Special Envoy on Climate Action and Finance, and former Governor of the Bank of England, highlighted three major gaps in finance to address:

Emphasis on data

Firms have made significant progress in the last two years to improve their data and disclosure standards. Moving forward, firms will need to expand access to that data.

Emphasis on action

Firms need to reassess how they think about the transition to net zero, and see it as "more than green". Adding on to the current focus on solar, wind and the green sector, firms will need to "go where the emissions are” to have an even greater impact long term.

Emphasis on investment

There's an increased need for capital flows in emerging economies. Firms will need to assess their current outreach and sustainability programmes.

To keep up with these targets, firms will need reliable data on the sustainability and climate targets of their organisation. Due to the evolving legislation and changes to the economy, it's important that firms plan ahead. This includes analysing the impacts of upcoming regulatory developments and assessing how to approach and embed them long term.

Finance day again highlighted the pivotal role the financial sector plays in moving towards a net zero economy. Negotiators need the input from investors. Equally, firms will need to ensure their strategies are aligned with climate goals and contribute to the broader sustainability agenda. Adapting to these measures not only ensures that organisations are meeting best practice, but also contributing to the collective effort to meet the wider climate initiative.

For more information, contact Irina Velkova.