Impact of the 'Finance COP' for private capital firms
The 29th Conference of the Parties (COP29) kicked off this week in Baku, Azerbaijan. The UK's Prime Minister was one of a relatively small number of world leaders who showed up – signalling the UK's renewed commitment to net zero. Sir Keir Starmer says he wants to make the UK a "green energy powerhouse", emphasising the important role for the private sector. So what could COP29 – a vital annual milestone for the 2015 Paris Agreement – mean for investors in the UK and beyond?
This year's COP may not go down as one of the more successful. The hosts declared that oil and gas are "gifts from god", and many of the conversations concerned the anticipated (second) withdrawal of the United States from the Paris Agreement.
But there are encouraging signs that other participants will continue to set ambitious targets. The UK is one, announcing this week that it has accepted the advice of the UK Climate Change Committee and is aiming for an 81% reduction in greenhouse gas (GHG) emissions from 1990 levels by 2035. That's a small increase from the UK's previous goal – but is confirmation that the UK wants to be a climate leader, not a laggard.
The government is clearly focused on setting a policy agenda that will unlock investment opportunities for the private sector, and such long-term stability in climate policy is certainly something that investors crave.
But using public money to crowd in private sector investment will also be key, and the government has made several recent announcements that aim to do that. For example, the National Wealth Fund is designed to mobilise private investment. A new British Growth Partnership will enable institutional investors to invest alongside the British Business Bank on a fully commercial basis.
These are clearly positive developments for those raising funds to invest in green projects here in Britain.
However, investment in developing markets is also vital. Independent experts estimate that, by 2030, $2.4 trillion a year will be needed in emerging markets and developing countries – EMDCs – outside China to achieve the goals of the Paris Agreement. For that reason, the "New Collective Quantified Goal on Climate Finance" (NCQG) was introduced by the Paris Agreement to stimulate finance for EMDCs. Agreeing the NCQG represents one of the most important goals of COP29 – indeed, it has been dubbed the 'Finance COP' for that reason.
It is likely, therefore, that representatives from Europe will come back from Baku with renewed impetus to increase finance to countries that will otherwise struggle to make the investments needed. At a time when public money is in short supply, policymakers will, in turn, look to the private markets to play their part.
That will create opportunities for private capital firms with a global mandate – especially those that engage with government now to identify obstacles and propose solutions.
Simon Witney
Simon is Senior Consultant at Travers Smith and a member of the BVCA’s Research Advisory Group, which brings together academics and practitioners to support the BVCA’s work.
