UN COP29 Investment Perspective: Vision, Innovation, Momentum

The importance of COP

The United Nations’ Conference of the Parties (COP) hosts global leaders to address environmental challenges. Issues are mostly climate-related, but in recent years negotiations have also addressed impacts to energy security, food security, biodiversity loss and water scarcity. 2024’s meeting about climate change, known as COP29, was held in Baku, Azerbaijan; in 2025 Belém, Brazil will host COP30, marking the 10-year anniversary of the international treaty on climate change known as the Paris Agreement. 

In a new report from a team led by Anita McBain, Head of Sustainable Investment Research, we explain why COP is important to not only global leaders but also investors. If left unchecked, climate change poses systemic risk to the global economy, meaning investors need to assess, manage and mitigate risks that could become financially material. 

We categorize climate negotiations according to two relevant strategies. The first is the pursuit of reducing emissions and bringing malleability into business models. The second is centered on opportunities to provide climate-change solutions. 

The pursuit of decarbonization, which is the process of reducing or eliminating carbon emissions, goes beyond National Determined Contributions (NDCs) to include technological developments that solve for a changing economy. Despite the prospect of the U.S. withdrawing from the Paris Agreement, we expect corporates to keep pursuing value-creation opportunities presented by the global energy transition. Such efforts are assisted by initiatives such as the Corporate Coalition for Innovation and Technology Toward Net Zero (CCITNZ) in the U.S., a multi-sector business alliance which is looking to aid global decarbonization efforts through technological solutions.

Outcomes From COP29

As the gavel came down at COP29 Baku, we noted that progress on several issues suggested forward thinking and a desire to increase efforts to mitigate and adapt to climate change. Two G20 countries, the UK and Brazil, disclosed updated NDCs, signaling plans to ramp up climate action in the interests of the economy and national security. 

An agreement was reached to triple climate finance for developing countries to $300 billion annually by 2035, with a goal of scaling up financing from public and private sources to $1.3 trillion a year by then. This agreement is expected to accelerate investment in clean energy, driving job creation, growth and cheaper and cleaner energy. The International Energy Agency (IEA) expects global clean-energy investment to top $2 trillion for the first time this year. But we note that the climate-financing agreement failed to offer detail about how the goal of $1.3 trillion by 2035 will be achieved.

Investments in solar photovoltaic (PV) technology are projected to exceed $500 billion in 2024, surpassing all other generation sources combined. Solar-panel costs have decreased 30% over the last two years, and prices for minerals and metals crucial to the energy transition have dropped. Investments in nuclear power are expected to pick up, rising to $80 billion this year after years of decline. And we note clean-energy progress in India, Brazil and parts of southeast Asia and Africa that reflects policy initiatives, public tenders and improved grid infrastructure.

Issues of note

UN COP29 Baku, Azerbaijan

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Source: Citi Research

Here are takeaways on progress we saw in Baku on climate-related issues:

• COP29 saw pledges and declarations endorsed by 150 parties about energy storage grids, zones and hydrogen, with the EU and 25 countries outlining ambitions to propose national climate plans with no new unabated coal in their energy systems.

• On the food security front, COP29 brought the launch of the Baku Harmoniya Climate Initiative for Farmers, an initiative aimed at helping farmers navigate dozens of programs and efforts aimed at supporting climate-resilient agrifood systems transformation.

• Water security saw some 50 countries sign the Declaration on Water for Climate Action, which acknowledges water is at the heart of climate change and is a vector through which climate impacts are being experienced. The declaration seeks to promote partnerships aimed at enhancing the effective integration of water-related initiatives, generate more scientific evidence of climate change’s effects on water resources, and enhance water-related climate policy actions.

• Work to address deforestation and biodiversity loss saw Brazil announce its NDC goals, which include plans to suppress illegal deforestation. The UK pledged more than $299 million to address deforestation. And participants at the Forest & Climate Leaders’ Partnership highlighted the need to scale up climate-mitigation finance for forests, which receive 3% of available finance even though they sequester 20% of carbon emissions.

• More than 30 countries signed a pledge to reduce emissions of methane, with those signing the pledge cumulatively responsible for 47% of global methane emissions from organic waste.

• Social metrics saw the Loss and Damage Fund fully operationalized, with pledges exceeding $730 million to date. The fund is intended to help countries pay for damaged caused by climate-related disasters, and should now be able to start financing projects in 2025. Here, however, we note that a financing gap persists.

• Progress was made on carbon markets, an issue where agreements have proved elusive. Full operationalization of Article 6 of the Paris Agreement was achieved, establishing guidelines and rules aimed at clarifying how carbon credits are traded between countries.

• With demand for critical minerals expected to increase substantially, the UN Secretary-General’s Panel on Critical Energy Transition proposed seven voluntary guiding principles to aid strengthening critical-mineral supply chains.

The role of the U.S.

U.S. participation at COP29 was much reduced amid expectations that Trump will immediately withdraw from the Paris Agreement. But despite headline rhetoric about climate, we expect the Trump administration to capitalize on opportunities to innovate and grow the economy through sustainability solutions. We think a full repeal of the Inflation Reduction Act (IRA) is unlikely, given that Republican-leaning states have seen a substantial increase in clean-energy investments from the act, accounting for four times the share of IRA investments directed to Democrat-leaning states. 

We also note the efforts of the U.S. Climate Alliance, a bipartisan coalition of governors working on net-zero strategies by advancing state-led climate action. The alliance is made up of 25 governors, who represent approximately 60% of the U.S. economy.

Looking ahead to Belém

2025 will mark the 10th anniversary of the Paris Agreement, with efforts at COP30 concentrating on implementation rather than text. Financial solutions need to identified sooner rather than later, and ambition must come with financial resources. The private sector will have an important role and will allocate the capital. 

We expect a “Brazilian pact” ahead of COP30 to address the Amazon biome, soy, agriculture, livestock and transportation, fueling discussions in Belém. We also expect the World Bank and the International Monetary Fund to be part of the discussions around climate finance, with climate risk incorporated into mainstream investments.