From COP21 to COP23: What are the signals that investors should be looking for from the COP in Bonn?

Why COP 23, which started today, isn’t all about policymakers

And so the circus returns. The climate COP in December 2015 was such a landmark, but it’s not easy to dismiss the reflex thought that these big international gatherings on the climate change negotiations (or, to give the annual meeting its proper designation, the Conference of the Parties (COP) UN Framework Convention on Climate Change (UNFCCC)) have invariably failed to deliver. But the Paris Agreement– where, crucially, every country agreed that they are obliged (though not legally bound) to make their own individual contribution towards tackling climate change – really did change the game.

Two years on from that historic meeting, delegates meet from 6 November at COP 23 in Bonn in a somewhat ambivalent mood. On the one hand, the momentum continues, driven by policy makers, investors, corporations, cities and municipalities. There is a prevailing consensus that: not only is the transition to the low-carbon economy underway; but that a combination of domestic policy measures around the world and the spiralling fall in the costs of wind and solar technologies means that this transition is accelerating.

On the other, the worst fears of 12 months ago, when COP 22 in Marrakesh was greeted by the surprise election of Donald Trump to the US Presidency, have been realized. In May, Trump announced that he will withdraw America from the Paris Agreement because “it’s a bad deal for the US”. In procedural terms this withdrawal will take four years to complete, but one of the sub-plots in Bonn will be how the US delegation behaves: passive bystander or disruptive participant?

Bonn will make no major decisions. But it still matters for investors who want to better understand the scale, pace and implications of the low-carbon transition. At the high level, the most important takeaway will be whether this international climate show stays on the road. 2018 will be a more significant year: it will be the first occasion for the parties to come together to assess their progress against the national emissions reductions goals they submitted to the Paris Agreement. So COP 23 will be about finalizing the rulebook for this 2018 stocktake (known as the “Facilitative Dialogue”), and making sure the building blocks are in place.

On the geo-politics, the investment community should be reassured that no other industrialized country is following the US through the Paris exit door. On the contrary, although there remain tensions between developed and developing countries about how ambitious their national climate polices should be, the indications are that Trump’s climate stance has if anything stiffened the resolution of the rest of the international community to stick firmly with Paris.Critically, this includes China; and all stakeholders will want to be reassured that China’s behaviour on the international stage is in line with the stream of domestic policy announcements and measures on decarbonization to have emerged in recent months.

Signals from financial policymakers and regulators are also key for investors. COP 23 may not have much to deliver on that front – although it’s worth recalling that the Taskforce on Climate-Related Financial Disclosures (TCFD) was launched by Mark Carney and Michael Bloomberg at the Paris COP two years ago – but it will be followed hotfoot by the international climate summit that President Macron is convening in Paris in December, to mark the two-year anniversary of the Paris Agreement. The French have determined to make climate finance the focus of this summit, and they are pushing for a number of announcements. It will be interesting therefore to hear what that summit says about the TCFD, perhaps the European Commission’s High-Level Expert Group on Sustainable Finance – and on bringing the Sustainable Development Goals into investor and finance planning, where there is something of a push. The summit will also help showcase the policy framework, symbolized by the Energy Transition Law, the French are adopting on climate and transition risk disclosure.

COP 23 isn’t all about policymakers, of course. A developing theme in recent years has been how investor coalitions have used the COP to launch initiatives. We may for example hear from the PRI and UNFCCC and their work and engagement on ESG in credit ratings; from the UN, World Bank and investors on developing blended finance vehicles and tools to contribute towards the sustainable development Agenda 2030; and from the Sustainable Stock Exchanges (SSE) Initiative on their new “Guidance on Green Finance”. Green and sustainability bonds will remain high on the COP agenda; as well as the financing of sustainable infrastructure, including at cities and municipality level. Individual corporates may wish to use the meeting in Bonn to highlight the progress they are making with TCFD and SDG commitments in relation to strategy, disclosure, governance, targets and metrics.

Which is a long way of saying there’s a lot going on. Investors should stay firmly tuned over the next few weeks. See you in Bonn – or Paris.

Richard Folland and Shuen Chan are Partners at Sustineri.