The above image is of Attendees arriving for the opening of the U.N.’s COP28 climate summit in Dubai, United Arab Emirates, November 30, 2023. REUTERS/Amr Alfiky Acquire Licensing Rights
Summary
COP28 adopts new fund to help poor nations with disasters
U.S., Japan, UAE among first to announce new contributions
Countries and oil companies urged to work together
DUBAI, Nov 30 (Reuters) – The U.N. climate summit clinched an early victory Thursday, with delegates adopting a new fund to help poor nations cope with costly climate disasters.
COP28 president Sultan al-Jaber said the decision sent a “positive signal of momentum to the world and to our work here in Dubai.”
In establishing the fund on the first day of the two-week COP28 conference, delegates opened the door for governments to announce contributions.
And several did, kicking off a series of small pledges that countries hoped would build to a substantial sum, including $100 million from the COP28 host United Arab Emirates, another $100 million from Germany, at least $51 million from Britain, $17.5 million from the United States, and $10 million from Japan.
The early breakthrough on the damage fund, which poorer nations had demanded for years, could help grease the wheels for other compromises to be made during the two-week summit.
But some groups were cautious, noting there were still unresolved issues including how the fund would be financed in the future.
“The absence of a defined replenishment cycle raises serious questions about the fund’s long-term sustainability,” said Harjeet Singh, head of global political strategy at Climate Action Network International. “The responsibility now lies with affluent nations to meet their financial obligations in a manner proportionate to their role in the climate crisis.”
Adnan Amin, CEO of the COP28 summit, told Reuters this month the aim was to secure several hundred million U.S. dollars for the climate disaster fund during the event.
Pope Francis, who was forced to cancel his trip to COP28 due to illness, sent a message on social media platform X: “May participants in #COP28 be strategists who focus on the common good and the future of their children, rather than the vested interests of certain countries or businesses. May they demonstrate the nobility of politics and not its shame.”
A ROLE FOR FOSSIL FUELS
Earlier on Thursday, Jaber opened the summit by urging countries and fossil fuel companies to work together to meet global climate goals.
Governments are preparing for marathon negotiations on whether to agree, for the first time, to phase out the world’s use of CO2-emitting coal, oil and gas, the main source of warming emissions.
Jaber, who is also the CEO of the United Arab Emirates’ national oil company ADNOC, aimed to strike a conciliatory tone following months of criticism over his appointment at the head of COP28.
He acknowledged that there were “strong views” about the idea of including language on fossil fuels and renewables in the negotiated text.
“It is essential that no issue is left off the table. And yes, as I have been saying, we must look for ways and ensure the inclusion of the role of fossil fuels,” he said.
He touted his country’s decision to “proactively engage” with fossil fuel companies, and noted that many national oil companies had adopted net-zero targets for 2050.
“I am grateful that they have stepped up to join this game-changing journey,” Jaber said. “But, I must say, it is not enough, and I know that they can do much more.”
Another major task at the summit will be for countries to assess their progress in meeting global climate goals – chiefly the Paris Agreement goal of limiting global warming to well below 2 degrees Celsius (3.6 degrees Fahrenheit).
This process, known as the global stocktake, should yield a high-level plan telling countries what they need to do.
Reporting by Kate Abnett, Valerie Volcovici and Maha El Dahan; Additional reporting by William James and Alvise Armellini; Writing by Katy Daigle; Editing by Matthew Lewis, Miral Fahmy and Christina Fincher
At the COP27 summit in Sharm El-Sheikh, Egypt, an agreement to establish a loss and damage fund was hailed as a major breakthrough on one of the trickiest topics in the UN climate change negotiations. In an otherwise frustrating conference, this decision in November 2022 acknowledged the help that poorer and low-emitting countries in particular need to deal with the consequences of climate change – and, tentatively, who ought to pay.
This following year has seen more extreme weather records broken. Torrential rains created flooding which swept away an entire city in Libya, while wildfires razed swathes of Canada, Greece and the Hawaiian island of Maui.
As these events become routine worldwide, the case grows for an effective fund that can be set up quickly and help those most vulnerable to climate change. But after a year of talks, the fund has, so far, failed to materialise in the way that developing countries had hoped.
I’m writing a book on UN governance of loss and damage, and have been following the negotiations since 2013. Here’s what happened after the negotiators went home and what to watch out for when they return, this time at COP28 in Dubai.
Big questions
Many questions were raised and left unresolved in Sharm El-Sheikh. Among them: who will pay into this new fund? Where will it sit? Who will have power over it? And who will have access to the funding (and who won’t)?
A transitional committee with 14 developing country members and 10 developed country members was appointed by the UN to debate these questions after COP27. The committee has met regularly over the last year, but at its fourth meeting at the end of October – scheduled as the last session – important questions surrounding the fund, such as who should host and administer it, remained. Discussions broke down without an agreement.
In early November, less than a month before COP28, a hastily arranged fifth meeting presented committee members with a text cobbled together by the two co-chairs from South Africa and Finland as a take-it-or-leave-it agreement. Developing countries agreed to having the fund hosted by the World Bank for an interim period, despite reservations.
Developed countries also objected to the final text. The US wanted to add the adjective “voluntary” to any mention of contributions to the fund. Others argued that the pool of contributors to the fund should be widened to include some developing countries, such as Saudi Arabia, and also private sources of finance. These objections were noted but the text was adopted without them.
These recommendations must now be signed off at COP28, which begins on November 30. With almost 200 countries having to reach agreement on these arrangements and dissatisfaction widespread, the process isn’t likely to be straightforward.
The world’s bank?
Developing countries have been sceptical of the World Bank as a potential host of the fund for several reasons.
Many delegates worry about the bank’s reputation, including the dominance of developed country donors, its emphasis on providing loans rather than grants, and the lack of climate-savviness in the bank’s operations. These concerns are likely to reemerge in Dubai.
The US is the biggest shareholder in the World Bank and traditionally, the bank’s president has been a US citizen nominated by Washington. Small-island developing states (among the most vulnerable to climate change due to sea-level rise) have argued for moving the fund away from a donor-recipient model, with all their usual power imbalances, towards a partnership founded on a shared commitment to protecting the planet.
This will require partial or total reform of the World Bank – and some argue this is already happening under its new president. But hosting the fund within the bank would still give donor countries disproportionate influence, despite recommendations by the transitional committee that the fund’s governing board be composed of a majority of developing country members.
High overhead costs are another concern. One board member of another fund hosted by the World Bank has suggested that the administrative fees the bank charges are rising and absorbing a larger share of aid. This could mean that, for every US$100 billion offered to countries and communities reeling from disaster, the World Bank will keep $US1.5 billion. This will be hard for an institution still funding the climate-wrecking oil and gas industry to justify.
The types of finance made available by the fund will need to be at odds with the bank’s traditional mode of loan financing, by offering grants and other forms of highly concessional lending. Developing countries have consistently argued that loss and damage funding should not increase a developing country’s debt burden.
The agreed text says the loss and damage fund will “invite financial contributions”, with developed countries expected to “take the lead”. Developing countries want developed nations (as the largest historical emitters) to provide funding, but rich nations have pushed back against any notion that they have an obligation to pay.
Rather, while making all the right noises on climate finance, they may gain short-term kudos by simply rebranding existing forms of climate finance or development aid, rather than offering any new money.
The compensation taboo
One thing you’re unlikely to hear at COP28 is “compensation”. While newspaper editors love headlines about reparations, liability and compensation when reporting on loss and damage, and a rise in climate litigation is making governments and polluting companies nervous, this language is still totally absent in discussion of the issue in the negotiations.
In fact, research has shown that mentions of compensation in state submissions to the UN declined dramatically after the establishment of the mechanism on loss and damage in 2013. The fine print of the 2015 Paris Agreement noted that loss and damage was “not a basis for liability or compensation”.
I have noticed a taboo emerging around the term within the COP process. Instead, countries are increasingly opting for language such as “solidarity” as the basis for finance. These word choices show where power lies.
All of this is to sound a note of caution going into COP28. Major agreements on loss and damage have historically not lived up to their promises due to bureaucratic forum-shifting (moving topics to venues outside of the UN Framework Convention on Climate Change), delays, and under-resourcing. The adaptation fund was established in 2001 but only approved its first funding in 2010.
How is the urgent need for support among vulnerable communities and countries going to be met when the pace of progress within the climate change negotiations is glacial at best, and tends to be particularly slow and unambitious on loss and damage finance?
At COP28, making the loss and damage fund real is a litmus test for the legitimacy of the entire climate change negotiation regime.
Don’t have time to read about climate change as much as you’d like?
MENA countries need to invest more than $500 Billion in urban regeneration programs to unlock sustainable debt and inclusive economic development
A PRESS RELEASE in Al Bawaba Published on 4 July 2023, covered the need for all MENA countries to invest $500 Billion in their respective urban regeneration programs as per a Strategy& Middle East report, part of the PwC network.
Fady Halim
Countries across the Middle East and North Africa region must integrate environmental, social and governance (ESG) principles into their urban regeneration strategies to build inclusive economic development and preserve cultural heritage, according to the latest research by Strategy& Middle East, part of the PwC network.
The necessity for urban regeneration is seen across the region, with unplanned or so-called ‘informal settlements’ continuing their rapid growth: 40% of the populations of both Cairo and Makkah live in such settlements. Meanwhile, emissions from new construction activity and ongoing building operations represent 37% of energy-related emissions and 34% of global energy demand.
“As recently as 2018, roughly 31 per cent of those in the Arab world living in cities did so in decaying neighborhoods and dwellings. Our analysis shows that it would cost the region US$500 billion to regenerate a sample of 15 densely populated cities – such as in Saudi Arabia, the UAE, Qatar, Egypt, Iraq, Syria, and Jordan. This injection of capital and urban planning has enormous potential to transform the livelihoods of millions of people, directly or indirectly,” said Karim Abdallah, Partner with Strategy& Middle East.
While economic growth delivers social and economic benefits, rapid and unplanned urbanization can create economic, environmental and social issues, from sprawl and decay, to displaced communities and neglected cultural and historical sites.
The Strategy& report points out that several Middle East urban regeneration efforts are already underway, notably Jeddah’s Al Balad district and downtown Sharjah in the UAE. However, these programs must strike a balance between improvement without gentrification, meet housing demands while preserving neighborhood aesthetics, and enhance socio-economic conditions while safeguarding their historical heritage and social fabric.
Unlike traditional development, urban regeneration must not only breathe new life into old districts that helps improve quality of life and economic opportunity, but also be financially viable for the government agencies, developers and financial institutions sponsoring these projects.
An ESG-based strategy therefore can ensure that programs conform to growing demand for ESG compliance from investors and banks while opening up further investment and financing avenues. In 2021 alone, over $1.6 trillion in sustainable debt was issued, with a third of that specifically linked to ESG targets. Additionally, by reviving decaying districts, an ESG-based strategy can also restore much-needed housing stock, commercial space and support with tourism development that many Middle East countries are seeking.
“When linked to ESG principles, urban regeneration acts as a powerful tool to mitigate the common challenges of regeneration. Whether we’re talking about better infrastructure, construction efficiencies or energy efficiency, sustainability is integral to the environmental goal,” commented Charly Nakhoul, Partner with Strategy& Middle East.
Several nations, including Bahrain, Saudi Arabia, and the UAE, have set out net-zero strategies recognizing the significance of preserving the social fabric and engaging with communities to maintain cohesive and healthy societies.
“Urban regeneration is integral to the effective management of the MENA region’s population growth,” said Fady Halim, Partner with Strategy& Middle East. “By implementing a ‘LIFE’ approach, which integrates ESG principles into urban regeneration projects, a variety of sustainability, socio-economic, cultural and quality of life goals can be achieved. These outcomes will have a lasting impact; including providing better life opportunities, fostering thriving communities, and creating financial incentives for continuous urban revival and development,” he added.
For GCC countries to achieve sustainable financing and inclusive socio-economic development, they must embed ESG principles in a series of L-I-F-E phases for urban regeneration. Learn (and listen): Projects must begin with a period of listening and learning from residents, businesspeople, and property owners. Sponsors must understand the area’s socio-economic, cultural, and historical characteristics and the community’s needs. Effective communication among all stakeholders is vital to ensure the project aligns within the context of the overall city. Integrate: ESG principles must be seamlessly integrated into every aspect of the project, from exploratory conversations and planning to design and implementation; and from ongoing operations to managing the assets over the long term. Fix: It is important to fix ESG targets and other key performance indicators that translate the commitment into a tangible, measurable effort. Earn: From these actions; stakeholders earn their rewards. Community members gain a higher quality of life, and the public and private-sector sponsors ultimately benefit from their investments.
For governments across the region, urban regeneration is a social and economic imperative – their national security depends on the maintenance of cohesive societies and empowered individuals. Moreover, urban regeneration projects can only deliver these outcomes if they integrate ESG principles built around transparency, fairness, integrity and inclusion. L-I-F-E phases can provide policymakers and developers with a powerful roadmap to successful regeneration and towards building sustainable urban centers of the future.
NEW HAVEN — Few institutions have shown as much versatility and adaptability as the World Bank. Initially founded to address global capital-market imperfections after World War II, the institution’s primary mission evolved over time to focus on fighting extreme poverty. But now that the World Bank is welcoming a new president this July, it should adapt again, this time to address climate change.
Poverty reduction, of course, should remain a high priority, considering that the COVID-19 pandemic has left many low-income countries in dire straits. But climate change has emerged as an equally important threat to these countries’ futures, as well as to the entire planet. Poverty reduction therefore must go hand in hand with the goal of addressing climate change.
But grounding these efforts in evidence-based research is easier said than done. One often hears that low-income countries should focus on climate change because they have the most to lose from its consequences (natural disasters, soil degradation, water shortages, and so forth). That conclusion may be right; but the argument is flawed, because it is based on a spurious comparison.
Policymakers in poor countries do not care whether they have more to lose compared to richer countries. Rather, their focus is on weighing policies that promote growth but harm the environment against green policies that may imply slower or even no growth. To paraphrase what one such official once told me when I questioned the wisdom of his government’s strategy to encourage oil and natural-gas extraction: “Who cares what the long-term trend is? We can do this for ten years, grow rich and then move on to other activities while using the proceeds to clean up.”
The wastefulness of this approach is self-evident, as are the large negative externalities it entails for the rest of the world. But the tradeoff for many low- and lower-middle income countries is real, especially when, like India and Indonesia, they are rich in coal deposits or, as in Nigeria, oil reserves. Giving up on growth in return for a cleaner, greener future is not something that many policymakers in such countries find acceptable.
Still, there is scope for considerable improvement, and the World Bank has the financial resources, credibility and convening power to make a substantial contribution. To do so, it must ensure that decisions are based on the best available evidence, rather than on untested claims or first principles. Policymakers and advisers should study the experiences of countries that have successfully reduced greenhouse-gas emissions, as well as absorbing the emerging body of academic research focused on developing countries.
For example, the US experience shows that emissions reductions were the result of stricter environmental regulation, not the outsourcing of “dirty” production activities to developing countries (the so-called pollution-haven hypothesis). This implies that carbon border adjustment taxes, often justified on a notional “leakage” hypothesis, will do little to improve emissions in advanced economies. Worse, they may deal a severe blow to some low-income countries’ exports. The lesson from the United States, then, is that a path to a greener planet should start with stricter environmental regulation.
Recent research by the Nobel laureate Economist Esther Duflo and co-authors offers a second, related lesson, based on data from one of the biggest polluters in the world: India. Contrary to what many may think, India has some of the strictest environmental regulations in the world. What it lacks is the ability to enforce them. Weak state capacity, reflecting inadequate institutions, unreliable contract enforcement, or outright corruption, can nullify the effectiveness of environmental regulations.
Duflo’s team shows how devising proper mechanisms to address these constraints can significantly improve emission outcomes. It is precisely here, in the design and implementation of policies to address institutional shortcomings, that the World Bank could add enormous value.
Another recent paper reports on a bold, decade-long effort by a team of researchers, in cooperation with the Indian state of Gujarat, to introduce India’s first cap-and-trade programme (it also happens to be the world’s first market-based programme to regulate particulate emissions). Remarkably, they find that the programme functioned smoothly and produced significant emissions reductions as well as cost savings (relative to an alternative, command-and-control-based regulation).
Such results are extremely promising. Interventions to create “markets” for emissions have proven successful in the US and Europe. If such programmes can take root in developing countries, a truly global solution to climate change will be within reach. Moreover, if just a couple of research teams can make so much progress, imagine what the World Bank could achieve with all its resources, expertise, and access to top policymakers.
Perhaps the most encouraging message from recent research is that interventions that meaningfully improve environmental outcomes in developing countries need not be excessively expensive. Another recent paper examines why India, with its generally warm climate and plentiful sunshine, has been slow to deploy solar panels. It turns out that local governments’ inability credibly to commit to the contracts they sign with producers impedes investment. Once investments in a solar plant are made, state governments have a strong incentive to renegotiate. Because solar suppliers anticipate this, investment in green energy ultimately falls short of where it could be. Intermediation by the federal government could help, resulting in much higher solar adoption.
Such examples show that substantive progress toward de-carbonisation in low- and middle-income economies is feasible without bankrupting the country or halting growth. But success requires knowledge, perhaps even more so than money. Hitting poorer countries with punitive carbon taxes, which even advanced economies like the US have been reluctant to adopt, should be a non-starter. Encouraging the green-energy transition with policies tailored to the institutional constraints prevalent in low-income settings is much more promising.
The World Bank has always prided itself on being not just another “bank”, but rather a “knowledge bank”. As it develops its climate agenda, it must remain true to that credo by adhering to the lessons of rigorous research and evidence.
Pinelopi Koujianou Goldberg, a former World Bank Group chief economist and editor-in-chief of the American Economic Review, is professor of Economics at Yale University. Copyright: Project Syndicate, 2023.
ETF Stream‘s question: Are UN Sustainable Development Goal ETFs fit for purpose? It seems incongruous, but only the reply can justify such interrogation.
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Are UN Sustainable Development Goal ETFs fit for purpose?
The goals look ready-made for thematic funds, but can they be properly aligned to an investment framework?
The Sustainable Development Goals (SDG) continue to capture the imagination of ETF issuers but questions have been raised about the ability to properly align them to an investment framework.
Used by both active and passive funds, they were thrust into the spotlight again in January after DWS launched a seven-strong range of thematic ETFs targeting the SDGs it believes “present a growth story”.
The goals comprise 17 interlinked objectives, including no poverty, zero hunger and clean water and sanitation, which aim to serve as a blueprint to advance global progress for “peace and prosperity” for the planet.
However, while offering a strong narrative to pitch to investors, many have questioned the validity of using the SDGs as an investment framework.
Kenneth Lamont, senior fund analyst at Morningstar, said he understood some of the concerns around using SDGs as an investment framework but added it was part of a broader problem around impact investing with ETFs.
“The question mark hanging over SDGs is part of the broader question of whether you can use ETFs to invest impactfully. Investors need to be able to measure that impact, that is the goal of the investment,” he said.
“Generally, it is questionable whether investors can ever have a real impact by investing in listed stocks.”
Stuart Forbes, co-founder at Rize ETF, agreed, adding the SDGs were not designed for public or private market investment.
“The way the goals are measured is through a series of indicators such as decreasing deforestation and habitat loss. It would be almost impossible to assess a company’s contribution to forestation in Brazil or Indonesia,” he said.
“The further you go with SDGs from an investment and thematic perspective, it is just not possible to align.”
Forbes said Rize ETF explored the idea of launching products linked to the goals, looking at SDG alignment tools, but that they “just do not make any sense”.
“Looking at what the funds are holding, they are almost all developed market economies, they are not servicing an underserved region of the world or having a significant social impact,” he added.
For example, DWS uses MSCI’s SDG alignment tools designed to provide a “holistic view” of companies’ net contribution towards addressing each of the SDGs.
However, Lamont added the thematic element of the SDGs is what makes them attractive. For example, he noted GLUG’s thematic approach, investing in companies’ infrastructure and technology.
“I find GLUG interesting because it does focus a lot on water technology. It is a completely different set of stocks that are actually trying to solve the problem. It is much more of a thematic approach than the traditional water sector fund.”
DWS also includes a thematic element to its SDG range, with sustainable revenue accounting for 75% of the MSCI indices it tracks, while the remaining 25% will be calculated using forward-looking thematic metrics.
Speaking to ETF Stream ahead of the launch in January, Olivier Souliac, senior Xtrackers product specialist at DWS, said it chose not to do all 17 SDGs due to the inability to align them all within an investment framework.
“The reason we have a revenue-based approach is that some of the SDGs such as zero hunger and education can only really be filled by society and governments and are not themes in the sense of being growth stories,” he said.
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