From Baku, with intent: why NDC ambition matters for investors
With the COP29 Presidency releasing the first texts on critical mandates, investors are keeping a close eye on policy commitments
“Maintaining momentum, and maintaining high ambition at COP cannot be taken for granted”, said Australia’s minister for climate change and energy Chris Bowen as he addressed a room full of Australian asset owners in early November. Minister Bowen is currently at COP 29 in Baku, where negotiations to increase climate policy ambition are in their final stretch.
COP 29 is significant for several reasons, one of which has to do with its timing. Negotiations in Azerbaijan’s capital are set against the backdrop of the “biggest election year in human history”. In 2024, over 80 countries and nearly half the world’s population headed to the polls. From New Delhi and Jakarta to Brussels and Washington, the year of elections has impacted climate policy in some of the world’s largest stakeholders in climate negotiations.
It is no surprise then, that policy signals rank high on the list of investor expectations from this year’s ‘finance COP’. One such signal, comes from Nationally Determined Contributions (NDCs) – a country’s emissions reduction target that governments communicate under the aegis of the Paris Agreement.
Clear policies are in place in certain sectors but are insufficient or absent in most hard to abate sectors
Intention to submit
NDCs are due to be updated in early 2025. Which makes what happens in Baku a leading indicator of what is to come. “COP 29 will serve as an important platform for nations to demonstrate their intention to submit stronger national climate commitments, strengthen adaptation efforts, and show tangible progress on previous pledges”, writes Teju Akande, climate change manager at Border to Coast Pensions Partnership.
In the lead up to both COP 16 and COP 29, over 500 institutional investors signed an investor statement aimed at governments. The statement was a list of investor demands. Amongst them - increasing ambition in NDCs. “COP16 and COP29 provide the ideal settings for governments to respond to investors’ asks”, said Institutional Investors Group on Climate Change (IIGCC) chief executive Stephanie Pfeifer.
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For asset owners, the granularity of ambition matters just as much. Ultimately, investors are expecting NDCs to translate into investment signals at the industry level. A spokesperson for CDPQ – a Canadian asset owner – told Net Zero Investor:
“They [NDCs] are a critical step – however companies and economic actors need governments to provide clear policies at sectoral level, industry by industry, to promote and strengthen investable decarbonisation solutions. Clear policies are in place in certain sectors (power generation, electric cars) but are insufficient or absent in most hard to abate sectors and in agriculture”.
The UK’s early ambition
On 12 November, amidst the negotiations in Baku, the UK updated its NDC ahead of the February 2025 deadline. By 2035, the UK now expects to reduce GHG emissions by 81% (relative to 1990 levels). The commitment is not only ambitious but also impactful – it sets the tone for others to follow. “This early, ambitious step can have a ripple effect, building confidence in other countries to increase their own commitments”, says Pfeifer.
The IIGCC’s response to the UK’s updated NDC reflected CDPQ’s demand for granular clarity in NDCs.
“We now look forward to further details underpinning the new NDC. A clear delivery plan, particularly for sectoral decarbonisation, will be essential for attracting private finance and making NDCs a central tool in reducing emissions”, Pfeifer adds.
Policy signals from Baku will hold clues about the future of climate policy ambition. The Baku consensus, if there is one, will be scrutinized by investors keeping an eye on NDC updates due next year.
Given an opportunity to address leaders at COP 29, asset owners would likely have echoed the words of someone who did - UN Climate Change Executive Secretary Simon Stiell :
“The time for hand-wringing is over; so let’s get on with the job”.
