Signals in the climate noise: a scenarios view of COP28

April 2024 / 5 minutes

Key points

  • The COP28 UN Climate Change Conference was a messy mix of success and disappointment
  • We are using future scenarios to bring perspective to the increasingly volatile climate and energy transitions
  • The narratives help us navigate a broadening range of climate-linked investment opportunities
Sun beams penetrate the  rain forest from above creating a circular effect in the deep green vegetation in Kuala Lumpur, Malaysia

As with any investment, your capital is at risk.


Over the course of a long weekend at the end of January, the US imposed a moratorium on permitting new liquefied natural gas (LNG) export facilities, and Saudi Arabia scrapped its plan to add one million barrels a day of oil production capacity. Viewed in isolation, that looks like pretty rapid action on COP28’s unanimous new pledge to be “transitioning away from fossil fuels… to achieve net zero by 2050”.

The reality, of course, is more challenging. Not only is there political gamesmanship that’s quite unconnected to any interest in reducing carbon emissions in these announcements, but it’s easy to find stories that seem to head in the opposite direction. Not least, Ørsted’s recent 30 per cent cut to its 2030 target for offshore wind capacity and Exxon’s defiant lawsuit against those shareholders daring to push for faster emissions reduction.

The transitions in our energy and climate systems seem increasingly volatile and disorderly. For investors seeking to navigate them, extracting the signals from the noise is hard work. But we are finding a toolkit based on qualitative scenario analysis increasingly useful for this job.

As our recent webinar and papers detail, this starts with constructing a set of plausible narratives that describe very different but possible futures. They feature all the glorious technicolour of technology, policy, society and nature itself. We can then use these stories to challenge our preconceptions, explore our tolerance for risk and – perhaps most importantly – provoke new ideas and questions. Presented with varied pathways, we can also start to identify indicators, or ‘watch-fors’, that could indicate which of these futures might actually be unfolding.

There is arguably no greater noise in which to search for such signals than the prelude and performance of the annual COP (Conference of the Parties) meetings. Looking back to Dubai in mid-December, the following stand out:

  • First and foremost, this UN-led process itself remains intact and, from a private sector perspective, is flourishing. In these tense times, it is one of the only global institutions that is borderline effective, enables debate and is crowding-in capital and innovation. Sure, there is no real governance of emission pledges and performance, but nations are confronted with their failures every year – and asked to do more. Corporations meet with policymakers, civil society and entrepreneurs, and commitments and connections are made.
  • There was no abandoning of the commitment to 1.5C as the aspirational upper limit for global warming. The United Arab Emirates did not want to host the COP where ‘1.5 died’. Indeed, the final statement doubled down: for the first time, agreeing to a year by which global emissions should peak (2025) and stating the need for emissions reductions of 43 per cent by 2030 (from a 2019 base) and 60 per cent by 2035.
  • Statements on the global energy mix showed increasing maturity. Fossil fuels need to go, transition fuels (biomass and, perhaps in some very low-priced markets, gas) have a role, nuclear is back, and a tripling of renewables capacity by 2030 is credible enough to get headline status. The accompanying commitment to double the pace of energy-efficiency gains recognised the importance of shifting the demand side and highlighted the win-wins of renewable electrification in an ever more digital world.
  • Food systems were brought into the process. They are as controversial as fossil fuels and were similarly absent from specific mention at prior COPs. The widely signed UAE Declaration calls for full integration into national emissions commitments. Actions are still very emergent, but official recognition of the importance of managing this foundational sector for emissions, water and biodiversity sets the scene for policy shifts that must ultimately change what we eat and how and where we farm.
  • Less positive are the areas of silence. Progress on the interrelated topics of finance, adaptation and international carbon markets was weak. The later we run on finance flows to developing markets, the more we risk failing to build resilience to climate shocks – be that from economic growth enabled by renewables deployment, agricultural modernisation or primary health and education. Quite apart from the long-run implications for people, it stalls the development of new asset classes and financing opportunities for the private sector. With Brazil now chairing the G20 and presiding over 2025’s COP30, we should not expect this silence to continue.


The messy middle

Where do these signals leave us? Past the beginning of the energy transition but firmly in a messy middle. We are not on a rapid, orderly pathway that will keep temperatures below a 1.5C increase, but we continue to bend the curve down from 3 degrees plus. This looks and feels like disorder. But with a bias to supporting and seeking out routes to climate success – a bias that could tip into rapid change if some exogenous shock (such as an extreme climate event or deep technological innovation) emerges.

The unpalatable truths that remain after the 2023 COP are the increasingly obvious rate of climate damage at +1.5C of average warming and a fossil fuel profile that looks like a very stubborn peak. These two are inextricably linked, and each compounds the risk to the other – and so to investors: the prospects of asset loss, failing insurance, regulatory interventions and more.

However, it is also a fact that technologies enabling a shift to a low-carbon economy are being deployed and developed faster than we think. As is the way of network effects, these technologies will continue to compound, to surprise and to impact more activities and more markets.

The recent acceleration in generative AI is an example of this vibrancy. Its computing capacity will need energy and water, but our preliminary evaluation suggests that this will be a challenge not of global scale but of potential regional congestion, which in itself creates opportunities for those with solutions.

Far more significant will be the use by innovators and enterprises to find unlocks in energy efficiency and electrification – especially in catalysts, batteries and materials processing. Anything, in fact, that can be done with less energy, less heat or with a better match of supply and demand. Our investment exposure for our clients to this theme is deep and runs from providers such as NVIDIA and Microsoft to users including Enphase, the solar power specialist, and Samsara, which uses data analytics to help companies optimise their vehicle fleets’ energy use and reduce emissions.

The headline pledges and cross-industry supply pacts made at COP28 are now also strongly supported by targeted industrial policies. These stretch across:


Attractive investments

Investing through a disorderly transition suggests we should be prepared for volatility, expect solutions to be varied by type and region and, most importantly, look for managements with the awareness and adaptability to thrive nonetheless. Innovations that can create significant new companies will continue to appear, but the steady maturing of the transition also means that some existing companies can genuinely retool at scale. The universe of potentially attractive growth investments is broadening as change gathers pace.

Our investment and engagement work reflects this evolution. Across our client portfolios, we hold solutions innovators that range from the increasingly established – CATL and Northvolt in batteries, Albemarle in materials and Tesla, Rivian and BYD in EVs – to those pushing the frontiers in technology and policy – Climeworks and Aker in carbon capture, Ginkgo Bioworks in synthetic biology and Redwood Materials in recycling.

However, we also spend a lot of time understanding and supporting more established businesses to hopefully thrive in the transition.

A review of just a few of our recent conversations includes:

  • BHP – transition metals and physical resilience
  • Amazon – renewable fuels and supply chain influence
  • Advanced Micro Devices (AMD) – a founder of the Semiconductor Climate Consortium, which aims to reduce greenhouse gas emissions across the electronics value chain
  • Ryanair – further extending its technology and low-carbon fuel ambitions
  • Reliance Industries – aiming to create green energy at scale in India

We hope that having contrasting future scenarios in our minds through these conversations and in our portfolio construction helps us appreciate the complexity of the real world, while staying focused on the signals that will endure.

Staying alert to those signals is not likely to get any easier in 2024. With politics everywhere, it’s shaping up to be another very noisy year.

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