COP28: ‘This COP is making more progress’

Speaking to ESG Clarity from COP28, EY's Michelle Davies and Joost Vreeswijk say they are encouraged by organisations' pledges but want to see more on global policy

Organisations and companies are demonstrating they understand the greater risk of climate change on their underlying businesses, but more needs to come from the government and policy level, according to representatives from EY.

Speaking to ESG Clarity from Dubai early on Finance Day, Michelle Davies, EY’s global sustainability legal services leader, and Joost Vreeswijk, EMEIA supply chain and sustainability tax services leader, share their optimism on the announcements so far and where they think nations need to support developing economies further.

The full transcript is below:

NK: Hello, I’m Natalie Kenway, and I’m here for a COP28 video with Michelle and Joost at EY. Thank you so much for joining me today. How is it in Dubai?

JV: Very well.

MD: It’s a lot warmer than it is in the UK. And it’s very busy, isn’t it?

JV: Yes. So we have escaped for a second. The busy parts have been really busy over the last couple of days, it has really stepped up in energy and busyness. It’s really positive.

MD: And it’s actually not even standing room if you like. Yeah, it’s very, very busy.

NK: Yeah. I mean, you both sound quite positive, optimistic. What have you taken from the announcements so far?

MD: It’s probably, and we were talking about this before, it’s probably too early, and I don’t mean to be unhelpful, but it’s probably too early to give a view. I think you’ve got to see what comes out in aggregate before we can make any pronouncements of whether it’s good or bad. But out sense, I think is fair to say that this COP does seem to be making more progress and there’s more positivity around it and more hope, I guess, than maybe in previous recent COPs.

JV: I think you’ll need to look through the announcements, and what’s happened on the ground with the panel this morning. But with a number of financial services institutions or banks, and you see the desire of to actually fund the transition and to get in there. There are a mixture of incentives.

I think there’s a genuine understanding of what’s needed, and there’s a genuine desire to get into finance, which today’s Finance Day. But I think that’s all very positive. And I see there are quite a lot of commitments made from individual private companies actually wanting to step in and make a difference. So I think that’s really positive.

Yes, I would love big announcements from governments. We’re still waiting for those to come through to support this further.

MD: And what’s driving that, and I think it’s important to understand, yes, there is a desire to decarbonise and provide the solutions to the environment, but also there is a real understanding that the underlying businesses will present greater risk if they are not fit for purpose in terms of sustainability. There is a business need for this to happen.

I think what we’re hearing on the ground from the financial institutions in particular is that whilst they recognise that they need to invest in this area in order to do this, their businesses, there’s a lot more that needs to be done in order for those initial investments  for those investments themselves to be de-risked and it’s that support that’s needed from government in order to help that happen.

So there is a need for greater policy determination around this, and that’s what we’re hearing on the ground.

NK: Yeah, I mean, this is something I wanted to ask you about. There’s obviously the Inflation Reduction Act (IRA) in the US has been well received, I would say. Do you think we’ll see similar rollouts in different countries after COP28?

VJ: What the IRA has shown us is that, it goes back to the de-risking point as well, those sums of money, and add the Green Deal funds to that are very significant, that you have your well over $500bn there. That’s a lot of money to flow in that is government-backed  if you like and so where there’s some hesitation of maybe private, here you see that you know this is available and accessible.

So I think yes you see that as an instrument that more countries will look at that. On the EU side of what we know is that as soon as the nations in Europe get a little bit more freedom to locally actually fund with incentives, that that’s what speeding up matters. So we’d be careful that these things are set up in a way that are effective, accessible.

And my only caution would be it seems a little bit of a big company play. I would need change of a large scale. We can’t leave the small ones behind, and I think we’re still seeing a little bit of complexity to apply. The last thing that we’re seeing from Inflation Reduction ACT is some of the tax credits are now tradable. You could sell them to others. That’s creating different types of markets. And I think that also allows smaller players to be involved a little bit more. I think that’s maturing a lot and a  good experience and on our side  we’re really, really busy with that helping clients. I think it’s an area that I think it leads the way a little bit the bigger policies.

MD: And you make a really good point that this is about the transition, isn’t it? And not all organisations can transition at the same rate as larger ones. And it also goes to the point of countries as well, because not all countries have the financial wherewithal to produce something akin to the IRA. And of course, this is what is coming out of COP where those countries that are, you know, in the Global South predominantly are looking for help from other companies that are in a position to help them finance the kind of transition that is happening in the US and in Europe.

The transition is going to operate at different levels depending on the kind of organisation you are, depending on what country. But again, it does create this real need for global policy around some of this.

NK: Okay. Yeah. I mean, it’s interesting what you said around the sort of developing economies, because I’ve read something about this being a CPO that’s more focused on directing capital towards those. Is that something that you would agree with so far?

MD: Yes, absolutely. There is a lot to talk about in terms of what’s happening in Europe. A lot of that is impacting the supply chain. Where is that supply chain coming from? It is coming from developing countries who are not necessarily in a position to deliver what their export markets require.

If we want the transition to happen at the rate that we want it to happen at and to the extent that we want it to happen too, that probably needs to be a lot more global support for those countries to enable them to one transition, but also importantly to be meant to remain instrumental to the global supply chain which is an area you’re really focused on.

VJ: Yeah, exactly. I think the [we need to look at] transparency… where people representing farmer communities, for instance, if we now look again at some rules that are happening, on supply chain visibility, the needs to be able to look all the way down to the farm where something is grown, we don’t have that level of transparency and it sits to, not fully, but to largely developing countries.

I think that’s important. I would say as a little critical [note], some of the channels or the financing of that and how much is going to the developing countries, and also a few large pension funds that will – they are all worried still. We have an insurance company that’s trying to help with de-risking, investing in developing countries where you have maybe unstable regimes and natural disasters happening and then you find that classic investors find that too risky or do they need help with a first round of risk financing?

But I think still have a little bit of way to go on this if I am honest.

NK: Okay, fantastic. Well, thank you very much for sharing your insights on the ground. Great to talk with you both.


Natalie Kenway

Natalie is editor in chief at MA Financial covering ESG Clarity, Portfolio Adviser and International Adviser. She was previously global head of ESG insight for ESG Clarity and has been an investment journalist...