COP28 opens in Dubai

On 30 November 2023 the COP28 climate summit began in Dubai. On its first day the loss and damage fund agreed a year earlier was launched, intended to help the most vulnerable countries cope with the effects of climate change.

Climate summits bring governments, companies and organisations together each year to negotiate commitments on emissions, finance and adaptation. Although their agreements are later translated into national rules and decisions, they set the general direction of energy policy and shape the expectations of investors, manufacturers and consumers. Companies with international activity follow these summits with interest, because their conclusions influence the energy, transport, industrial and financial policies of the countries where they operate, and the expectations of customers and shareholders.

A summit with a fast start

The summit thus began with the activation of the loss and damage fund, a mechanism already agreed at the previous edition whose swift launch was read as a positive sign.

The fund responds to an issue that had long been at the centre of the negotiations: how to help countries that suffer the consequences of climate change without being, in general, the main source of emissions. Its launch on the first day was a sign that the summit was starting with a concrete agreement, which is unusual. Although funds of this kind are mainly a matter between governments, they indicate where international climate finance is heading, a field in which more and more banks, insurers and companies from very varied sectors are taking part.

A host with two faces

The Emirates presented themselves as a bridge between the oil economy and the energy transition. It is a country whose wealth comes largely from hydrocarbons, but which also invests in renewable energy and other industries. That mix reflects the situation of many economies.

The host’s double face sparked debate, but also illustrates an uncomfortable fact: the transition does not consist of ceasing to use energy overnight, but of gradually changing its composition, and the countries and companies that produce fossil fuels today are part, for better or worse, of that process. An economy can be at once an exporter of hydrocarbons and an investor in clean energy, and that combination is not a contradiction but a diversification strategy that many producing countries consider necessary for the future. For investors and companies, this means the risks and opportunities of the transition are not distributed simply: there are winners and losers within each sector, and the difference often lies in the capacity to adapt.

A duality that shapes investment

A duality that defines much of energy investment over the next decade. Companies and investors do not abandon traditional models overnight or adopt the new ones without nuance: the two coexist.

For anyone with energy-intensive businesses or energy assets, it is worth assessing how prices, rules and expectations among customers and investors about the transition could affect them in the medium term. A periodic review with the adviser helps identify risks and opportunities, and avoid depending on a single hypothesis about how energy will evolve. A first step is to measure the company’s energy consumption, its emissions and its dependence on particular fuels, so that it can assess with data which measures would make sense and which would only mean a cost without a clear benefit. It is also useful to follow the sustainability reporting demands that companies receive from customers, banks and insurers, because they increasingly condition access to contracts and financing.

The energy transition is both a risk and an opportunity, and managing it well starts with understanding it.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.