What happened at COP-28 and how is this relevant for in-house lawyers?
interview with ALIFDO member Vesselina Haralampieva, EBRD’s Head of Sustainable Finance Governance and Regulation
The 28th session of the Conference of the Parties of the United Nations Framework Convention on Climate Change (COP28) took place in Dubai over two weeks in December last year. And it took a few more weeks after for analysts, investors, businesses, and civil society to reflect upon the outcomes of and implications from the flurry of new commitments, binding legal text and the outstanding matters left for further negotiation this year at the 29th Climate Summit in Baku, Azerbaijan.
Christoph Sicking, ALIFDO member from EBRD, caught up with Vesselina Haralampieva, EBRD's Head of Sustainable Finance Governance and Regulation, and asked her to share her views on the key outcomes of COP28 and to highlight those relevant for IFI in-house lawyers.
1.Vesselina, what are the key achievements of COP28?
Hi Christoph, thanks for inviting me to contribute to ALIFDO's newsletter.
Like many other Conference of the Parties climate change meetings, the expectations were high ahead of the Summit, but then brought down to earth at its close to level with political and business realities. The last COP was no exception though it clearly stands out with its contribution to the world’s net zero ambition. Here are four key achievements I’d like to mention:
1. COP28 delivered the first Global Stocktake (GST), which is the main accountability mechanisms built into the Paris Agreement. It is a 5-year process, aimed at assessing countries’ collective progress and at defining course-correcting recommendations for countries’ climate action. Despite setbacks, COP 28 managed to keep the 1.5C target of the Paris agreement alive, which – even though unlikely – is not improbable and will continue to serve as a benchmark for countries as they make more ambitious their decarbonisation targets during the next round of updating the nationally determined contributions (NDCs) due by the end of 2024. In order to keep 1.5C within reach, the Parties recognised the need to reduce emissions by 43% by 2030 (vs. 2019), which is very ambitious interim target to net zero by mid-century.
Despite not reaching a consensus on a “phasing out” of fossil fuels, the countries agreed – for the first time – to “transition away from fossil fuels” and to phase-out inefficient fossil fuel subsidies. The UN Climate Change Executive Secretary, Simon Stiell heralded that this decision signals the “beginning of the end” of the fossil fuel era, underpinned by deep emissions cut and scaled-up finance though the details on how to achieve the transition remain nebulous. At the same time, the role of natural gas is clearly recognised as a transitional fuel necessary to guarantee energy transition and energy security.
2. Countries also committed to triple renewable energy capacity and double the rate of annual energy efficiency gains by 2030, which has given strong signals to industry. Led by the EU, the unveiled ambitious plan is to generate 11TW worldwide by 2030. Twenty countries (including the United States, France, Japan and the United Kingdom) also signed a declaration to triple nuclear energy capacity by 2050.
The Consensus also called for countries to accelerate low-emission technologies (including abatement and removal technologies such as carbon capture, utilisation and storage (CCUS) and low-carbon hydrogen production). As these are nascent technologies, the UAE Consensus will play an important role in affirming their role in the energy transition.
3. The Parties finally signed off on the establishment of the Loss and Damage Fund (LDF), the heavily negotiated, 15-year-old idea, for the least developed and climate vulnerable countries with initial pledges of more than USD$ 700M. This is a big step forward although the initial budget is dwarfed by the needs of the least developed countries estimated at more than USD$ 200M per annum by 2030. The World Bank will act as the LDF’s interim host for 4 years, while a separate process ran by the Santiago Network Secretariat will catalyse technical assistance from relevant organisations, bodies, networks and experts for the implementation of approaches for averting, minimising and addressing loss and damage.
4. COP28 also agreed a framework for adaptation which provides a blueprint for climate risk assessment, adaptation planning and implementation of adaptation actions by all Parties by 2030.
2.It sounds like a significant progress was made while still leaving unresolved the key issues, namely climate finance. What are the key failures of COP28?
Developing countries have been waiting for an updated climate finance target replacing the current one of USD $ 100B per annum, which was not met, by developed countries yet again. No significant progress was made on climate finance and no specific adaptation finance targets were set while developing countries’ needs have nothing but grown. The New Collective Quantified Goal for climate finance will be heavily negotiated and agreed at COP29. It is expected that the climate finance targets would be informed by the NDCs and climate plans, emphasising the importance of developing countries to put in place and update these key documents. In addition, progress on finance and carbon markets was limited, with the exceptions of the increased pledges to the Green Climate Fund (GCF). LDF is a welcome facility but it’s unlikely to be able to cover financially the climate impacts we are already witnessing or help build resilience to those that are coming.
There was also an increased focus on just, fair and equitable transition, but practical recommendations or any approved specifics on how to achieve it were left out.
3.What is the relevance of those developments for in-house lawyers, in particular those in IFIs?
Slowly but surely, in a two-steps-forward-one-step-backward pace, the world is set to transition away from fossil fuels. The implications for lawyers are that as time goes by, the risk of stranded assets becomes material due to policy, regulatory, investor, technological or societal changes. Such risks should be taken into consideration when lawyers negotiate a fixed-term contract dependent on fossil fuels with no provision to terminate for a greener alternative. While governments in emerging markets may be slow to act, businesses and investors can move quickly towards net zero. Lawyers and E&S advisers should take into account a broader range of factors, such as policy changes, societal cost, availability of finance, technological advances, and others.
It is likely that the climate transition may be abrupt, instead of gradual, fair and equitable, which is likely to affect the vulnerable people, communities, and smaller businesses. This will give rise to various litigation claims testing the traditional legal doctrines of foreseeability, causality, and guilt / contribution.
Businesses across industries are setting net zero targets and making other green or climate pledges. Greenwashing and reputational risks are real and will only continue growing. Corporate directors and senior management are likely to be held accountable (depending on national regimes) for lack of or insufficient action in relation to climate risks.
To manage greenwashing risks, in-house lawyers need to be part of relevant discussions internally, advise on achieving these targets and support the delivery. For corporates, key part of their decarbonisation, is working with their value chains and ensuring that their suppliers share their climate values (by introducing relevant climate or sustainability clauses in contracts, for example). In the case of financial institutions, greening portfolios by engaging with clients, is essential. EBRD, for example, supports clients to prepare transition plans and climate governance action plans, which would help them manage physical and transition climate risks, identify business opportunities in the climate transition and update their climate targets, policies and strategies accordingly. There are many ways to engage with clients and stakeholders and reflect these commitments in legal agreements and/or policy documents.
Institutional investors will continue challenging companies’ decarbonisation, transition and adaptation plans, which coupled with a complex regulatory regime, is likely to increase costs and resource needs. In emerging markets this will lead to acute implementation gaps, which IFIs should help bridge.
4.What are some of the issues you are seeing with the implementation on the renewable energy pledges or sustainability commitments?
Countries were in consensus to scale-up renewable energy investments on unprecedented global scale. While this is a very positive development, more work needs to be done by both governments, industry, involving also affected communities, to ensure that the necessary supply chains and infrastructure (especially in emerging markets) are in place to allow for the delivery of this ambition.
The Corporate Sustainability Reporting Directive and other sustainable finance regulations are requiring companies to report their Scope 1,2 and 3 greenhouse gas emissions and other material ESG indicators. To collect this data, companies and banks will turn towards their value chains and clients, which will have a wider impact on emerging markets where, as mentioned above, data is scarce and corporate reporting practices are deficient.
5.What were the key contributions of EBRD at COP28?
The EBRD contributed to discussions across multiple topics, including just transition, country-sector platforms, nature, private capital mobilisation, carbon markets, gender, Paris alignment, climate law and governance, cities and food systems. The EBRD played a catalytic role in designing the country-sector platforms approach discussed at COP28 by showcasing successful engagements with Egyptian and North Macedonian public sectors, business community, investors and other MDBs.
In North Macedonia, for example, the EBRD will support an in-country platform to accelerate just energy transition, targeting the complete phase-out of coal-fired power, deployment of 1.7 gigawatts of renewables by 2030, grid and storage investments and just transition measures.
We also participated in many panels and meetings. For example, EBRD's General Counsel Mike Strauss moderated a panel on private sector mobilisation with representatives from the German Federal Ministry for Economic Affairs and Climate Action, IFRS / International Sustainability Standards Board, Citigroup and the Climate Policy Initiative and participated in another panel organised by the Bulgarian Government on addressing climate risks and investing in climate resilience.
I joined panels on just transition and financing climate transition with a focus on emerging markets drawing on our investments and policy engagements.
EBRD OGC supported for a fifth consecutive year the Climate Law and Governance Day. Our GC spoke at a high-level plenary and was joined by GCs and Deputy GCs from ADB, GCF, IFAD and IFC. This is the first time we convene such a high-level panel at this forum to showcase our institutions’ progress towards our respective Paris alignment commitments and the ongoing work in IFIs legal departments to support climate and sustainable investments. You can watch a video of this panel here.
Mike Strauss also co-chaired a panel on emerging trends in sustainability reporting, climate governance and transition planning where I spoke about our experience, jointly with representatives from the UK Financial Conduct Authority, Norton Rose Fulbright – a law firm, the World Bank’s legal department and academic institutions.
6.Vesselina, what were your impressions from attending the COP this year? How was it compared to previous years?
It was hot and busy! The series of meetings between country representatives (the official side) and other stakeholders (i.e., the financial community, civil society, businesses, indigenous population) were hosted in a big Expo Centre outside Dubai. Due to the setting comprising more than 80 unconnected small blocks where meetings were held, participants could not attend meetings spontaneously like in other COPs; the distances involved made it challenging to line-up several meetings and/or events. One of the goals of the COP Presidency was to ensure this would be the most inclusive COP ever, which was manifested by a huge guest list: close to 100,000 people flew long distances to a top oil-producing countries to take part in thousands of events. And then took long taxi rides to the Expo Centre, where hourly queues awaited them before they finally got checked in, often running late for their meetings.
The next Presidencies will have to reflect upon ways to ensure inclusivity by encouraging hybrid events and setting some limits on country or industry representations. At the same time, it’s exciting to be part of the discussion, get inspired by new ideas, strike new partnerships and share our experiences and success stories related to climate policy, climate finance and/or climate law and governance.
Vesselina, thank you for speaking to us today.
Christoph Sicking, ALIFDO member from EBRD, caught up with Vesselina Haralampieva, EBRD's Head of Sustainable Finance Governance and Regulation, and asked her to share her views on the key outcomes of COP28 and to highlight those relevant for IFI in-house lawyers.
1.Vesselina, what are the key achievements of COP28?
Hi Christoph, thanks for inviting me to contribute to ALIFDO's newsletter.
Like many other Conference of the Parties climate change meetings, the expectations were high ahead of the Summit, but then brought down to earth at its close to level with political and business realities. The last COP was no exception though it clearly stands out with its contribution to the world’s net zero ambition. Here are four key achievements I’d like to mention:
1. COP28 delivered the first Global Stocktake (GST), which is the main accountability mechanisms built into the Paris Agreement. It is a 5-year process, aimed at assessing countries’ collective progress and at defining course-correcting recommendations for countries’ climate action. Despite setbacks, COP 28 managed to keep the 1.5C target of the Paris agreement alive, which – even though unlikely – is not improbable and will continue to serve as a benchmark for countries as they make more ambitious their decarbonisation targets during the next round of updating the nationally determined contributions (NDCs) due by the end of 2024. In order to keep 1.5C within reach, the Parties recognised the need to reduce emissions by 43% by 2030 (vs. 2019), which is very ambitious interim target to net zero by mid-century.
Despite not reaching a consensus on a “phasing out” of fossil fuels, the countries agreed – for the first time – to “transition away from fossil fuels” and to phase-out inefficient fossil fuel subsidies. The UN Climate Change Executive Secretary, Simon Stiell heralded that this decision signals the “beginning of the end” of the fossil fuel era, underpinned by deep emissions cut and scaled-up finance though the details on how to achieve the transition remain nebulous. At the same time, the role of natural gas is clearly recognised as a transitional fuel necessary to guarantee energy transition and energy security.
2. Countries also committed to triple renewable energy capacity and double the rate of annual energy efficiency gains by 2030, which has given strong signals to industry. Led by the EU, the unveiled ambitious plan is to generate 11TW worldwide by 2030. Twenty countries (including the United States, France, Japan and the United Kingdom) also signed a declaration to triple nuclear energy capacity by 2050.
The Consensus also called for countries to accelerate low-emission technologies (including abatement and removal technologies such as carbon capture, utilisation and storage (CCUS) and low-carbon hydrogen production). As these are nascent technologies, the UAE Consensus will play an important role in affirming their role in the energy transition.
3. The Parties finally signed off on the establishment of the Loss and Damage Fund (LDF), the heavily negotiated, 15-year-old idea, for the least developed and climate vulnerable countries with initial pledges of more than USD$ 700M. This is a big step forward although the initial budget is dwarfed by the needs of the least developed countries estimated at more than USD$ 200M per annum by 2030. The World Bank will act as the LDF’s interim host for 4 years, while a separate process ran by the Santiago Network Secretariat will catalyse technical assistance from relevant organisations, bodies, networks and experts for the implementation of approaches for averting, minimising and addressing loss and damage.
4. COP28 also agreed a framework for adaptation which provides a blueprint for climate risk assessment, adaptation planning and implementation of adaptation actions by all Parties by 2030.
2.It sounds like a significant progress was made while still leaving unresolved the key issues, namely climate finance. What are the key failures of COP28?
Developing countries have been waiting for an updated climate finance target replacing the current one of USD $ 100B per annum, which was not met, by developed countries yet again. No significant progress was made on climate finance and no specific adaptation finance targets were set while developing countries’ needs have nothing but grown. The New Collective Quantified Goal for climate finance will be heavily negotiated and agreed at COP29. It is expected that the climate finance targets would be informed by the NDCs and climate plans, emphasising the importance of developing countries to put in place and update these key documents. In addition, progress on finance and carbon markets was limited, with the exceptions of the increased pledges to the Green Climate Fund (GCF). LDF is a welcome facility but it’s unlikely to be able to cover financially the climate impacts we are already witnessing or help build resilience to those that are coming.
There was also an increased focus on just, fair and equitable transition, but practical recommendations or any approved specifics on how to achieve it were left out.
3.What is the relevance of those developments for in-house lawyers, in particular those in IFIs?
Slowly but surely, in a two-steps-forward-one-step-backward pace, the world is set to transition away from fossil fuels. The implications for lawyers are that as time goes by, the risk of stranded assets becomes material due to policy, regulatory, investor, technological or societal changes. Such risks should be taken into consideration when lawyers negotiate a fixed-term contract dependent on fossil fuels with no provision to terminate for a greener alternative. While governments in emerging markets may be slow to act, businesses and investors can move quickly towards net zero. Lawyers and E&S advisers should take into account a broader range of factors, such as policy changes, societal cost, availability of finance, technological advances, and others.
It is likely that the climate transition may be abrupt, instead of gradual, fair and equitable, which is likely to affect the vulnerable people, communities, and smaller businesses. This will give rise to various litigation claims testing the traditional legal doctrines of foreseeability, causality, and guilt / contribution.
Businesses across industries are setting net zero targets and making other green or climate pledges. Greenwashing and reputational risks are real and will only continue growing. Corporate directors and senior management are likely to be held accountable (depending on national regimes) for lack of or insufficient action in relation to climate risks.
To manage greenwashing risks, in-house lawyers need to be part of relevant discussions internally, advise on achieving these targets and support the delivery. For corporates, key part of their decarbonisation, is working with their value chains and ensuring that their suppliers share their climate values (by introducing relevant climate or sustainability clauses in contracts, for example). In the case of financial institutions, greening portfolios by engaging with clients, is essential. EBRD, for example, supports clients to prepare transition plans and climate governance action plans, which would help them manage physical and transition climate risks, identify business opportunities in the climate transition and update their climate targets, policies and strategies accordingly. There are many ways to engage with clients and stakeholders and reflect these commitments in legal agreements and/or policy documents.
Institutional investors will continue challenging companies’ decarbonisation, transition and adaptation plans, which coupled with a complex regulatory regime, is likely to increase costs and resource needs. In emerging markets this will lead to acute implementation gaps, which IFIs should help bridge.
4.What are some of the issues you are seeing with the implementation on the renewable energy pledges or sustainability commitments?
Countries were in consensus to scale-up renewable energy investments on unprecedented global scale. While this is a very positive development, more work needs to be done by both governments, industry, involving also affected communities, to ensure that the necessary supply chains and infrastructure (especially in emerging markets) are in place to allow for the delivery of this ambition.
The Corporate Sustainability Reporting Directive and other sustainable finance regulations are requiring companies to report their Scope 1,2 and 3 greenhouse gas emissions and other material ESG indicators. To collect this data, companies and banks will turn towards their value chains and clients, which will have a wider impact on emerging markets where, as mentioned above, data is scarce and corporate reporting practices are deficient.
5.What were the key contributions of EBRD at COP28?
The EBRD contributed to discussions across multiple topics, including just transition, country-sector platforms, nature, private capital mobilisation, carbon markets, gender, Paris alignment, climate law and governance, cities and food systems. The EBRD played a catalytic role in designing the country-sector platforms approach discussed at COP28 by showcasing successful engagements with Egyptian and North Macedonian public sectors, business community, investors and other MDBs.
In North Macedonia, for example, the EBRD will support an in-country platform to accelerate just energy transition, targeting the complete phase-out of coal-fired power, deployment of 1.7 gigawatts of renewables by 2030, grid and storage investments and just transition measures.
We also participated in many panels and meetings. For example, EBRD's General Counsel Mike Strauss moderated a panel on private sector mobilisation with representatives from the German Federal Ministry for Economic Affairs and Climate Action, IFRS / International Sustainability Standards Board, Citigroup and the Climate Policy Initiative and participated in another panel organised by the Bulgarian Government on addressing climate risks and investing in climate resilience.
I joined panels on just transition and financing climate transition with a focus on emerging markets drawing on our investments and policy engagements.
EBRD OGC supported for a fifth consecutive year the Climate Law and Governance Day. Our GC spoke at a high-level plenary and was joined by GCs and Deputy GCs from ADB, GCF, IFAD and IFC. This is the first time we convene such a high-level panel at this forum to showcase our institutions’ progress towards our respective Paris alignment commitments and the ongoing work in IFIs legal departments to support climate and sustainable investments. You can watch a video of this panel here.
Mike Strauss also co-chaired a panel on emerging trends in sustainability reporting, climate governance and transition planning where I spoke about our experience, jointly with representatives from the UK Financial Conduct Authority, Norton Rose Fulbright – a law firm, the World Bank’s legal department and academic institutions.
6.Vesselina, what were your impressions from attending the COP this year? How was it compared to previous years?
It was hot and busy! The series of meetings between country representatives (the official side) and other stakeholders (i.e., the financial community, civil society, businesses, indigenous population) were hosted in a big Expo Centre outside Dubai. Due to the setting comprising more than 80 unconnected small blocks where meetings were held, participants could not attend meetings spontaneously like in other COPs; the distances involved made it challenging to line-up several meetings and/or events. One of the goals of the COP Presidency was to ensure this would be the most inclusive COP ever, which was manifested by a huge guest list: close to 100,000 people flew long distances to a top oil-producing countries to take part in thousands of events. And then took long taxi rides to the Expo Centre, where hourly queues awaited them before they finally got checked in, often running late for their meetings.
The next Presidencies will have to reflect upon ways to ensure inclusivity by encouraging hybrid events and setting some limits on country or industry representations. At the same time, it’s exciting to be part of the discussion, get inspired by new ideas, strike new partnerships and share our experiences and success stories related to climate policy, climate finance and/or climate law and governance.
Vesselina, thank you for speaking to us today.
