Building on progress: What the COP29 outcomes mean for financial services

As COP29 wrapped up in the early hours of Sunday morning, the agreement for a three-fold increase in climate finance to $300 billion annually by 2035 marked a significant milestone. However, expectations had been set much higher, with calls for $1.3 trillion to effectively address climate challenges. The progress made during the two-week negotiations also underscored the growing necessity to integrate nature and human rights agendas within climate plans and financing.

A landmark agreement was reached to establish a $300 billion annual new collective quantified goal (NCQG) by 2030, significantly enhancing climate finance flows to developing countries. This target, while substantial, remains well below the $4.1 trillion annually estimated to be required globally by 2050 to achieve a low-carbon transition.

The $300 billion NCQG will catalyse significant funding flows to developing countries, creating numerous opportunities for financial institutions. Blended finance is expected to play a central role in achieving the NCQG, providing a way to de-risk investments in emerging markets and developing economies (EMDEs).

The global financial system must transform to meet sustainability and transition needs, with private finance needing to innovate in products and services in collaboration with all parts of the financial system.

Several countries, including the UK and Brazil, significantly raised their nationally determined contributions (NDCs), demonstrating heightened ambition in emissions reduction to meet global climate goals.

Enhanced NDCs are crucial for accelerating global momentum towards achieving the Paris Agreement goals.

Stronger NDCs and climate commitments are likely to lead to regulatory adjustments that incentivise financial institutions to align their portfolios with net-zero goals. As financial hubs deepen their climate commitments, there will likely be increased demand for green and transition finance solutions globally.

Parties agreed and approved the implementation of the Article 6.4 mechanism of the 2015 Paris Agreement, which provides a framework for an international centralised carbon market. This development aligned global efforts under a common framework, creating a unified carbon market and reducing risks of fragmentation and greenwashing.

A transparent carbon market could unlock new investment avenues in carbon credits, renewable energy, and emission-reduction projects. A consistent approach and pricing in carbon markets would allow financial institutions to better price carbon risk in high-emitting sectors.

Several blended finance initiatives launched at COP29 set a blueprint for climate finance mechanisms. These initiatives leverage blended finance to mobilise significant capital for sustainable infrastructure, effectively blending concessional, commercial and grant capital to address risks and mobilise investment.

Blended finance structures attract private investors by mitigating risks, encouraging more capital flow into sustainable projects. Initiatives like the GAIA platform open new avenues for investment in emerging markets and developing economies, which is crucial for achieving global sustainability targets.

Chief executive officers should champion strategic positioning for climate leadership, seize blended finance opportunities for growth, and expand their ecosystem by engaging with government and multilateral stakeholders.

Chief financial officers need to embed carbon pricing into financial planning, optimise compliance and reporting efficiency, and rethink business models to drive sustainable business transformation.

Chief risk officers should strengthen climate risk frameworks, leverage blended finance for risk-adjusted returns, and rethink governance to include diverse stakeholder engagement.

Chief sustainability officers must deepen engagement in developing markets, step up their role as challengers to drive sustainability as a business imperative, and align reporting with global standards to ensure robust, comparable disclosures.

The operationalisation of Article 6.4, the raising of NDC ambitions, and the agreement on the NCQG all signal a transformative shift towards more robust and integrated climate finance mechanisms. These developments present both challenges and opportunities for financial institutions, requiring strategic alignment, innovative financing solutions, and enhanced risk management frameworks.

The financial services sector must continue to evolve and adapt to the rapidly changing landscape of climate action and sustainability.

Harmonising climate reporting frameworks and establishing a platform for consistent climate transition planning will be crucial for ensuring transparency, accountability and comparability across the industry.

Financial institutions should leverage these advancements to enhance sustainability integration within their operations, drive sustainable investment, and support the global transition to a net-zero economy.

The proximity of COP16 to COP29 elevated the theme of climate and nature integration, making it more prominent than ever. Nature-positive net-zero plans are essential for guiding policy, investment, financial flows, and business actions. Updated NDCs for climate action and national biodiversity strategies and action plans are expected by 2025, with COP30 in Belém, Brazil (November 2025) expected to build unprecedented levels of integration between the nature and climate agendas.

As COP29 concluded, the third of the Rio Conventions – Combatting Desertification and Drought (CCD16) – began in Riyadh, Saudi Arabia. Key priorities will include funding mechanisms to support land restoration and resilience, land rights, and the role of business, reflecting the broader agendas of COP16 and COP29.

The parallels between the issues raised at COP16 and COP29 will not be lost on delegates, particularly those from the business and finance sectors. While the aggregate impact of business action holds immense potential, it still falls short of what is needed. The opportunities and risks ahead are unprecedented, and it is imperative that the financial sector rises to the challenge.

Financial institutions must be proactive in aligning their strategies with the evolving landscape of climate action and sustainability. By doing so, they can not only mitigate risks but also seize the opportunities that lie ahead, driving meaningful progress towards a sustainable future.

 

This article expresses the views of the author and not necessarily those of Euromoney.