Green Bonds and Global Promises: Unpacking the impact of COP28

The United Arab Emirates (“UAE“) hosted the 28th United Nations Climate Change Conference (“COP28“). Experts called COP28 “the most significant COP since the Paris Agreement,”[1] in part due to its location within one of the ten largest oil-producing countries in the world.[2] With more than 95,000 delegates present, COP28 is the largest COP to date.[3]

We’ll begin by describing the context and key outcomes of COP28. We will then examine sustainable finance trends since COP28 and compare the status between emerging and developed economies, followed by a concluding forecast for COP29 in Azerbaijan, along with an assessment of the UN’s Sustainable Development Goals’ (“SDGs“) progress.

I. Context

Context of COP28

The UAE government has climbed the energy transition index[4] and has become the first Middle Eastern and North African nation to establish a “net-zero” emissions goal by 2050.[5] President Sheikh Mohamed bin Zayed declared 2023 as the “Year of Sustainability” and extended the theme into 2024, reinforcing the nation’s dedication to sustainable

development and climate action. The selection of the UAE as COP28 host further emphasizes its multifaceted role in the global energy sector.

At COP28, the first Global Stocktake (“GS“) was completed.[6] The GS evaluates global progress on climate action as outlined in the Paris Agreement, assessing over 1,600 documents to identify gaps and opportunities for improvement:

• The GS synthesis report indicated that the world is falling short of meeting the 1.5degC warming limit.[7] This emphasizes the urgent need for a comprehensive “system transformation” across all sectors. The GS synthesis report indicated that the world is falling short of meeting the 1.5degC warming limit. This highlights the urgent need for a comprehensive “system transformation” across all sectors. It also revealed divisions between nations, with some parties raising concerns about the delayed net-zero emission targets of certain developed country, whose emissions peaked decades earlier. This indicates persistent challenges in achieving consensus among nations with diverse economic and environmental circumstances.
• Additionally, the latest United Nations Environment Program (“
• UNEP[8]

“) emissions gap report for 2023 showed progress since the 2015 Paris Agreement, but highlighted the following:Initial projections of a 16% rise in greenhouse gas emissions by 2030 have been reduced to 3%. Emissions must still decrease by 28% for the 2degC goal and 42% for the more ambitious 1.5degC target by 2030.Implementing unconditional Nationally Determined Contributions (“[9]

• NDCs
• “) would limit temperature rise to 2.9degC, while conditional NDCs could lower this to 2.5degC.Even under the most optimistic scenario, limiting global warming to 1.5degC has only a 14% likelihood, accentuating the need to cut global emissions below current NDC levels by 2030 and expand net-zero commitments to cover all greenhouse gases, given increasing climate risks with each degree of warming.Outcomes of COP28[10]
• The chief positive outcomes included (i) commitments by over 130 countries to expand renewable energy capacity and improve energy efficiency by 2030 and (ii) nearly 200 countries agreed to shift away from fossil fuels “in a just, orderly, and equitable manner” to achieve net-zero emissions by 2050.[11]

This sets a new precedent. The COP28 was a historic event, as fossil fuels became the official cause of climate changes. The COP28 consensus reflects a significant step forward in global efforts to address climate change comprehensively. Despite initial concerns and differing viewpoints, the consensus achieved at COP28 reflects a significant step forward in global efforts to address climate change comprehensively.

Additionally, (i) COP28 laid the groundwork for the implementation of the Paris Agreement’s “enhanced transparency framework,” aimed at bolstering accountability and action and (ii) COP28 emphasized intersections between climate change, conflict, and humanitarian action, with initiatives like the Global Electric Cooking Coalition and efforts to advance gender-responsive climate transitions.[12]COP28 achieved a milestone with (i) the implementation of the ‘Loss and Damage Fund’ from day one and (ii) the establishment of a Global Goal on Adaptation, a framework designed to enhance the world’s collective capacity to adapt to the increasingly severe impacts of climate change. However: [13]Regarding (i), financial pledges from major developed economies amounted to just US$700 million, well below the estimated needs of US$400 billion.[14]

Regarding (ii), despite the ambitious scope, the Global Goal on Adaptation lacks fully quantified targets, making it difficult to track progress and hold nations accountable. A two-year program has been launched to develop indicators offering a chance to refine future Global Stocktakes, but without increased adaptation finance, accountability remains weak.[15]

Discussions also highlighted challenges in reducing overall energy demand.

• Therefore, COP28 did not fully deliver on climate finance, and this agenda will be pushed to COP29.[16]
• At the halfway mark between COPs, the Bonn Climate Change Conference (June 3-13, 2024), key milestones included the launch of the Technical Cooperation Collaborative to support sustainable agriculture and resilient food systems, as well as a push for COP29’s strong new finance goal. 151 nations have signed the COP28 UAE Declaration on Sustainable Agriculture Resilient Food System and Climate Action committing themselves to integrate food and food system into their NDCs before 2025. This is important because NDCs must reflect emission reductions, just-transition efforts, adaptation and loss and damages strategies. These efforts are paving the way for ambitious and unified strategies at COP29 in Azerbaijan.[17]In August 2024, a controversy erupted after 77 Nobel laureates, world leaders, and climate change experts sent an open letter to express their dismay over the UN’s decision to omit any reference to fossil fuels from the draft of the Summit of the Future pact in New York.

The original draft supported a faster transition away from fossil fuels, aligned with the UAE’s consensus from COP28. The revised version, however, focused solely on climate action based on “the best available science” and did not mention fossil fuels. Climate advocates were alarmed by this change, believing it diminished the urgency to address one of biggest threats to global stability. The signatories urged the UN to reinstate strong commitments to phase out fossil fuels to meet the 1.5degC target of the Paris Agreement.

Following this backlash, the UN Pact for the Future, which aims to protect the need and interests of present and future generations, and seeks to facilitate global sustainable development (among others things), reinstated similar wording on fossil fuels. The United Nations General Assembly adopted the pact on September 22, 2024. The Summit of the Future, held September 22-23 2024, demonstrated the importance of clear and robust climate policies. COP29 in Baku will provide the next major opportunity for global climate negotiations.[18]Context for the upcoming COP29[19]

Under the UN Framework Convention on Climate Change (“[20]UNFCCC

“), wealthy developed nations must financially support developing countries in fighting climate change due to their historical responsibilities. The developed countries committed $100 billion per year to this cause starting in 2020. The Paris Agreement requires developed countries to periodically increase this commitment post-2025, with the new goal, labeled as the New Collective Quantified Goal (“[21]NCQG[22]”), to be finalized this year.[23]

Developing countries now require trillions annually for climate action, including $6 trillion by 2030 for their pledged actions and $215 billion to $387 billion yearly for adaptation alone. The global transition to clean energy demands about $4.3 trillion annually until 2030 and $5 trillion thereafter for achieving global net zero emissions.

India recently proposed that developed countries commit at least $1 trillion annually post-2025, with Arab countries suggesting $1.1 trillion and African countries demanding $1.3 trillion. While developed countries acknowledge the need for more than $100 billion annually, they have not publicly offered specific new amounts.Debate continues over which countries should contribute under the UNFCCC and Paris Agreement; currently, Annexure 2 identified only 25 countries as the world’s most developed and economies in transition plus the European Economic Community that are obligated to provide climate finance to developing countries. Discussions are ongoing about whether the list should be expanded to add additional countries. This could help balance responsibilities and support global negotiations. These countries claim that the current scale of needs and economic changes since the list was created have exceeded their original capacity. The list of contributing countries does not include major economies such as China, oil-rich Gulf states, and South Korea. However, opponents are fiercely opposed to the idea, arguing that richer economies have historically benefited by the emissions that caused climate change. By 2024, the countries will have to finalize the amount that developed countries should raise beyond the $100 billion per year they currently mobilize for developing countries to combat climate change. The talks, which are held annually in June in order to provide an indication of the figures needed for COP29, which will be held in Baku, Azerbaijan. The outcome was a 35-page document outlining the preferences of various countries on finance quantum and contributors. It also outlined expenditure priorities and monitoring mechanisms. The document will be formalized into a negotiating draft for COP29. The debate highlights that financial resources are needed not only for adaptation and mitigation efforts, but also for important tasks like climate data collection and reporting. This is especially true for less economically developed nations. The Paris climate agreement will require the UAE to release a new Nationally Determined Contribution (i.e. a climate plan describing a country’s policies to reduce greenhouse gas emission) outlining its plan to reduce its greenhouse gas emission from 2025 to 2030, ahead of the COP29 summit in November. This development has made the UAE one of the first major emitters to issue such plan ahead of the February 2025 deadline.Following its role as host of COP28 and its ongoing efforts to mitigate the negative impacts of climate change, the UAE Cabinet of Ministers issued Federal Decree-Law No. On August 30, 2024, the UAE Cabinet of Ministers issued Federal Decree-Law No. 11 of 2024. This law is due to come into effect nine months later (in May 2025), and aims to reduce and control toxic emission. It establishes guidelines for both governmental and private entities, empowering them to combat emissions and reduce their contribution to harmful climate change effects, while also promoting international cooperation as a solution.[24]Against this backdrop, we will now address global developments that have unfolded since COP28 and in the lead up to COP29, with a focus on the Middle East and North Africa (“MENA“) region.

• II. Post COP28 sustainable financing trends: Focus on the MENA region
• Surge of GSSS bond issuance
• Amid efforts to create a robust climate agenda for COP29 emerging markets have seen a significant rise in green bonds, with issuance reaching $135 billion by 2023. This represents a 34% increase year-on-year, and is projected to reach $156 in 2025. This positive forecast is largely dependent on a stable geopolitical environment and an easing of inflation. Over the past year, the MENA region experienced an unprecedented surge in the issuance of green, social, sustainability, and sustainability-linked (“[25]GSSS

“) bonds.[26]

Issuance of green bonds in the region more than doubled to $15.5 billion compared to the previous year, positioning the Middle East as the emerging market with the largest amount of GSSS bonds issued outside China in 2023.[27]

Green bonds specifically fund environmental projects, while GSSS bonds include green bonds as well as those aimed at social and broader sustainability goals. In other words, unlike regular bonds, financing raised via green bonds is used exclusively to finance projects with a positive environmental impact, such as climate change mitigation, renewable energy, and green buildings.[28]Since their first issuance in 2007, the market for green bonds grew slowly for nearly a decade before accelerating in recent years. Global green initiatives such as the Paris Agreement on Climate Change and the UN SDGs have contributed to this expansion. In the MENA region proceeds from GSSS bonds go to climate mitigation, renewable energies, and hydrogen projects. Investors’ appetite for GSSS bonds is expected to grow, and proceeds will be used to address climate change issues unique to the region. These include adaptation to water stress, and combating extreme temperatures. Green bond issuances are rapidly increasing in emerging markets due to a combination of investor demand and political resolve. In November 2023, Brazil issued its first green bond, raising $ 2 billion to support President Luiz inacio Lula da S Silva’s ambitious plans for the environment, including protecting the Amazon. China’s plan to publish efficiency and conservation targets for all sectors is a notable example. A notable example is China’s plan to publish efficiency and conservation targets for all sectors.

Over the past year, the UAE solidified its position as a regional leader, with green issuance amounting to $8.7 billion, while Saudi Arabia followed closely with $6.7 billion in issuances. Notable green issuances include:The first-of-its-kind Government of Sharjah’s $1 billion sovereign sustainable bond,

proceeds of which will be used for financing or refinancing projects in line with the Government of Sharjah’s Sustainable Financing Framework, and

Saudi’s Public Investment Fund’s (“

PIF“) second green bond issuance amounting to $5.5 billion, proceeds of which will be used to finance or refinance PIF’s green projects, in accordance with its green finance framework.Looking beyond conventional financing[29]One of the key drivers of sustainable finance in the region is the issuance of Islamic debt instruments (often distinguished by their Shariah-complaint features such as zero-interest and profit-sharing). The sukuk is a Shariah compliant bond-like product. The MENA region also accounted for nearly half of the global green sukuk issuance. The MENA region also accounted for nearly half of the total global green sukuk issuance.

With an emphasis on the role of finance in promoting sustainability, the COP28 conference further showcased how such debt instruments can be leveraged to accelerate sustainability agendas, including the net-zero emissions target.

Regulators and other key stakeholders in the region are already leveraging Islamic finance principles to advance their sustainability efforts. In November 2023, the Central Bank of the UAE hosted the launch of the Roadmap for Islamic Sustainable Finance,[30]

which outlines the goals for prudential and governance standards, financial accounting standards, disclosure guidelines, market development initiatives, and capacity building.[31]

Also, the UAE Securities and Commodities Authority, in its efforts to incentivize issuers to issue “green and sustainability-linked bonds and sukuk to finance sustainable projects that focus on climate and the environment,” exempted registration fees for green or sustainability-linked sukuk in 2023, and subsequently extended the exemption period to cover 2024 issuances.[32]

Demands by institutional and retail investors alike for Islamic debt instruments, as well as the overlap between Shariah requirements and sustainable development goals, have positioned the Islamic finance industry as a key player in the sustainable finance space.[33]The role of international forums and frameworks

• International platforms such as the UN, conferences such as COP28, and regional partnerships and initiatives such as the unified GCC sustainability disclosure metrics, are all precursors to bridging the sustainability gap between the MENA region and developed economies. Countries in the region are actively participating in sustainable development forums, with sustainability summits scheduled throughout the year.[34]Regulators in the region do not hesitate to use international sustainability disclosure frameworks, standards and guidelines as benchmarks for developing their own guidelines, while ensuring that these are adapted to address local peculiarities.
• III. Emerg Due Over The The The This has resulted in some states embracing ESG while others pass anti-ESG legislation, creating a complex regulatory environment.On the other end of the spectrum are emerging economies like China, which have experienced rapid industrial growth and urbanization, and made significant strides in adopting and implementing ESG standards more recently. The progress in such economies is partly driven by the need to address environmental impacts and social challenges associated with their fast-paced development and urban expansion.On the corporate side, many globally focused companies in emerging markets are participating in the UN Global Compact (the “[35]

Compact

“), which has been tagged “the world’s largest corporate sustainability initiative.” The Compact encourages businesses to align their operations and strategies with ten universally accepted principles relating to human rights, labor, the environment, and anti-corruption, and aims to enhance the social legitimacy of businesses and markets.[36]A key challenge for emerging markets in sustainability is the lack of standardized ESG and sustainability data reporting. In The Companies Additionally, more companies are issuing separate sustainability reports alongside their annual reports.

Recent sovereign ESG ratings also indicate significant strides in countries such as Mexico and Indonesia, as the gap between emerging markets and developed markets within the G20 has begun to close.[37]IV. Con Over The The Some International Their influence helps shape ESG practices worldwide, but the impact can vary depending on regional contexts and the specific needs of emerging markets.[38]Despite these advancements, a recent UN Climate Change report emphasizes that current national climate plans are insufficient to limit global temperature rise to 1.5degC. Global This We Conditional NDCs are more ambitious targets contingent on receiving financial or technical assistance from other countries or international institutions.[39]

UNEP, “Emissions Gap Report 2023,” November 20, 2023, available here.

BBC, “What is COP28 in Dubai and why is it important?” available here.

WEF, “What were the key outcomes of COP28?” December 20, 2023, available here.[40]

La Croix (with AFP), “COP28: Unanimous agreement for a ‘transitioning away’ from fossil fuels,” La Croix International, December 13, 2023, available here.

Dr. Rihab Khalid, “Heat, hope and hurdles at COP28: reflections,” Energy & Climate Intelligence Unit, December 15, 2023, available here.

WEF, “What were the key outcomes of COP28?” December 20, 2023, available here.[41]

WRI, “Unpacking COP28: Key Outcomes from the Dubai Climate Talks, and What Comes Next,” December 17, 2023, available here.

WRI, “Unpacking COP28: Key Outcomes from the Dubai Climate Talks, and What Comes Next,” December 17, 2023, available here. Emirates News Agency – WAM “COP28 Presidency urges Parties to raise climate ambition at Bonn Climate Change Conference to advance UAE Consensus,” June 13, 2024, available here. ESGMENA, “U-Turn on Fossil Fuel Omission in UN Pact Following Backlash,” September 2, 2024, available here.[42]

ESGMENA, “U-Turn on Fossil Fuel Omission in UN Pact Following Backlash,” September 2, 2024, available here.

ESGMENA, “U-Turn on Fossil Fuel Omission in UN Pact Following Backlash,” September 2, 2024, available here.[43]

Financial Times “Nobel winners hit out at removal of fossil fuels from draft UN pact,” August 13, 2024, available here.

The $100 billion figure was initially proposed by then US Secretary of State Hillary Clinton at COP15 in Copenhagen and later accepted by all Annexure 2 countries, although it was not the result of formal negotiations.

Amitabh Sinha, “No outcome in Bonn meeting: Why money is key to climate action,” The Indian Express, June 16, 2024, available here.

Amitabh Sinha, “No outcome in Bonn meeting: Why money is key to climate action,” The Indian Express, June 16, 2024.[44] Reuters, “UAE to unveil national climate plan under Paris pact before COP29” Available here.

Cabinet Ministers’ Federal Decree Law No. W 7 (Note: A follow-up memorandum addressing this law is currently being drafted by the Cleary Abu Dhabi Team).[45]

GSSS bonds encompass a range of financial instruments designed to raise capital for green (environmental), social (community), sustainability (comprehensive ESG), or sustainability-linked (performance-based) projects, aligning investment with broader sustainability objectives.

[1] Patrick Henry & Madeleine North, “What are green bonds and why is this market growing so fast?” World Economic Forum, November 22, 2023. See See also: IFC-Amundi Joint Report, “Emerging Market Green Bonds.”.

[2] CBUAE hosts the launch of Islamic Finance Infrastructure Organisations’ Declaration: Roadmap for Islamic Sustainable Finance, available here.

[3]The Roadmap was jointly developed by Islamic Financial Services Board (IFSB), the General Council for Islamic Banks and Financial Institutions (CIBAFI), and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

[4] Islamic Finance Infrastructure Organisations’ Declaration: Roadmap for Islamic Sustainable Finance.

[5] SCA extends exemption for companies listing green and sustainability-linked bonds and sukuk from paying registration fees (April 2024), available here.

[6] For instance, the third edition of Big Project Middle East’s annual Energy & Sustainability Summit took place on March 7, and was centered around how the construction and energy sectors can significantly step-up decarbonization efforts post COP28. The

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