sustainable investment
COP28: delivering on food, nature and energy
We provide our key takeaways from COP28, covering the historic final communique, significant agreements focused on nature and the food and energy systems, plus the knowledge shared at the Lombard Odier re-NATURE hub alongside the summit.
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Need to know
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The UAE consensus to retreat from oil and gas
Following much discord and a day-long delay, leaders at the COP28 summit agreed on a landmark final communique to transition away from fossil fuels. While it avoided polarising references to phasing out fossil fuels, the UAE consensus nonetheless marked an unprecedented reference to a global commitment to retreat from oil and gas usage.
The voluntary agreement calls for countries to quickly shift energy systems away from fossil fuels in a “just, orderly and equitable manner”, and to accelerate action this decade to achieve net zero by 2050. It announced a new, specific target to triple renewables and double energy efficiency by 2030. This further signposted the direction of travel towards what we call a CLIC® economy that is circular, lean, inclusive and clean model, and the investable opportunities it creates in the rise of new food systems, mass electrification and the circular economy.
Despite the typical deliberations that characterise all COPs, the latest summit underscored a forceful trend: experts on nature and industry, as well as forward-thinking companies involved in the environmental transition, are discussing commitments and targets less in favour of overcoming the engineering challenges ahead. It tells us that industry leaders are seeking to gain an edge on competitors to capture the opportunities being created by the rewiring of the global economy.
In our view, this process unlocks exciting possibilities and creates new or shifting profit pools that investors should watch closely.
Spotlight on food systems
The climate agenda at COP28 was expanded to include wider systemic issues, such as food systems. And for good reason: emissions from the world’s top five meat companies are estimated to be significantly larger than those of some of the major oil firms. Livestock accounts for 77% of global farming land, but it only produces 18% of the world’s calories and 37% of total protein. This inefficient food system is also responsible for most biodiversity loss, agrochemical pollution, deforestation and water use globally.
And with this scrutiny of food systems came a greater number of advocates for the sector, relative to previous summits. Trade groups and lobbyists for industrial agriculture companies attended in record numbers: since 2022, delegates for groups representing have agribusiness more than doubled.
The prominence of food systems was also reflected in the Food and Agriculture Organisation (FAO) of the United Nations unveiling the first edition of its global roadmap to create a world free of hunger (thus meeting SDG 2) without breaching the 1.5°C threshold by 2030. The FAO roadmap targets domains where accelerated climate actions can transform agrifood systems and help achieve food security and nutrition.
Solutions to tackle inefficiencies and emissions
A central outcome of the summit was a food and agriculture declaration signed by 134 word leaders representing 5.7 billion people, 70% of the food we eat and 76% of total emissions resulting from the global food system. Further underscoring how capital is flowing towards the transition, the initiative mobilised more than USD 2.5 bn in funding to support food security while combatting climate change. Overall, total new money pledged at the summit towards fighting climate change wrought by food systems exceeded USD 7bn.
The new agreement bolsters the case for a variety of solutions to tackle the inefficiencies and emissions generated by food systems. These solutions include investable opportunities within the fields of regenerative forms of agriculture, precision farming and alternative proteins – all of which should receive further policy support from the initiative.
Nature-positive investing to support long-term returns
Nature was also high on the agenda given its crucial role underpinning the global economy, food systems and fighting climate change. Speaking during the Industry Day at Lombard Odier’s re-NATURE Hub at COP28, Hubert Keller, our Senior Managing Partner, highlighted a change in emphasis: the question about nature’s importance in tackling climate change has evolved into a discussion about how we can develop a nature-positive economy.
How could our global food systems contribute meaningfully to a nature-based economy? Morten Rossé, Head of Nature and Climate at holistiQ Investment Partners,1 used coffee as an example, highlighting its suitability for agroforestry. Converting industrial monoculture coffee plantations into organic agroforests is an example of one solution, he said. This would help roll back deforestation, restore degraded soils, and simultaneously produce beans that sell at a premium. Coffee farms will even sequester carbon by an estimated 4.5kg of CO2 for every 1kg of roasted coffee, delivering a genuine win-win as each sip of coffee becomes more climate and nature positive.2
Institutional investors such as pension funds could find this approach to investing in nature attractive, according to Sindhu Krishna, Head of Sustainable Investment at the Phoenix Group, who noted: “In pensions, you invest for the long term – so you protect long-term returns and you also protect a planet that you can retire into.”
Mobilising investment in nature-based solutions
There is approximately USD 154 bn worth of investment annually in nature-based solutions today. Sustainability specialists in our holistiQ team estimate this figure needs to at least triple by 2030 to meet nature and climate commitments. Several programmes to this effect were announced at the summit, mobilising hundreds of millions of dollars of additional investment per year into nature-based solutions.
For instance, the launch of the Nature Solutions Finance Hub (NSFH) aims to proactively scale up the flow of public and private finance into conserving nature and biodiversity loss in Asia and the Pacific. The NSFH focuses on:
- Designing nature-based solutions or nature-positive approaches in projects
- Prioritising projects for maximum nature impact and replicability
- Structuring innovative finance approaches aimed at de-risking projects
Ultimately, holistiQ estimates that the tripling of commitments for nature investing should be feasible. Trillions are already being poured into mitigating energy-related emissions, and with nature providing key – and free – carbon sequestration, markets will inevitably begin to put a fairer value on nature-based assets.
We believe that investments in neglected land could improve crop yields, land value and, potentially, additional returns from carbon sequestration. This amounts to an attractive investment proposition, in our view.
Energy: a monumental investment cycle dawns
Energy remained a cornerstone of discussions and pledges. Speaking at re-NATURE, Keller noted that the transformation of the energy system not only disrupts generation and transmission, but other sectors like mobility and the built environment, too. This is setting off an economic chain reaction, providing many avenues to deploy capital across sectors. “We are at the beginning of a big investment cycle,” he predicted.
During COP28, more than 100 countries pledged to triple global renewable energy capacity by 2030. The European Union (EU) announced some EUR 2.3bn in renewable energy infrastructure in the EU neighbourhood and globally. And the US committed to closing all coal-fired power stations by 2035.
Still, more money needs to be put to work in this area. The International Energy Agency estimates that investment in clean energy was about USD 1.8 trillion in 2023, representing much of the total energy investments of USD2.8trn. The forecaster predicts that by the early 2030s, around USD 4.5 trn needs to be spent – entirely on clean energy – to meet the pathways necessary to reaching net zero by 2050. Part of this equates to a net increase while the rest is linked to a shift in existing investment. Such a rise would be typical relative to past innovation cycles: for example, USD 4.7 trn was spent on IT alone last year.
Our electrification equity strategy aims to invest in companies that are at the forefront of this system change. We believe that relentlessly declining costs, massive efficiency gains and widespread applications will drive shifts in profit pools across sectors focused on energy demand, supply and enabling solutions.
Cleantech: long-term value creation
Despite the surge in capex on clean energy, key sectors were unloved by markets in 2023 as rising interest rates pushed up the costs of construction. Meanwhile, consumer markets were weak while large stockpiles depressed demand. Cleantech indices, like the S&P Global Clean Energy Index, have underperformed by 30% or more year to date.3 Yet there is more to the story.
The above scenario would be familiar to long-term investors investing in technology revolutions: both cleantech and IT underwent similar drawdowns in their inexorable move towards value creation. Past innovations have driven unforgiving progress due to superior appeal, functionality and cost-competitiveness – and we believe the energy transition is no exception.
For instance, batteries are a key technology for clean energy. The energy density in lithium-ion batteries has improved at a rate of approximately 5-6% per year from 90 Wh/kg in the early 1990s to 500 Wh/kg today. At this rate, energy density would double over a little more than a decade, representing a considerable challenge to current, more mature technologies.
In this transition, efficiency drives investable opportunities
Overall, efficiency underscored all of the climate solutions on show at COP28. For instance, electric vehicles are four times as efficient in their well-to-wheel energy efficiency as petrol vehicles; alternative proteins would use a fraction of the land and water required for traditional animal protein; and additive manufacturing – or 3D printing – can reduce material usage by as much as 90% for some components.
Using resources more efficiently decreases input and operating costs – not to mention lowering exchange-rate risks and price volatility. This shows how clear economic savings result from greater efficiency at the environmental level. As the transition advances, we believe this is at the heart of creating growth and investable opportunities for investors.
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