COP29: Mixed Messages and Key Takeaways for Companies
by Naomi Barker
COP29, the annual Conference of Parties hosted by the United Nations Framework Convention on Climate Change (UNFCCC), wrapped in Baku, Azerbaijan at the end of November. Reactions to the relative success of the conference have been mixed – while some improvements and announcements were made on specific topics, many stakeholders and observers left feeling unsatisfied.
While the impact of COP29 will be felt most broadly by countries and international institutions, there are several key takeaways for the private sector to consider as we move forward into 2025.
New Guidelines for Carbon Markets
Nearly ten years after the landmark Paris Agreement codified the use of carbon credits and catalyzed international carbon markets, negotiators agreed to a set of rules that supporters say will mobilize billions of dollars into new projects for climate mitigation and adaptation.
The new guidelines are designed to ensure credibility and transparency in a voluntary carbon credit market that has previously operated independently, often resulting in risks of greenwashing due to inconsistencies, double-counting, and credit inaccuracy.
The final agreement – the Paris Agreement Credit Mechanism under Article 6 – creates two distinct carbon market mechanisms. The first, Article 6.2, defines a decentralized market in which countries can create their own bespoke trades with other countries bilaterally. The second, Article 6.4, establishes a centralized United Nations trading system, scheduled to launch as soon as 2025, that will formally oversee the issuance and transfer of credits. The private sector finally has clearer guidance on how to participate in carbon markets.
Negotiators in Baku finally established clear guidelines for the voluntary carbon trading system under Article 6.4, where the private sector can sell credits and purchase offsets to other companies domestically and abroad. With a new universal standard for carbon credit quality, businesses will find themselves open to opportunity. For corporates with emissions-intensive operations, it creates opportunities to incorporate carbon trading into business and sustainability strategies. For companies already effectively decarbonizing and creating carbon credit opportunities, there is the potential for additional revenue through international carbon credit trading.
Leveraging Global Financial Flows
One major success stemming from the colloquially named “Finance COP” in Baku is an updated New Collective Quantified Goal (NCQG), which replaces the former commitment for developed countries to allocate $100 billion USD annually to developing countries to support climate mitigation and adaptation activities with a new $300 billion USD threshold. Although this financial floor is far below the $1 trillion USD contributions developing countries demanded, the increase will accelerate demand for voluntary contributions by other countries and increase engagement from the private sector.
Parties agreed to engage both the public and private sector to secure an amount of at least $1.3 trillion USD per year by 2025 under the “Baku to Belém Roadmap to 1.3T”, a goal that will demand huge support from companies across the globe. Companies may face pressure to increase their own contributions or projects to help finance the energy transition in developing countries.
Enhancing Country Commitments
By February 2025, countries are expected to provide updated national climate plans, or Nationally Determined Contributions (NDCs), for 2035. Most countries have already submitted or will likely submit enhanced emissions reduction targets in line with a 1.5°C pathway. Notably, these targets are expected to be absolute – they must be set from an established baseline year and cover all greenhouse gases, categories, and industries across the economy. This differs from previous commitments, which could be relative – determined based on modeled “business-as-usual” emissions or scaled for financial growth.
It is crucial that companies strategically assess their own decarbonization strategies in the coming year to ensure that they are in line with the climate ambitions of all countries in which they operate. High emitting companies may be subject to increased scrutiny, heightened demands for reductions, and clearer long-term strategy for implementing and managing decarbonization systems.
The Future of COP
UNFCCC’s annual COP is always accompanied by a certain amount of skepticism and frustration from opponents, participants unhappy with negotiating outcomes, and questions surrounding the conference’s purpose when weighed against cost and impact. This year was particularly subject to a high degree of scrutiny, especially from those occupying positions of power within the institution itself. Senior climate leaders, including the Executive Secretary of the UNFCCC Secretariat and the UN Secretary-General, released an open letter calling the COP climate talks “no longer fit for purpose” and in need of an urgent and complete overhaul.
Some criticism stems from the unwillingness of countries to commit to the phase-out of fossil fuels, and others pertain to the increase in attendance by corporations and the private sector in recent years. COP, in its current slow-moving structure, may not be able to deliver the systemic, global climate adaptation and mitigation financing quickly or efficiently enough to keep to the Paris Agreement’s 1.5-degree target.
With trust in the COP process waning dramatically, there is a critical opportunity for corporations to rise to the challenge and drive sustainable climate action by leveraging their own due diligence and financial flows.
What Comes Next?
Despite mixed messages from and reactions to COP29 in Baku, the time is clearly ripe for responsible businesses across the globe to facilitate global climate action. The power of the private sector has never been clearer or stronger, and companies should expect to build more robust, far-reaching, and sustainable decarbonization and due diligence processes into their strategies and operations.