COP president Sultan Al Jaber has highlighted that a phase down of fossil fuels is critical (notably not a phase out) and plans to announce a new fossil fuel Global Decarbonisation Alliance for the energy sector. He also calls on all parties to join a pledge to triple the capacity of renewables by 2030 and to double the rate of energy-efficiency improvements.

In October, 131 businesses with over $1 trillion in revenue signed a letter to governments, demanding a phase out of fossil fuels to be agreed at COP28. The recently published UN Production Gap report highlights that countries plan to produce 110% more fossil fuels by 2030 than what is needed for 1.5°C alignment.

The spotlight will therefore be on the fossil-fuel industry, where credible action plans are desperately needed. In particular, the role and scope of carbon capture and storage in credible transition plans will be a key point of debate.

But what other progress has been made since COP27?

1. Ambition gap

According to Climate Action Tracker, we are on track for a 2.4°C increase in temperatures, based on formal nationally determined contributions (NDCs). These reflect targets that countries have set to contribute to the Paris Agreement. COP27 called for parties to strengthen their climate pledges in 2023. But only the European Union and eight additional countries have done so, including the UAE as host country, with little impact on the overall goal. The next formal set of NDCs are due in the first quarter of 2025. These must reflect increased ambition and respond to the findings of the UN global stocktake which assesses progress towards achieving the Paris Agreement goals and is due to conclude at COP28.

The stocktake synthesis report published in September suggests that we have little chance of limiting the increase in temperatures to 1.5°C without drastic change. At COP28, we need to see a step-up in ambition, based on the stocktake findings, and then cement this into formal NDC updates - a final chance to correct course for 2030.

2. Credibility gap

Emissions are still on the rise and reached a new high in 2022. Targets need to be translated into binding policies to incentivise decarbonisation at the pace and scale needed. For example, policies may include the effective use of carbon prices and the removal of inefficient fossil-fuel subsidies. According to the International Monetary Fund, global fossil-fuel subsidies amounted to $7 trillion in 2022, a $2 trillion increase since 2020.

On the upside, the continued growth in clean technologies offers hope as it drives down the cost of low-carbon technology. According to the latest IEA World Energy Outlook, investment in clean technology has increased by 40% since 2020. The share of technologies needed for net zero that are not yet available on the market has fallen from 50% in 2021 to 35% in 2023.

Another important outcome is the credibility and use of voluntary carbon markets, which play an essential role in achieving net zero. A key debate will be whether to allow emission avoidance as part of the carbon credit mechanism. We’ll be looking out for commitments that raise the credibility of pledges, such as tackling policies that send the wrong signals to investors. If implemented, emissions may finally plateau over the next two years. But, ultimately, we need to reduce greenhouse gas emissions by 43% between 2019 and 2030 if we’re going to limit warming to 1.5°C.

3. Justice gap

The support and finance provided to developing countries for mitigation, adaptation and losses from climate impacts are essential. A key success of COP27 was establishing a loss and damage fund, which is expected to be operational by the end of COP28. Many issues were explored throughout 2023, but a key question remains: who is responsible for providing money into the fund and who is eligible to receive it? There are divergent views around the role of relatively high-emitting, middle-income countries in that context.

Then there is the $100 billion climate finance promise from developed to developing nations that was due to be delivered by 2020. It has still not reached $100 billion, but it is now inadequate given the considerable finance gap. It is to be reviewed as a NCQG (new collective quantified goal) at COP28, but the mechanisms for delivery need to be more binding to avoid similar failures in the future.

We must also address the need for a just transition that considers the social impacts on communities, consumers and workers. This will feature strongly at COP28, given inclusion is a key focus.

4. Adaptation gap

At COP27, the Sharm-el-Sheikh Adaptation Agenda was launched to enhance resilience in the most vulnerable regions. Developed nations agreed to “at least double their collective provision of climate finance for adaptation” from 2019 levels by 2025 – roughly equating to $40 billion. Despite this, and the increasing damage from physical risks experienced across the globe, adaptation planning and finance flows are woefully insufficient as highlighted in the latest UN adaptation gap report published in November 2023.

The report found that progress on climate adaptation is slowing when it should be accelerating. It also highlights that the adaptation finance needs of developing countries are 10-18 times higher than global public finance flows. Crucially, only 2% comes from the private sector and new blended finance mechanisms are needed to address this.

At COP28, a key aim is to set specific, measurable targets for the Global Goal on Adaptation. We know that adaptation is essential as we’re past the point of limiting the physical damages of climate change through mitigation alone. But striking the appropriate financing balance and mobilising private finance are essential at COP28 and beyond.

Closing these gaps matters to investors, because it shapes investment risks and opportunities, and drives where finance will ultimately flow.