For better or worse, COP30 changed little for investors

Wrangling over the mention of fossil fuels provided much drama leading up to the COP30 final outcome. But for the world’s investors, the high-wire act of climate diplomacy was neither here nor there.

Investors are adapting to a more multipolar world. They are watching countries’ domestic policies and how those policies change the economics of energy transition investments, which are driven by technology and, at times, supported or constrained by policy. And they are investing accordingly.

Assets in listed climate-themed funds rose nearly 12% in the first nine months of this year, according to the MSCI Institute’s Transition Finance Tracker. Notably, companies in Europe and Asia gained over 15 percentage points in their share of assets in climate-themed funds since the start of the year, benefitting from a shift away from US companies that have traditionally dominated.

While the negotiations in Belém produced nothing to trigger a leap forward in the pace or scope of the transition, the proceedings offered a few pointers of note for investors.

Energy transition(s) 

COP30 showed that multilateralism may be alive but could increasingly be driven by coalitions of like-minded countries that are addressing the energy transition in their respective ways. For investors, the calculus for allocating climate investments must build in “policy resilience” against headwinds and tailwinds for different technologies and sectors in each jurisdiction.

The outcome also points to the rising importance of action outside a multilateral context. COP30 acknowledged as much, with differences in countries’ approaches to energy a key subtext to the negotiations, and the launch of a “Global Implementation Accelerator.” As we’ve seen this year when much of the private sector finance community congregated in São Paolo instead of Belém, the limits of global climate policy mean that the financial sector will not be awaiting global signals but pushing ahead to seek opportunities for on-the-ground implementation, market by market and sector by sector.

Market mechanisms 

Where multilateral coordination must still lead, however, in order to unlock private-sector investment is in enabling emissions trading under Article 6 of the Paris Agreement. Days ahead of COP30, the European Union included in its 2040 climate target a mechanism to allow members to outsource 5% of their carbon cutting to countries outside the bloc via carbon credits.

While some have criticised the move as letting wealthier countries off the hook from their climate commitments, it also signals pragmatism in recognising that the world can achieve more emissions reductions per euro invested in developing rather than developed markets. And developing markets can use all the climate capital flows they can get.

Scaling emissions trading demands clear policies and consistent standards that produce the integrity and transparency both countries and the private sector can count on. COP30 produced neither a leap forward nor a step back on those aims despite debates over standards that threatened to reopen settled issues.

Adaptation rising 

With its call for wealthy nations to triple adaptation finance for developing countries by 2035, COP30 showed that governments and the private sector are engaged in parallel conversations about adaptation and resilience. Outside China, developing countries could require $310bn to $365bn annually by 2035 to cope with climate impacts, at least 12 times current finance flows, according to the latest UN report.

Investors in the meantime are already confronting significant exposures on the ground. A study by MSCI and Swiss Re Risk Data Solutions that analyzed the portfolios of 18 global pension and sovereign wealth funds representing $4trn in total assets finds that nearly two-thirds of their portfolio companies face three or more types of physical hazards today. Physical risk could cost the largest listed companies globally an estimated $1.3trn over the next year in damage to assets and lost revenues.

Companies and households have started to take steps to protect themselves from such hazards, which investors believe will expand the market for products and services that target adaptation and resilience: “Resilience is already an investable theme, and our clients are making money in these companies,” said one investor at an MSCI Institute roundtable on the eve of COP30.

Private-sector spending to improve resilience may not yet show up in official adaptation-investment totals, nor is it fully reflected in market signals that would more accurately price physical risks. But with greater market awareness, better measurement and heightened policy attention, resilience measures are likely to become an increasingly important factor in capital allocation.

Global consensus may be as elusive as ever, but COP30 suggests it may not be essential. The energy transition and the cost of physical climate impacts are interlinked with geopolitics, artificial intelligence and domestic challenges that compete for investor attention. Yet these systemic challenges are precisely what drive the mainstreaming of climate considerations into investment decisions.