COP29 made global headlines during the highs and lows of its two-week Baku run. Negotiators have long returned home but condemnation of the summit’s closing finance deal still rings, days after the ink has dried.

Agreement on country-to-country carbon trading

Headlines aside, there are achievements to report. It’s taken close to a decade of dialogue but one of the most contentious COPs in recent years has finally sealed adoption of the rather complex and technical Article 6 of the 2015 Paris Agreement, the one remaining article awaiting approval to operate.

Why does this matter? Because Article 6 governs country-to-country carbon trading and agreement on the rules will see inter-country carbon trading and carbon credits growing in importance.

This marks a positive step; it means more robust schemes should enter operation, helping business to have certainty around carbon trading. However, carbon markets remain a contested and controversial practice, with significant issues remaining around how to ensure their effective contribution towards decarbonisation. As such, companies need to focus on real-term emission reductions as part of a credible and actionable transition plan.

New climate finance goal

Climate finance has long been a bone of contention for global political accord but a new finance goal has been decided, albeit one that falls far short of what’s required to provide a step change in climate action. The final day of the summit saw developed countries commit to supporting developing nations to adapt to the impacts of climate change and transition to low-carbon economies, pledging $300bn a year by 2035. This compares to the current $100bn a year goal by 2020 which has only recently been met.

Developing countries aren’t happy as the commitment is significantly below their $1.3trn-a-year request, which remains in the final text as an aspiration. The shortfall will jeopardise the level of ambition in the next round of Nationally Determined Contributions (NDC) due ahead of COP30, taking place in Belem, Brazil. A dip in global ambition is worrying as significantly more drive is required to get close to the 1.5°C threshold.

Business will play a part here. There is a much greater expectation for private finance to feature in the $300bn figure. National budgets are under pressure and political leaders are less willing to increase their climate-aid budgets, turning to the private sector to contribute greater amounts.

Transition away from fossil fuels

The backtrack of language around fossil fuels compared to COP29 is worrying but business should not lessen focus on decarbonisation. Organisations should be in no doubt about the importance of maintaining efforts on the transition away from fossil fuels, regardless of political blips.

Looking ahead to COP30, expectation is that next year’s summit will be pivotal. It will be the place where there will be a clear picture of whether countries are willing to increase their level of ambition compared to their current plans.

The UK fired the starting pistol at COP29 by announcing its increased NDC as 81 per cent reduction by 2035 compared to 1990 levels. It remains to be seen how many countries follow suit but it’s unlikely that the US will play a big role, if any, at COP30. President-elect Trump has committed to the US leaving the Paris Agreement again, and potentially withdrawing from the UNFCCC – the convention that underpins the COPs – adding uncertainty to the global leadership needed to advance climate action.

Decarbonisation remains the direction of travel for business

Of course, uncertainty brings challenge to the global business landscape but the need to decarbonise is a constant. Given current economic realities, and the disruption and potential costs of climate-related physical and transition risks to global organisations, not taking action to decarbonise is a risky business. The Carbon Disclosure Project (CDP) warns that environmental supply-chain risks alone could cost companies $120bn by 2026.

A net-zero transition plan brings benefits too. Decarbonisation can generate a significant return in reducing downside risk and improve profitability and growth in the long run. Growing consumer and investor pressure for more sustainable products and services is opening new markets and growth opportunities to companies positioned to meet them.

While the messages from COP29 are mixed, the direction of travel for business remains clear. Companies without plans to decarbonise risk being left behind competitors who, having taken steps to reduce emissions, are best positioned to mitigate risk and optimise new commercial opportunities.