Briefs: COP29 begins with ‘breakthrough’ on carbon market rules

The annual climate conference of the United Nations (UN) started on Nov 11 with a “breakthrough”, according to host nation Azerbaijan, as parties agreed on rules for a UN-administered global carbon market.

The COP29 Presidency says parties have “achieved a critical early success” by welcoming standards adopted by the Article 6.4 Supervisory Body for the creation of carbon credits under Article 6.4. These standards will ensure that the international carbon market is of high integrity and that emissions reductions and removals are real, additional, verified, and measurable.

Work began in October when Azerbaijan hosted a meeting of the Article 6.4 Supervisory Body, which proposed a set of standards for Article 6.4. The COP29 Presidency says it “built support” for these standards at “Pre-COP”, a series of negotiations held on Oct 10 and Oct 11.

COP29 will run from Nov 11 to Nov 22 in the capital of Baku, with some 70,000 delegates registered to attend.

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The Nov 11 opening plenary was delayed multiple times, and the Article 6.4 text was adopted within an hour at 9.50pm in Azerbaijan (1.50am, Nov 12 in Singapore).

Some climate groups had warned that the COP29 Presidency could gavel through the Article 6.4 text before governments could properly negotiate it. US-headquartered non-profit group Corporate Accountability had issued a release just hours before that the COP29 Presidency was “rumoured to risk departing from precedent” by passing the “risky text on carbon removals”.

Among the 12 members of the Article 6.4 Supervisory Body is Benedict Chia, director general (climate change) from the National Climate Change Secretariat in the Prime Minister’s Office, Singapore.

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International environmental organisation 350.org says the Article 6.4 Supervisory Body — a “small technical committee” — took an “unprecedented step” of finalising and implementing rules for “speculative” carbon removal in markets “without wider state input”.

“This bypasses countries’ ability to revise and strengthen these standards,” says 350.org in a post on X, formerly Twitter.

“At COP27 and COP28, governments rejected draft rules on carbon removal, warning that they could weaken climate action and encourage risky approaches like carbon capture and geoengineering. Now, these rules are moving forward without the same scrutiny,” it adds in a subsequent post.

Kicking off COP29 with a “back-door deal” sets a poor precedent for transparency and proper governance, says Isa Mulder, a policy expert on global carbon markets at research firm Carbon Market Watch, to Bloomberg. “If these texts can be adopted this way, where do we draw the line?”

Olga Gassan-zade, a current member and former head of the Article 6.4 Supervisory Body, says in a comment on her personal LinkedIn page: “The criticisms of the process are fair, but it was also critically important to operationalise Article 6.4 as soon as possible to scale up the delivery of carbon finance to the developing world.”

Article 6 of the Paris Agreement outlines how countries can pursue voluntary cooperation to reach their climate targets. This means countries can collaborate to achieve their Nationally Determined Contributions (NDCs) or plans to reduce national emissions and adapt to the impacts of climate change by trading carbon credits.

Countries first established the framework for international carbon trading through Article 6 in late 2021, but talks have stalled. Article 6-compliant markets will be a critical tool for channelling more investment to developing countries, allowing countries to target mitigation efforts to where costs are lowest.

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The standards for Article 6.4 agreed upon are not set in stone. As they are governed by the CMA — or the states that are parties to the Paris Agreement — the parties will be able to enhance them further “as they see fit”, says the COP29 Presidency.

Parties still need to agree on the remaining building blocks of Article 6, including Article 6.2 and the final elements of Article 6.4.

Article 6.2 enables a host country on track to exceed its NDC target to trade units in exchange for investments, support for capacity-building and access to technologies.

Once Article 6 negotiations have concluded, the COP29 Presidency says it will encourage the uptake of Article 6 carbon trading so that countries can realise its potential benefits. Finalising Article 6 negotiations could reduce the cost of implementing national climate plans by US$250 billion ($333.86 billion) annually.

Dubbed the “Finance COP”, this year’s negotiations will centre around the New Collective Quantified Goal (NCQG) on climate finance. The NCQG will set out how much more funding will flow from the rich to the developing world after the current US$100 billion-a-year goal expires in 2025.

Current contributors, including the European Union, are asking countries like China, which is still classed as a developing economy, to pay a share.

COP29 President Mukhtar Babayev calls it a “top negotiating priority” at this year’s summit. “We know the needs are in the trillions,” he says, adding that a realistic goal for what the public sector can directly provide and mobilise seems to be in the “hundreds of billions”.

Some, however, are growing tired of the COP process. Papua New Guinea’s Prime Minister James Marape has sent his environment minister instead in a mark of protest, calling for larger nations to move beyond “meaningless talkfests”. “Papua New Guinea is a major rainforest nation, and we are making our stance clear by protesting against these nations who do not prioritise rainforest conservation.”

World leaders, who typically attend the first week of COP before negotiators bargain over the fine print in the subsequent week, have also given various reasons for sending their climate envoys instead.  

Absent from COP29 are US President Joe Biden, Canadian Prime Minister Justin Trudeau, Indian Prime Minister Narendra Modi, China’s President Xi Jinping and Australia’s Prime Minister Anthony Albanese, among others.

Sceptics have also levelled criticism at host country Azerbaijan for welcoming fossil fuel industry leaders and lobbyists to the summit, unchanged from last year’s COP28 in Dubai.

Last week, Elnur Soltanov, Azerbaijan’s deputy energy minister and CEO of COP29, was filmed saying he “would be happy” to facilitate discussions between national oil and gas firm Socar and an undercover activist posing as an investor.

Countries had agreed to transition away from fossil fuels in the final hours of last year’s COP, but Soltanov was recorded as saying: “We will have a certain amount of oil and natural gas being produced, perhaps forever.”  — Jovi Ho

Temasek-backed Pentagreen to manage Fast-P’s Green Investments partnership, seeking to deploy US$1 bil

Pentagreen Capital, the sustainable infrastructure debt financing company established by HSBC and Temasek, has announced that it will manage the Financing Asia’s Transition Partnership’s (Fast-P) Green Investments partnership.

The Green Investments partnership seeks to deploy US$1 billion ($1.34 billion) for Asia’s sustainable infrastructure, says Pentagreen Capital in a Nov 12 announcement.

The Green Investment partnership is one of three blended finance programmes under Fast-P, launched by the Monetary Authority of Singapore (MAS) last year to address climate finance gaps in developing Asia.

Developing Asia needs US$1.7 trillion annually in infrastructure investments until 2030 to maintain its growth momentum while responding to climate change, says Pentagreen Capital.

The Green Investment partnership seeks to bridge gaps in Southeast Asia’s sustainable infrastructure financing needs by deploying blended finance and crowding in commercial and catalytic capital from public, private and philanthropic partners.

The partnership will deploy capital to projects in renewable energy and storage, electric vehicle infrastructure, sustainable transport, water and waste management, and other green infrastructure sectors. Capital deployment is expected to begin in 2025.

According to Pentagreen Capital, the Singapore government will contribute concessional capital to the Green Investments partnership to match contributions from the other potential catalytic capital providers, such as ACP.

The Singapore government has committed up to US$500 million in concessional funding to support Fast-P, announced Minister for Sustainability and the Environment Grace Fu at COP29 in Azerbaijan. Singapore will match, dollar-for-dollar, concessional capital from other partners, including other governments, multilateral development finance institutions and philanthropies, says Fu.

Connie Chan, head of financial services at Temasek, recognises the challenges that green infrastructure projects in the region face, noting that through programmes such as the Green Investment partnership, Temasek aims to “crowd more like-minded partners” with appropriate forms of capital to bridge the risk-reward disconnect.

“Ultimately, we aim to contribute to change at the systems level and unlock the necessary financial flows to accelerate the transition in Asia,” Chan adds. — Cherlyn Yeoh

CPF investment scheme posts one-year returns of 14.71% in 3Q2024; record fund flows into Singapore: IMAS and Morningstar

Over one year, all Central Provident Fund Investment Scheme (CPFIS) funds delivered returns of 14.71% for investors as of Sept 30, an improvement compared to 9.69% in the same period up to last quarter, a report by Investment Management Association of Singapore (IMAS) and Morningstar notes.

IMAS and Morningstar released their quarterly findings on Singapore fund flows and performance of all unit trusts and investment-linked insurance products (IPLs) included under the CPFIS in its Performance and Risk Monitoring Report and Singapore Fund Flow Report.

IMAS and Morningstar found that while overall performance for CPFIS-induced funds fell 2.54% in 3Q2024, the performance of unit trusts increased to 3.14%.

Proxied by Morgan Stanley Capital International (MSCI) World Index, global equities saw a slight increase of 0.62%.

MSCI AC Asia ex-Japan also posted gains of 4.43%, while the Financial Times Stock Exchange (FTSE) World Government Bond Index (WGBI) reversed its decline to deliver a positive return of 1.17%.

The positive momentum from the previous quarter carried over to 3Q2024, with all asset classes posting gains.

The most significant improvement was in fixed income, which had gains of 3.55%, substantially higher than returns of 0.03% in the previous quarter.

All other asset classes remained stable, with the exception of equity funds falling to 2.46% from last quarter’s return of 4.10%.

Over a one-year horizon, the profile of investor returns remained broadly unchanged.

Equity funds experienced returns of 16.97%, up from 11.91% in the previous quarter, while allocation and fixed-income funds also showed a similar positive trajectory, with positive returns of 13.61% and 7.92%, respectively.

Over the same period, money market funds were stable, with an average positive return of 3.69%.

Over a three-year reporting interval, the performance of all asset classes did not change much from last quarter’s report, with all asset classes showing improved gains.

From a net gains perspective, the best-performing asset class was fixed income, which posted a negative return of 2.60%, a reversal from –6%.

The report found that investors preferred stability, which was reflected in money market funds, which delivered a return of 8.02%, outperforming all other asset classes. — Cherlyn Yeoh