COP28: Nature

As the conference gets underway, McKinsey Sustainability recaps the news and announcements leaders need to know.

December 9, 2023The world faces converging environmental crises that are inextricably linked and compounding: the accelerating destruction of nature and climate change. The impact of human activity has already extended beyond the safe operating space for at least four planetary boundaries: biodiversity loss, chemical and plastic pollution, nutrient pollution, and greenhouse-gas (GHG) emissions. Action is needed to avoid, reduce, and mitigate harms to nature—as well as to invest in nature’s recovery to achieve both nature-positive outcomes as well as climate mitigation and adaptation.

Our natural environment is a carbon sink (it stores carbon and absorbs emissions) and could contribute significantly to the emissions reduction needed to reach the Paris Agreement targets. Additionally, upwards of 50 percent of our economy is moderately or highly dependent on nature.

News and announcements

Nature, Land Use and Oceans Day at COP28 saw world leaders focused on efforts to protect and restore nature by channeling finance to natural-climate solutions (NCS). NCS refer to a range of actions such as reforestation, avoided deforestation, peatland/mangrove restoration, and cover crops.

Announcements included:

Carbon and nature credits

Supply of forest carbon credits: Costa Rica and Ghana agreed to supply forest carbon credits to buyers within the LEAF coalition, a public-private partnership working to end tropical deforestation by leveraging high-integrity carbon markets. The two deals, worth over $60 million, are the first to involve funds from multiple corporate buyers, including Bayer and McKinsey, alongside the public sector. The credits are backed by the governments of Norway, the United Kingdom, and the United States.
Scaling high-integrity credits: The World Bank launched a road map for scaling high-integrity forest carbon credits in 15 countries. These credits could be worth up to $2.5 billion, with the potential for up to 90 percent of the results-based payments to be made to indigenous populations.
Framework for carbon markets: In addition to announcements related to nature-based carbon credits, a comprehensive framework for ensuring the integrity of overall voluntary carbon markets has been agreed, encompassing both demand-side (SBTi, VCMI) and supply-side (ICVCM) standards. Six major carbon crediting programs, responsible for over 90 percent of carbon credits, committed to collaboration. Research by UNFCCC, TSVCM, GFANZ, and McKinsey indicates that up to 9 GtCO2e of the 20–24 GtCOe required emissions reductions by 2030. This comes on top of a number of discussions emphasizing the role carbon markets can play in delivering climate action. For example, UN Climate Change Executive Secretary Simon Stiell emphasized that carbon markets “can help us increase ambition and reduce emissions.”

New investments in nature

New finance for projects: The Nature Finance Hub was launched by the Asian Development Bank, along with the OPEC Fund, Agence Française de Développement, and the Saudi Fund for Development. It aims to mobilize $1 billion from development partners, with the intention of mobilizing $2 billion in additional private capital by 2030 for nature-focused climate projects.
Government commitments: Norway committed $100 million to support Indonesia’s continued efforts to reduce deforestation. Indonesia’s forests host 10 percent of the world's mammal species, 16 percent of its birds, and 11 percent of its plant species. It is also a major carbon sink, storing 70 billion tons of carbon. The European Commission and Honduras signed a Memorandum of Understanding for a forest partnership to contribute to Honduras’s National Biodiversity Action Plan, restoring 1.3 million hectares of forest—over 10 percent of the county’s land area. The United Kingdom announced it was putting the forest commitments made at COP26 into effect, pledging £576 million in new funding toward the International Sustainable Forests and Land Use Program. Ghana launched its Resilient Ghana policy package with a total of $110 million in funding for nature-based solutions, alongside other climate change mitigation and adaptation priorities.
Protecting land and marine areas in Papua New Guinea: Papua New Guinea and international partners revealed a $100 million initiative to protect 30 percent of its land and marine areas by 2030. Papua New Guinea hosts the largest tropical rainforest after the Amazon and Congo basins, with 78 percent of its land covered by forests; it is home to 7 percent of the world’s biodiversity. It is a net carbon sink, with its forest absorbing 103 Mt CO2e, but it has been gradually losing primary forest cover in recent years.

Learning from Indigenous Peoples: Indigenous Peoples already play a key role in nature conservation globally: while representing only 6 percent of the world’s population, they currently conserve 80 percent of global biodiversity. However, their knowledge and experience are underrepresented among international decision makers. Act30 was launched to partner with Indigenous Peoples to bring their experience, practices and knowledge in conservation systems directly to decision makers.͏

Dubai Ocean Declaration: Woods Hole Oceanographic Institution, UCSD Oceanography Institute, Bloomberg Philanthropies, and partners issued the Dubai Ocean Declaration, calling on world leaders to expand ocean observation worldwide to provide a basis for understanding the impact of climate change on the ocean, with an emphasis on building capacity in emerging economies and under-observed regions. Ocean ecosystems are threatened by climate change and human activities like overfishing and plastic pollution. Meanwhile, oceans are critical for mitigating the impact of climate change as they absorb 90 percent of excess heat caused by climate change and 23 percent of global CO2 emissions.

McKinsey at COP28: Insights from our events

Is nature the next big investment trend?

McKinsey’s Josh Katz and Charlie Dixon led a panel discussion on navigating the nature-positive transition and dove into the challenges that financial institutions face as they attempt to manage risks and capture investment opportunities.

Optimism and opportunity lead to a more nature-positive transition. Laura Barlow (Barclays) projected optimism in the face of challenges to nature finance, stating: “While we really do think about the material risks, we also need to think about the opportunities presented by the transition to a more nature-positive ecosystem.”
Nature is the next big thing in climate investment. Martin Berg (Climate Asset Management) insisted that there needs to be a transition to a more nature-positive future, asking: “What is the next big trend that we can all see when we’re thinking about sustainable and climate investment? Nature is the next obvious one.” We are seeing investment prospects increase for more sustainably managed land as well as regenerative foods and agriculture.
Climate action requires tackling all problems at once. While there are many driving factors behind mitigating climate change, Ingrid Kukuljan (Federated Hermes) commented: “We cannot keep siloing this climate-nature issue, because if we are going to resolve climate change, 40 percent of mitigation and adaptation comes from nature.”

How can innovation foster market integrity for carbon markets?

McKinsey’s Daniel Mikkelsen and Sarah Zaidi moderated a handful of sessions with carbon market leaders that looked at how innovative market mechanisms can play a role in restoring market confidence.

Building confidence through market infrastructure. Angela Hepworth (Drax) noted how quickly interest has grown in discussions on carbon removals, while more work must be done to bring them to scale: “I was at COP26 in Glasgow, and there was one side event on carbon removals. Here in Dubai, there are about 50 sessions focused on the topic. However, we still need to scale, we need a market infrastructure in place, and we need to build confidence.”
Creating a standardized approach. Many countries have distinct approaches to carbon markets, which can lead to fragmentation; some panelists argued for a consolidation of markets.
Changing the framing. Participants discussed new ideas for leveraging carbon markets for decarbonization. For example, could future emissions be required to have carbon credits attached?

Questions for leaders

Does my organization have a clear vision, targets, and a roadmap for becoming a nature-positive organization with comprehensive scope, such as across geographies and our entire value chain?
How can my organization identify actions that address loss of natural capital, deliver decarbonization, and create value?
How can my organization collaborate on the enabling actions that are essential for action on nature, such as frameworks, infrastructure, and incentives?
How can my organization accelerate climate action through use of carbon markets which are aligned to the new framework for integrity of voluntary carbon markets?