Outcomes from COP28: What next to accelerate climate action?

We arrived at this year’s COP28 amid growing evidence that the world has not been transitioning sufficiently fast to meet the 1.5˚C target agreed in Paris. Our research had convinced us that a successful net-zero transition would require achieving not just one objective but four interdependent ones: emissions reduction, affordability, reliability, and industrial competitiveness.

Now, with COP28 concluded, we leave Dubai with a strong sense that progress toward decarbonization is indeed happening—but, to have a chance of limiting warming to 1.5˚C, more ambition is needed, as well a focus on converting pledges to measurable action. According to an estimate by the International Energy Agency, full delivery of the energy-related pledges made at COP28 would result in global greenhouse gas (GHG) emissions in 2030 being about four metric gigatons (Gt) less than would be expected without them (with further potential from non-energy pledges and from other initiatives such as the coal transition credits mentioned below). However, the IEA also estimates that reductions totaling 22 Gt will be needed to limit warming to 1.5˚C.

Negotiations at COP28 concluded with the “UAE Consensus”. One notable element of which was the agreement on a global “transition away from fossil fuels in energy systems, in a just, orderly, and equitable manner, accelerating action in this critical decade, to achieve net zero by 2050 in keeping with the science.” This is the first time that fossil fuels have been collectively mentioned in a COP agreement, although there was a commitment to “phase down unabated coal power” at COP26.

As with other COP outcomes, the agreement is non-binding, and the mechanisms for implementing this commitment will be critical. However, including this language in the COP agreement is expected to trigger initiatives and actions at future COPs, and intended to spur “real-world” action by companies and other stakeholders. Methane provides one example of how this can work: at COP26, countries signed the Global Methane Pledge and committed to reducing methane by 2030. At COP28, there were significant moves to translate this pledge into real action and company-level commitments, as described below. In addition, COP28 negotiations resulted in an agreement to implement a Loss and Damage Fund, which will direct funding toward countries most vulnerable to the effects of extreme weather events, including droughts, flooding, and rising seas. Eighteen countries have now committed to the fund, with $792 million pledged.

While the official negotiations were under way, COP28 also saw climate actions taken across all elements of the transition, including a major contribution by the private sector. Still, much more needs to be done to ensure that the transition will accelerate and be executed in a way that considers the socioeconomic effects of different pathways. In hundreds of conversations in Dubai, executives discussed collaborative actions they can take to accelerate climate action and growth.

Here, we summarize ten COP28 takeaways for leaders. Through bold action, they can accelerate progress—so that it can be measured in months not decades.

Takeaways for leaders

1. Net zero remains an organizing principle for private-sector leaders, who almost universally recognize the need to accelerate action.

   Judging by both attendance at COP28 and new decarbonization commitments from sectors including oil and gas and agriculture, the imperative to reduce emissions is increasingly understood. More than 80,000 delegates attended from nearly every country, including more than 160 heads of state and more than 700 CEOs, making it the largest such gathering to date. This year, for the first time, COP included the Business & Philanthropy Climate Forum, which convened more than 1,200 private-sector and philanthropic leaders to drive climate action. Meanwhile, the new Giving to Amplify Earth Action (GAEA) initiative aims to use the tools of philanthropy to increase corporate and public action on climate and nature. Discussions at COP centred on strategies to accelerate climate action and growth, with a move away from new long-term commitments and pledges and toward taking action and accelerating the rate of change.

2. The world will need to run two energy systems in parallel, rapidly scaling up the new zero/low carbon one …

   Leaders committed to tripling renewables by 2030, doubling energy-efficiency improvement rates, and establishing new standards to unlock global trade in hydrogen. Furthermore, countries that currently account for two-thirds of global nuclear energy production committed to tripling nuclear capacity by 2050. These commitments would require an unprecedented scale-up of capacity: annual additions of renewables of about 1,000 gigawatts (versus the current 440) and a quadrupling of current annual nuclear capacity additions. Hyperscaling climate technologies (including enablers such as long duration energy storage and low-emission or zero-emission turbines) and renewables deployment will be essential to building out the new energy system. Several actions could speed the process and remove bottlenecks, including faster permitting, new incentives, and increased accessibility to common resources such as land, materials, and labor.

3. … while also decarbonizing the existing energy system.

   In addition to scaling renewables, an important step is to reduce Scope 1 & 2 emissions (emissions from production, not use) from fossil fuel operations as far as possible. Estimates suggest that such emissions of methane from oil and gas operations could be reduced by 35 percent at nearly no net cost. At COP, 50 companies that together account for more than 40 percent of global oil and gas production signed the Oil and Gas Decarbonization Charter. The signatories committed to net-zero operations by 2050 across Scope 1 & 2 emissions, near-zero methane in upstream operations by 2030, zero routine flaring by 2030, and increased transparency in emissions reporting.

4. Methane is a critical focus of emission reduction efforts. The next step is to convert this to measurable action.

   At this year’s COP, methane emerged as a major theme, with countries including the United States and the European Union committing to address their own methane emissions and the World Bank committing to launch at least 15 country-level methane programs. Methane is a super polluter and the second-largest driver of global warming, with 84 times more warming potential than CO2 over a 20-year period. Our research shows that five industries accounting for 98 percent of methane emissions—agriculture, oil and gas, coal mining, solid-waste management, and wastewater management—could reduce these emissions by 20 percent by 2030 and 46 percent by 2050, largely with established abatement technologies and at a reasonable cost.

   Widespread acknowledgement of the need to cut methane emissions by 2030 has led to new commitments to reduce methane emissions across the oil and gas, food, and waste sectors. Methane emissions from oil and gas operations contribute around 10 percent to global emissions of all GHGs, and the Oil and Gas Decarbonization Charter mentioned above commits companies to reaching near-zero methane by 2030. With full industry participation, this initiative would eliminate about two GtCO2e emissions by 2030. Alongside this company-led initiative, the United States unveiled new regulations to cut oil and gas methane emissions by 80 percent by 2030. There was also some progress on reducing agricultural methane, with six large food companies with $200 billion in annual sales launching the Dairy Methane Action Alliance. This commits them to disclose methane from dairy production and launch a public action plan by 2024.

5. The finance system is integrating net zero with new financing commitments and mechanisms. However, a $41 trillion funding gap remains.

   COP28 saw more than $80 billion in climate finance commitments from countries, development banks, private sources, and philanthropists. This level of financing is below what is needed, but there are real opportunities for this committed investment to spur additional financing for the transition, including through new finance channels. There were pivots at COP28 towards scaling blended-finance structures (including the UAE-financed private investment vehicle Alterra, among several others), which can help unlock investments that may not previously have been attractive to private capital. The aim is for such structures to “crowd in” private capital to climate finance and thereby reduce reliance on multilateral development banks.

   Several agreements were reached in other areas at COP28. These included the operationalization of the Loss and Damage Fund; a joint framework aimed at ensuring the integrity of voluntary carbon markets; and new coal transition credits. Coal-Fired Power Plants (CFPPs) are responsible for 27 percent of CO2 emissions from fuel consumption, and the new coal “transition credit” launched by Coal to Clean Credit Initiative (CCCI) to incentivize the early retirement of CFPPs and the transition to clean energy in emerging economies.

6. The critical technologies for net-zero are available. The challenge now is to accelerate deployment, including by building new green businesses.

   Ninety percent of CO₂ abatement required for net-zero targets could be achieved using already proven climate technologies. In the last decade, deployment of these technologies has accelerated significantly, often outpacing expectations: for example, solar and wind power now account for more than 10 percent of electricity generation and over 80 percent of new electricity-generating capacity. But more acceleration is still needed, both for renewables and for the range of other climate technologies, which are largely interdependent. Each critical technology must grow at more than 20 percent annually over the next decade, rapidly reaching commercial maturity as well as technological readiness.

   At COP28, several announcements aimed to build on this momentum. For example, 39 countries endorsed the UAE Hydrogen Declaration of Intent, agreeing to implement a global hydrogen certification standard. Some 30 leaders in shipping also signed a joint commitment to enable the use of renewable hydrogen-derived shipping fuel this decade to meet shipping emissions targets. To accelerate further, stakeholders will need to address a range of system-level challenges to full-scale deployment. These could be tackled by creating at-scale supply chains and support infrastructure; embracing effective capital reallocation and financing structures; and addressing bottlenecks in permitting, land, materials, and labor. For example, the supply of metals required by climate technology is likely to increase fivefold over the next decade, while labor in energy sectors may need to quadruple by 2030. Scaling up will require increased access to these resources across technology types.

7. Heavy-emissions sectors are deploying capital and accelerating their path to decarbonization.

   Heavy-emissions sectors—energy, transport, and industry—are innovating, investing, and collaborating in new ways to reduce emissions and move toward net zero, but more needs to be done. Given that these industries currently consume an estimated 78 percent of global energy demand, decarbonizing them is essential to achieving a system-wide transition away from fossil fuels. The Industrial Transition Accelerator aims to scale implementation and delivery of decarbonization in the steel, aluminum, cement, transportation, and energy sectors, while government and business made multiple pledges aiming to make near-zero building the norm by 2030, such as the Buildings Breakthrough, the Cement & Concrete Breakthrough, and the Green Public Procurement Pledge.

8. Action on climate alone is insufficient without also addressing nature and other planetary boundaries.

   McKinsey research has shown that “planetary boundaries” are at breaking point, exceeded in four of nine vital dimensions. There were some steps in the right direction at COP28, which supported the “30x30” target of the Kunming-Montreal Global Biodiversity Framework agreed in 2022. However, significantly more is required, and this area is likely to come under increasing scrutiny as we move towards COP30 in the Amazon.

   At COP28, countries and businesses worked to unlock funding for nature, improve conservation, expand nature-based solutions, and secure the co-benefits of inclusive investment in nature. Nature has risen up the agenda with a recognition that preserving and restoring natural capital is inseparable from climate actions, given the natural world’s role as a carbon sink that can absorb emissions and excess heat. More than 30 companies committed to 100 percent Sustainable Ocean Management by 2030. This initiative establishes a funding vehicle to finance ocean plans and will contribute to the Ocean and Coral Reef Breakthroughs. Our research suggests that, while carbon remains the main focus, global companies are paying more attention to nature and natural capital, with increasing numbers making commitments to take action or setting specific targets across a number of dimensions, including water, biodiversity, and chemicals and plastics. About one in five of the Fortune Global 500 companies now tracks three or more dimensions of nature in their reporting.

9. Adaptation is now a critical ingredient in climate action, with countries and companies starting to take real action on health, water, food, and nature.

   Climate change is already having serious impacts on lives and livelihoods around the world, and its effects are expected to become more severe in coming years. COP28 saw significant agreements on nature, health, food, and water systems, and further negotiations on adaptation are expected to be a focus at COP29 in Baku.

   Among the highlights: more than 130 prime ministers and presidents from countries accounting for 75 percent of food-based GHG emissions signed a Declaration on Sustainable Agriculture, Resilient Food Systems, and Climate Action, for the first time committing to adapting and transforming their food systems as part of climate action and setting relevant targets in their national plans for 2025. In the first action of its kind at a COP, 123 countries signed the UAE Climate and Health Declaration to “place health at the heart of climate action” and support the development of climate-resilient, sustainable, and equitable health systems. Finally, for water, more than 30 countries signed up to the Freshwater Challenge, a commitment to set targets to preserve freshwater ecosystems and include them in the Nationally Determined Contributions (NDCs) and National Adaptation Plans (NAPs). Next steps on adaptation can be grouped into four categories: a climate risk management mindset; technological and behavioral adaptation levers; economic and societal adjustments; and governance, institutional support, and commitment.

10. There are actions which leaders could take to accelerate progress and create value in the transition.

    • Companies and industries can accelerate decarbonization of existing assets and value chains for economically viable results—starting today. Companies that already have zero-carbon products can leverage supply and demand gaps in nascent markets and build their business case by factoring green premiums into cost calculations and fueling additional growth. While decarbonization still requires significant investment and leads to additional cost for many industries, we increasingly see examples where companies that are reducing their costs as well as their emissions can gain market share, enabling them to finance decarbonization initiatives. This can be achieved by leveraging new technologies or systematically identifying net present value positive measures.
    • Incumbents, investors, and start-ups can power up climate technologies and hyperscale new green businesses, creating innovations that make the transition more affordable. Surging demand for zero-carbon technologies, materials, and services create opportunities for companies to build new green businesses. Our research shows that by 2030 demand for green technologies could generate up to $12 trillion in yearly revenues. But the maturity levels of climate technologies vary. Sector players can turn to obvious, commercially ready technologies, ranging from heat pumps to battery electric vehicles. But they could also identify and focus on a new wave of maturing technologies, which will require rapid and steep cost reductions to scale.
    • The financial sector can play a major role in helping to facilitate and deploy the significant capital investment which new climate technologies require. Three types of funds in particular will be needed: green-transition funds that invest in innovations to transform incumbents in hard-to-abate sectors; industrial venture capital willing to take technology risks in order to scale; and infrastructure growth funds. Our research suggests that, contingent on a supportive environment, private financial institutions could facilitate as much as $3.5 trillion of annual financing between 2022 and 2050. Commercial banks could provide $2 trillion to $2.6 trillion a year, while asset managers, private equity, and venture capital funds could add $950 billion to $1.5 trillion. The task for all financial actors is to harness this opportunity while navigating significant strategic and operational demands in the context of evolving operating environments.
    • Take action to ensure the transition to net zero is equitable and inclusive. Dialogue amongst climate leaders underscored the need to rigorously assess the socio-economic implications of the transition. Tools are emerging to measure the implications of the net-zero transition. For example, an emerging climate-transition impact framework that we have developed in concert with more than 60 organizations examines more than 50 metrics across five dimensions: affordable energy access; investment requirement; jobs impact; growth and competitiveness; and lived environment and health. This approach allows decision makers to compare the potential socioeconomic effects of different climate action pathways and helps to quantify and de-mystify the dialogue on an inclusive transition.
    • Early movers can explore how to create value in the nature and biodiversity transition. Nature-positive is becoming the new net zero. In the agriculture sector, for example, leaders can start the nature-positive journey today by focusing on powerful levers such as regenerative agriculture, agroforestry, water-efficiency, and manure management techniques.
    • Create new forms of collaboration between and across sectors. One such form of partnership brings together public and private sectors and philanthropic organizations to tackle large-scale climate and nature challenges that individual actors would struggle to address. More than 50 such collaborations have emerged in recent years. Their objectives range widely, from changing the dynamics of land degradation in Latin America and the Caribbean to improving the air quality in London. For all their successes, these examples bring to light significant challenges in defining and executing such partnerships—but also suggest paths forward.

About McKinsey Sustainability

Sustainability is a mission-critical priority for McKinsey and we have been helping our clients decarbonize, build climate resilience, and address sustainability challenges for more than a decade. McKinsey Sustainability is the firm’s client-service platform with that aims to help all industry sectors reach net zero carbon emissions by 2050 and the world reach the goals aligned with the Paris agreement. We aspire to become the largest private sector catalyst for decarbonization and partner with companies from all parts of the global economy, including high emitters, to help them innovate, reduce emissions, and transition to sustainable growth models. In the past two years, we have invested more than $400 million toward our $1 billion commitment by 2025 to help our clients tackle the climate crisis. We do this by leveraging our thought leadership, innovative tools and solutions, leading expertise, and vibrant ecosystem of collaborators to lead a wave of innovation and economic growth that safeguards our planet and advances sustainability. www.mckinsey.com/sustainability