Bridging the Financing Gap Between Developing Countries and Financiers
In the aftermath of COP27, where global leaders have gathered for over two weeks in Sharm El Sheikh, Egypt, those of us who regularly engage directly with developing countries know that the path forward is clear. Developing countries are committed to climate-compatible development and ready to implement. However, driving climate action on the ground requires unprecedented finance.
At COP met with representatives from more than 100 countries. And in the end, nearly 170 countries, covering 91% of global emissions, communicated new or updated climate commitments to the United Nations Framework Convention on Climate Change (UNFCCC), proving that the Paris Agreement’s ambition cycle is working. Countries must now implement their current Nationally Determined Contributions (NDCs) and simultaneously further raise their climate ambitions. Meeting this challenge hinges on the effective mobilization of climate finance.
Countries are seeking support to enhance their capacity and seeking to engage the private sector. Financers are here to speak to governments. Both recognize the scale and complexity of finance needed will require creative collaboration. How to achieve this is the focus of the conversation throughout COP.
Critically, it will require positioning developing countries to access finance, especially private finance, reframing the macroeconomic and fiscal possibilities within the international finance landscape, and encouraging financiers to deploy innovative investments to ensure finance reaches the most vulnerable countries, where it is seriously lagging.
Progress in developing countries is underway. They are working to bolster national capacities to translate high-level climate plans into actionable mitigation and adaptation targets, with clear sectoral links, and embed these targets into investment plans. They are strengthening their enabling environments, creating the right conditions to attract funding from national, international, public, and private sources and engaging a broad base of stakeholders. Finally, developing countries are consolidating priorities into one centralized project pipeline and building capacity to keep this pipeline up-to date. These comprehensive actions will go a long way in providing developing countries with better access to funding. Yet, countries need far more support to advance these strategies effectively.
Meanwhile, the private sector needs to deploy more funds. While private finance flows have been increasing, the annual growth rate (4.8%) has lagged that of the public sector (9.1%). Worse, private finance is still mostly directed at developed countries, leaving behind the countries struggling the most. To address these challenges, the private sector needs to incorporate climate and environmental benefits into their decision-making, while underscoring the future costs of inaction.
To bridge the gap between developing countries and the private sector, we need more innovative financing vehicles to ensure financing can continuously flow to meet climate obligations. This may involve setting up aggregating vehicles to increase the scale of investments, supporting the development of national funds to coordinate funding for projects through private, public, national, and international sources and supporting project development.
Thankfully, in some countries, these initiatives are advancing, with many of these showcased throughout the halls of COP27. For example, Rwanda, with support from the NDC Partnership, launched a green investment facility (Ireme Invest), a multi-stakeholder initiative. The facility is capitalized at more than USD 100 million, offering finance mechanisms to engage the private sector, promote green business and drive private capital toward national climate goals. Similarly, Colombia established the Climate Finance Broker Facility to connect market opportunities with various sources of financing. This broker-style system helps decision makers identify and prioritize sectoral projects and match them with different financiers. Models like these can be scaled to catalyze climate finance resources from the private sector globally.
These mechanisms show that bridging the finance gap between developing countries and the private sector is not only possible, it is already happening. In Egypt, the challenges in accessing finance came up in nearly every event and meeting we participated in, from the importance of adaptation investment to industrial decarbonization in Africa. At COP, we met with governments and financers to understand their priorities and generate innovative, multi-stakeholder, financing platforms.
To advance climate action and meet the goals of the Paris Agreement, it is critical we scale up these kinds of programs, supporting developing countries to be finance-ready and working with the private sector to increase funding. We are continually told that trillions of dollars are available from private sources for climate investment opportunities. Let’s work together to develop and present these opportunities.
Many government leaders and heads of organizations now recognize this is an intervention point. During, several members came together to amplify their commitments through the Partnership. The United Nations Secretary General’s office, together with the UNFCCC, Ministers from developing and developed countries, Climate Envoys and Ambassadors, Multilateral Development Banks, IGOs and civil society came together to leverage the finance urgently needed.
In the halls of COP27, we heard a resounding call for finance to implement ambitious climate mitigation and adaptation action. Without it, the motto of COP27, “together for implementation,” will be just another undelivered rallying cry. We must step up our response. Collective innovation is the only way climate finance will increase with the speed and at scale to avoid climate catastrophe.
Pablo Vieira is the Global Director of NDC Partnership
A version of this blog was originally published on Business Green on 19 November