Private sector engagement in LAC: An Avenue for Effective, Ambitious, and Inclusive Climate Action
Engaging the private sector in climate action is critical to unlocking climate finance at scale, diversifying project portfolios, promoting social inclusion, and assuring long-term prospects for transformational change towards sustainable development. While international climate funds represent established channels to address climate finance needs, the private sector provides the largest share (around 56 percent) of climate finance worldwide, reaching a two-year average of USD 326 billion in 2017/2018.
Whether engaging in planning processes, developing incentives, facilitating peer-to-peer exchanges, reporting data, providing technical assistance, or sharing goals, countries have found innovative ways to integrate private actors into climate action. When nations face climate funding gaps, private finance can be an effective alternative for resource mobilization beyond international climate funds. In the Latin America and Caribbean (LAC) region, governments are bringing domestic businesses to the table, offering unique entry points for local expertise, reach, and networks. The NDC Partnership´s experiences with private sector engagement in Colombia, the Dominican Republic, Peru, and Honduras through the Climate Action Enhancement Package (CAEP) illustrate how the private sector assists countries in improving planning and implementation of key climate policy commitments.
Colombian ministries—including Environment and Sustainable Development; Energy and Mining; Industry, Commerce and Tourism; and Agriculture and Rural Development—received CAEP support to cooperate with the private sector on voluntary agreements. Based on Chile’s experience, Colombia is developing a framework for private sector engagement, with CAEP support from WRI, WWF, FAO, NREL, GIZ, and the European Commission. This framework will analyze the motivation of private sector stakeholders to engage in climate action and design incentives to foster voluntary agreements that support the implementation of climate actions and contribute to more ambitious NDC targets.
Private sector engagement in climate action can also yield significant benefits in terms of social inclusion across the region. Small and medium-sized enterprises (SMEs) comprise 99.5 percent of firms in LAC (with almost 9 out of 10 classified as micro-enterprises), generating 60 percent of formal productive employment. By integrating different stakeholders, including small and large private sector companies, NDC Partnership members are paving the way for enhanced country-ownership in line with the whole-of-society approach to NDC update and implementation. For example, Peru launched “Nono, the Carbon Footprint Bear,” a campaign to promote public and private GHG emission reduction efforts. After the campaign, the number of private sector businesses registered in the initiative increased by 57 percent and those reporting carbon footprints rose to 54 percent.
In the Dominican Republic, CAEP support focuses on developing public-private partnerships for the achievement of NDC goals. To this end, the World Bank is providing technical assistance to engage key private sector stakeholders like ECORED, a leading business association that promotes social responsibility and sustainable development practices. By providing a coordination platform for government officials and business representatives, ECORED helps Dominican firms exchange views on policy commitments, regulations, data, and effective practices, among others.
Private sector engagements can also take place beyond coordination platforms. Through CAEP, UN Environment is exploring the role that gas stations can play in the future of electric mobility in Honduras. To this end, a prefeasibility study and an NDC roadmap will be developed in consultation with business representatives and other relevant stakeholders. With a view to transforming current gas stations into low to zero-carbon energy service centers, UN Environment will take into consideration the concept of just transition in promoting electric mobility.
Swift and timely action is imperative to implement NDCs worldwide. In LAC, economic losses caused by climate change are estimated to reach between 1.4 and 4.3 percent of annual GDP by the end of the century. NDCs can create a policy context to steer private climate investment and transformative action. In light of the COVID-19 pandemic, private firms’ adaptative nature can help governments craft more inclusive and sustainable recovery plans—a clear untapped potential. By integrating this stakeholder group and promoting new climate-resilient products, services, and business models, LAC countries can safeguard their own futures while diversifying policy intervention portfolios and transforming entire economic systems.
This blog was written by Nicolas Cisneros, Felipe Gómez-Villota, and Jesus Alvarado with inputs from Estefanía Ardila.