May 24, 2022
The amount of finance needed to address the climate crisis is measured in trillions of US dollars per year. This requires both a massive scaling of climate finance and the crafting of associated investments to achieve both rapid and just transitions towards climate neutrality. Public, private, and philanthropic sources of funding all have important, and potentially complimentary, roles to play but substantial work is needed to clarify how these sources work together.
These ideas emerged from a recent webinar hosted by the Transformational Change Learning Partnership (TCLP) that brought together around 70 participants and a panel of experts to engage on the topic of “Transformational Climate Finance: How Can Multi-Stakeholder Finance Models Drive Rapid and Just Responses to the Climate Crisis?”
As Shilpa Patel, Director of Mission Investing at ClimateWorks Foundation pointed out, the shortfall for climate-related investment is around $5 trillion, annually, to 2030 and the bulk of this would have to come from the private sector. However, while blended finance models are not new, she added that, “the lack of understanding of what each source of capital [can] do”.
As she noted “[It] is a bit of a hindrance to working collaboratively to scale these [climate] finance structures… blended finance structures don’t just come walking in the door… they need to be created or co-created with the different providers of capital.”
Chris Head, Senior Private Sector Specialist at CIF shared some insights from designing climate initiatives with multi-stakeholder finance models. Referencing lessons learned from projects in Mexico and Morocco, he said that “flexibility and agility can be key because markets can change very quickly.”
He pointed out: “There are some bespoke structures that need to be set up and so having the resources to adjust deployment strategies for how to use concessional finance and the willingness to take chances and take technology risks, take implementation risks … [This] can pay off.”
These insights continue to inform CIF’s work on new business models and the engagement in often complex and unproven markets. This can boost investor confidence which is key to unlocking additional sources of finance that contribute to transformational change and just transitions.
Helping to deepen our understanding of the justice dimension was Camilla Roman, the Policy Specialist of Green Jobs and Just Transition to Sustainability at the International Labor Organization (ILO). She highlighted that while definitions of justice are still evolving and may diverge, they are fundamental to climate finance.
As she noted: “We have a lot of commitments around ‘just transitions’ or ‘inclusive climate action’ but it can mean very different things. And while it’s great news that everyone is taking on the social dimension in climate action, we need to develop common understandings and notions of what this means in practice because this will have an alignment to financial flows.”
Coming back to Shilpa Patel’s original point on creating climate investment opportunities, Archi Rastogi, the Green Climate Fund’s (GCF) Evaluation Advisor, emphasized the importance of facilitating investment especially for vulnerable countries.
Mr. Rastogi said: “[Y]ou need to take risks, you need to enter new and emerging markets. You need to focus on where private sector [capital] may not go on its own and then use public finance to open channels … to create that private sector investment.”
Participants raised several challenges and opportunities related to how different sources of capital can work together including the need for enabling environments and the reduction of transaction costs. This rich discussion was moderated by Tim Larson, TCLP Lead Facilitator and President of Ross Strategic. The webinar forms part of a series of learning events hosted by the Transformational Change Learning Partnership (TCLP). For more information, please see the TCLP webpage or email ciftclp@worldbank.org.
