Nov 17, 2022
While the impacts of the climate crisis are apparent, it is evident that those who have contributed to the crisis the least, are being hardest hit. For example, Pakistan, among the most vulnerable countries to climate change, emits under one percent of global emissions. Given that the G20 nations account for 80 percent of global emissions, it is only fair for wealthy nations to expand climate finance in developing countries from billions to trillions of dollars. Hence, securing $1 trillion a year in external finance by 2030 for cutting emissions, boosting resilience, dealing with climate-induced damage, and restoring nature sat at the top of COP27’s program.
Mia Mottley, Prime Minister of Barbados, is a vocal advocate for more liquidity, seeking innovative ways to expand lending from billions to trillions in climate-vulnerable countries, and operational changes of MDBs. At the opening of the COP27, Mottley said:
“This world looks still too much like it did when it was part of an imperialistic empire. The global North borrows at interest rates of between one to four percent. The global south at 14 percent, and then we wonder why the just energy partnerships are not working [...] Similarly, we accept that there was and must be a commitment to unlocking concession funding for climate vulnerable countries. There is no way that developing countries who have been graduated can fight this battle without access to concessional funding […] We believe as well that a time has come for the introduction of natural disaster and pandemic clauses in our debt instruments […] And we need to ensure that [the Bretton Woods institutions] have a different view to their risk appetite; that we look at the SDRs and at other innovative ways to expand the lending that is available from billions to trillions.”
Calls for reform come from leaders in the global north, too. Alok Sharma, the President of COP26, said at the opening of this year’s summit:
“We know we have reached a point where finance makes or breaks the program of work that we have ahead of us [...] So, whilst I would point to some of the progress shown on the $100 billion, I hear the criticisms and I agree that more must be done by governments and the multilateral development banks.”
Many current investment structures are ineffective for developing countries — not only because developed countries are falling short of their climate finance targets, but also because they focus on curbing emissions rather than adaptation action. Also, they further burden developing countries with debt due to loan-based financing. According to the World Bank, 58% of the world’s poorest countries are in debt distress or at high risk of it. Meanwhile, as stated by the European Network on Debt and Development, public debt in small island developing states is set to remain above 70 percent of GDP until 2025, restricting these countries to allocate resources towards climate-related action.
The UN estimates that climate adaptation in developing nations alone will cost between $160 and $340 billion each year by 2030. At the same time, an OECD analysis of climate finance shows that just $13.1 billion of the reported finance towards the $100 billion target came from the private sector in 2020 — a number that has remained approximately the same since 2010.
The Climate Investment Funds (CIF) model of concessional finance investments in supporting activities such as technical assistance, strengthening of policy and regulatory environments, and helping build human and institutional capacity provides solutions to close these gap targets.
A distinct component of CIF’s concessional finance for upstream advisory and downstream investment activities for climate action is the Technical Assistance Facility (CIF-TAF), established with the Government of Denmark under CIF’s Clean Technology Fund (CTF). The Facility plays a key role in supporting developing countries transition to low-carbon economies through funding for strengthening climate-focused policy agendas, capacity building, and new business models, while reducing the risks of climate change, and realizing the potential of sustainable and resilient development.
On COP27 Adaptation and Agriculture Day, Indigenous peoples and local community leaders from Brazil and Burkina Faso shared their experiences and positive impacts of five years of implementation of CIF’s Dedicated Grant Mechanism for Indigenous Peoples and Local Communities (DGM). The event, titled “Supporting Indigenous Peoples and Local Community Leadership Through Direct Access Financing” highlighted the importance of CIF’s initiative to deliver substantial, on-the-ground support to communities with significant development constraints and high climate change vulnerability through the community-led and context-specific DGM. Financed by CIF’s Forest Investment Program and implemented by the World Bank, the DGM enhances the role of IPLCs in utilizing their expertise to protect their natural environment and partake in national and global climate action alongside governments, multilateral development banks (MDBs), and other stakeholders.
CIF’s presence at COP27 was remarkable as it also launched its Industry Decarbonization Program at the Breakthrough Agenda – One Year On event, on COP27’s Decarbonization Day. The Program, which is the world’s first multilateral investment dedicated to reducing the carbon footprint of high-emitting industries (i.e., iron and steel, cement, chemicals and petrochemicals, aluminum, and pulp and paper) in developing countries, will facilitate the shift of the industrial sector to more sustainable business practices and unlock the investments needed to embrace a low-carbon, climate-resilient pathway. Given that the International Energy Agency’s Net Zero roadmap, presses for a 20 percent decline of carbon emissions from heavy industry by 2030, financing at scale to transform the industrial sector through technical assistance and investment is the only option to avoid more costly investments down the road.
On the other hand, nature itself can help communities, whose livelihoods are threatened by climate change-related disasters. Recognizing nature’s lifesaving potential, CIF has inaugurated a new Nature, People & Climate (NPC) investment program, whose first participants were announced at COP27. Malawi, Mozambique, Namibia, Tanzania and Zambia, together with the Dominican Republic, Egypt, Fiji, and Kenya will eventually have access to over $350 million that contributor countries have pledged to NPC for investment plans that address the destruction of nature and promote and protect natural environments integral to climate action, sustainable agriculture and food supply, healthy forests, and resilient coastal systems.
Even though the private sector is critical to mobilizing the trillions of dollars of additional investment needed in developing countries to achieve low-carbon, climate-resilient economies, it is hesitant to invest in climate projects. By providing highly competitive financing, CIF reduces risks for investors, thereby lowering barriers to piloting new clean technologies and scaling up proven solutions.
Through sustainable finance for technical assistance to national governments; large-scale, private-sector projects in low-carbon technologies, and adaptation and resilience-building in low- and middle-income countries, among others, CIF provides effective and timely solutions to the pressing call for more substantive contributions towards climate finance for developing countries. It, therefore, creates a new era of climate finance where developing countries will be able to focus on addressing climate challenges, mitigation, and adaptation, and even switching to renewable economies.
