EDITORIAL
CLIMATE FINANCE: HOW TO BRIDGE THE GAP IN FUNDING
Dear reader,
The outcome of the COP27 climate change conference was widely criticized as too little, too late. While the establishment of a “loss and damage fund” particularly for nations most vulnerable to the climate crisis was welcomed, details remain sketchy and yet to be negotiated. Despite the (more or less) universal acceptance that climate action is necessary and urgent, the summit made little progress on the question of who will be financing this action, to what extent and in what ways. The COP27 closing statement merely says, “US$4 to $6 trillion a year needs to be invested in renewable energy until 2030 – including investments in technology and infrastructure – to allow us to reach net-zero emissions by 2050.” This contrasts starkly with current levels of annual investments of just over US$800 billion, according to a report by the UN climate watchdog UNFCCC published in November 2022. But it is not for want of trying: Governments around the world are stepping up ambitions and efforts, while the multilateral development banks (MDBs) recently hit their 2025 climate finance goal of US$65 billion, four years ahead of schedule.
However, to move from “billions to trillions”, as the international community pledged when proclaiming the Sustainable Development Goals, will require greater involvement from the private sector along with a shift in mindset from sharing burdens to embracing opportunities. “The key thing that has to be communicated is that climate action is a business opportunity for the private sector,” says Shonali Pachauri, who leads the Transformative Institutional and Social Solutions Research Group at the International Institute for Applied Systems Analysis (IIASA) in Laxenburg, Austria. Together with her team, Ms. Pachauri has developed a web tool that allows users to establish “fair contributions” to climate action in line with the equity principles of the Paris Agreement. This is critical to success: “People like to think about the costs of climate action, but there are also benefits, huge benefits, and nobody’s talking about the cost of inaction,” she tells us in an interview (see pages 30-31). Successful financing must be tailored to the needs of clients. As micro, small and medium-sized enterprises represent by far the largest segment of the
global economy, including this group is of increasing importance to climate financing. Yet, given the regulatory requirements of sound banking, this is easier said than done. MDBs play a crucial role in offering the necessary stability with their capital and risk capacity. No less importantly, they can also, as Tareq Alnassar, OPEC Fund Assistant Director- General Private Sector and Trade Finance Operations, tells us (see pages 20-21), “act counter-cyclical in direct response to our partners’ urgent needs.” Another model, used by the UN Capital Development Fund (UNCDF), unlocks “last mile” public and private financing to cut poverty and support local economic development. UNCDF Executive Secretary Preeti Sinha says in an interview: “This decade will be remembered in one of two ways – either as the decade of action where we delivered on the Sustainable Development Goals for the world’s least developed countries, or the lost decade of development.” (see pages 22-25) In other words: The choice is stark – and it is ours. New approaches (see pages 26-29) are needed, but ironically some are based on the rediscovery or repurposing of traditional methods,
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