Climate Finance Report 2024

FINANCE CLIMATE REPORT 2024

Climate Action in Addressing Development Challenges

The OPEC Fund for International Development

opecfund.org

Table of Contents

Preface by the OPEC Fund President

Foreword

Executive Summary

Chapter 1 | INTRODUCTION

A South-South Mandate and Climate Integration

The Growing Climate Imperative

Global Climate Finance Needs

Chapter 2 | THE CLIMATE ACTION PLAN

Impacts of Climate Change in Partner Countries

Addressing Climate Justice and South-South Cooperation

Partnership Strategy for Implementation of the Climate Action Plan

Chapter 3 | TRACKING CLIMATE FINANCE

Climate Finance Baseline 2018-2021

Climate Finance 2022

Climate Finance 2023

The Comparative Picture

Chapter 4 | CLIMATE FINANCE TARGETS – ROADMAP 2030

Thematic Priorities

Achieving Climate Finance Targets

Chapter 5 | PROJECTS CONTRIBUTING TO THE OPEC FUND’S CLIMATE FINANCE 32

ANNEX

Glossary

Acknowledgements

The OPEC Fund has prioritized climate action dedicating its resources and institutional capacity to the challenge and integrating climate assessments into its operations.

Preface by the OPEC Fund President

ABDULHAMID ALKHALIFA

President The OPEC Fund for International Development

In an era marked by the intensifying impacts of climate change, the global community is at a critical juncture. The need for immediate and concerted action to address climate challenges has never been more urgent. The OPEC Fund for International Development, fully committed to advancing sustainable development in the spirit of South-South cooperation, recognizes the pivotal role that climate finance plays in shaping a sustainable, resilient and equitable future. To demonstrate how we translate this recognition into action, I am pleased to present the OPEC Fund’s inaugu- ral Climate Finance Report. This document underscores our commitment to confronting the global climate crisis through strategic planning and targeted investments in both mitigation and adaptation initiatives. The report not only highlights the far-reaching impacts of climate change but also outlines the financial imperatives necessary to limit global warming to below 1.5°C as envisaged by the Paris Agreement. Our approach to climate action is underpinned by the OPEC Fund’s Climate Action Plan. Launched in 2022, the plan sets out ambitious targets to significantly increase our climate financing in the coming years. We are proud to have already surpassed our goal of allocating a minimum of 25 percent

of new approvals towards climate action by 2025, having achieved 34 percent in 2023. This achievement demon- strates our proactive approach and the effectiveness of our strategies. The Climate Finance Report provides a comprehensive over- view of our efforts, showcasing the sectoral and geographical distribution of our financing. More precisely, it presents key projects that significantly contribute to positive impacts in both climate mitigation and adaptation. This detailed pres- entation not only illustrates our climate finance activities but also provides transparency and accountability in line with international best practices. Building on the OPEC Fund’s mission of fostering develop ment and combating poverty, we regard climate action as one of the defining challenges of our time. Developing nations, in particular, face a range of multifaceted and com- plex issues. However, we are confident that through collab- orative efforts and strategic partnerships, the development community can facilitate a just transition to a low-carbon, sustainable and climate-resilient future.

Together we can shape the future and make sustainable development a reality for all.

Foreword

SHAIMAA AL-SHEIBY

Vice President, Strategy The OPEC Fund for International Development

It is widely recognized that global warming is likely to exceed the critical threshold of 1.5°C before mid-century and may reach the 2°C threshold by 2050, even if CO 2 emissions are kept at 2019 levels throughout the current decade (2020 to 2030). To mitigate these scenarios, higher levels of commitment and corresponding invest- ments to reduce emissions are essential. On a hope- ful note, according to the Intergovernmental Panel on Climate Change’s 2023 report, more than 100 countries, accounting for at least two-thirds of global emissions, are developing strategies for carbon neutrality or zero greenhouse gas (GHG) emissions. However, this can only be achieved if global initiatives to reduce emissions are accelerated and effectively implemented. The OPEC Fund is actively engaged in the global dia- logue, hosting climate events and participating in key multilateral policy discussions aimed at reinforcing mit- igation efforts and strengthening adaptation measures. In addition to supporting partner countries in achiev- ing their emission reduction targets through renewable energy and energy efficiency projects, the OPEC Fund has been addressing the immediate impacts of climate change such as extreme weather events, unprecedented floods, droughts and record-high temperatures. Recog- nizing that effective climate resilience requires ongoing updates of policy documents, environmental regula- tions and climate-sensitive sectoral reforms, the OPEC Fund has prioritized collaborating with other multilateral

development banks (MDBs) and bilateral partners to im- plement these changes in several partner countries.

Our efforts were brought into sharp focus with the in- troduction of our Climate Action Plan in 2022, which was then followed by a comprehensive Climate Action Strategy. The Climate Action Plan reflects our firm com- mitment to proactively seek climate financing opportu- nities and to align with the Paris Agreement’s mandate. By doing so, the OPEC Fund joins the MDB community, , advancing the global climate financing agenda with am- bitious targets, including achieving 25 percent climate finance by 2025 and 40 percent of all new financing by 2030. Starting in 2022, we also inaugurated the annual climate finance tracking of our portfolio, utilizing the joint MDB Framework for Climate Finance Tracking methodology. This takes an activity-based approach and ensures that our assessments are context-specific, granular and trans- parent. This report, comprising five sections, outlines the evolu- tion of the OPEC Fund’s climate policy and action, exam- ines temporal trends in climate financing and highlights significant contributions being made towards global cli- mate goals. The OPEC Fund remains committed to driving change and fostering sustainable development through robust climate finance initiatives.

EXECUTIVE SUMMARY

The OPEC Fund’s inaugural Climate Finance Report discusses the imperative of climate action in addressing development challenges. It underlines the institution’s strong commitment to tackling global climate challenges through strategic planning as well as the financing of both mitigation and adaptation activities. The report provides an overview of the global impacts of climate change, esti- mates the climate financing required to limit global warming to no more than 1.5°C above pre-indus- trial levels by the latter half of the 21st century, and in this context, highlights the progress made so far by the OPEC Fund in fulfilling its commitment to climate finance.

01 The OPEC Fund has prioritized the climate challenge to benefit from its resources and institutional capacity and will fully integrate climate assessments into all operational activities. This approach is continuously enhanced to align with the evolving global landscape, which advances various climate resilience initiatives to reduce emissions and pre- pare for the adverse impacts of climate change, particularly in the Global South. The report documents the OPEC Fund’s climate agenda as demonstrated through its Climate Action Plan and the annual climate finance accounting initiative. 02 In 2022, the OPEC Fund crafted its Climate Action Plan to drive its climate agenda in a focused manner. The plan details the institution’s climate finance goals and ap- proach to enhancing climate finance. A major anchor of the plan is the OPEC Fund’s commitment to achieve at least 25 percent of climate finance by 2025 and increasing that threshold to 40 percent by 2030. This report captures the key features of the Climate Action Plan as well as the strat- egy for its implementation. 03 The strategy focuses on three functional categories namely a) climate finance and energy mitigation, b) food security and climate adaptation, and c) nature-based solu- tions, in other words, the protection of ecosystems and biodiversity. The OPEC Fund plans to expand its climate finance portfolio, focusing on innovative solutions and

partnerships to reach its ambitious strategic goals. The approach and investments will be targeted, in keeping with the OPEC Fund’s model, in close collaboration with peer MDBs and key stakeholders, both of which are crucial to drive global efforts to combat climate change. 04 In 2021, the OPEC Fund introduced an annual accounting of its climate finance efforts. The latest report provided a comprehensive review of the institution’s annual climate financing for the periods 2018-21, 2022 and 2023. The report also shows that the OPEC Fund has already achieved its 25 percent climate finance target well ahead of the 2025 deadline, reaching 33 percent in 2022 and 34 percent in 2023. 05 Furthermore, this report provides insights into the sectoral and geographical distribution of the OPEC Fund’s climate financing. It showcases select projects aimed at achieving the climate finance goals and analyz- es their effectiveness in contributing to mitigation and adaptation targets in different partner countries. The joint MDB methodology for tracking climate change ad- aptation and mitigation is applied to assess the impact of OPEC Fund-supported projects and to calculate their con- tributions to climate mitigation and adaptation. An inven- tory of OPEC Fund projects contributing to climate finance is provided in the Annex.

Chapter 1 | INTRODUCTION

INTRODUCTION 1 The OPEC Fund’s vision is a world where sustainable development is a reality for all. To achieve this, the OPEC Fund is now focusing on three strategic objectives: promoting South-South cooperation and sustainable development, building resilient and equitable societies, and driving climate innovation and a just transition.

Chapter 1 | INTRODUCTION

Sustainable development is a multi-faceted and increas- ingly complex challenge. As the world emerged from the COVID-19 crisis, it became clear that achieving the Sustainable Development Goals (SDGs) by 2030 would be extremely challenging. Additionally, the impacts of climate change have worsened in recent years, further reversing progress towards SDG targets. The Paris Agreement and the SDGs, both adopted in 2015, reflect a shared vision for sustainable development in the context of climate change. This vision requires integrating efforts to shift to a low-carbon and climate-resilient path- way while pursuing core development goals. The landmark Paris Agreement aims to strengthen the global response to the threat of climate change by keeping global warming “well below” 2°C above pre-industrial levels and striving to keep warming below 1.5°C. It also emphasizes adaptation, resilience and low emissions development in line with ad- equate food production and drastically increased climate financing. Accurate tracking of climate finance flows has become a priority for governments, NGOs, researchers, donors and other stakeholders. In response, multilateral development banks (MDBs) developed a methodology in 2011 to track climate finance flows consistently, comparably and trans- parently. 1 That same year, MDBs published the first Joint Report on Climate Finance, establishing a harmonized methodology for tracking flows. This initial methodology covered climate finance data for a group of emerging and developing economies, including low- and middle-income as well as some high-income countries. By 2015, MDBs, in collaboration with the International Development Finance Club (IDFC), agreed on common principles for climate

finance, including mitigation and adaptation. 2 This initia- tive aimed to create a unified approach for publicly-owned banks to track and report climate finance. The annual re- port was significantly expanded in 2019 with data for all countries in which MDBs operate, while also focusing on improving transparency through income-level classifica- tions. In 2021, the MDBs and IDFC updated the Common Principles for Climate Change Mitigation Finance Tracking. This update included a more granular breakdown of eligi- ble activities and clear criteria for tracking climate finance. Further improvements were made in 2022 when the MDBs updated their joint methodology for tracking adaptation finance. 3 This update, reflecting the evolving understand- ing and advancements in adaptation finance, was launched at COP27 and implementation began in 2023. 4 MDBs con- tinue to enhance their climate finance tracking and report- ing methodologies as part of their commitment to align- ing financial flows with the Paris Agreement. They are also focusing on improving the assessment and reporting of climate outcomes and impacts, working with the interna- tional financial institution working group on greenhouse gas (GHG) accounting, and contributing to impact report- ing for green bonds and climate resilience metrics. As part of the global development finance community, the OPEC Fund is fully committed to the goals of the Paris Agreement and engages with many partners in the Global South to address climate change issues. In 2022, in line with the OPEC Fund Strategic Framework 2030, the institution adopted a Climate Action Plan to channel climate invest- ments more systematically. Concurrently, the OPEC Fund joined the international community in accounting and dis- closing its climate financing in accordance with the MDB tracking methodology.

1 EBRD: https://www.ebrd.com/what-we-do/sectors-and-topics/mdbs-climate-finance.html 2 MDB Joint Report: https://thedocs.worldbank.org/en/doc/3258e1d4c1e84fd961b79fe54e7df85c-0020012023/original/2023-0128-MDB-Report-2022-NEW.pdf 3 https://www.eib.org/en/publications/20220242-mdbs-joint-methodology-for-tracking-climate-change-adaptation-finance 4 MDB Joint Report: https://thedocs.worldbank.org/en/doc/3258e1d4c1e84fd961b79fe54e7df85c-0020012023/original/2023-0128-MDB-Report-2022-NEW.pdf

Chapter 1 | INTRODUCTION

The OPEC Fund’s strategy as outlined in its Strategic Framework 2030 focuses on maximizing development impact and becoming a leading multilateral development bank that is larger, more financially sustainable and more responsive to the needs of its partner countries. This strat- egy is driven by the OPEC Fund’s commitment to support and align with the emerging needs of partner countries, particularly in the face of climate change.

have fragile economies, large vulnerable communities and limited access to basic needs, energy, income opportuni- ties, infrastructure and connectivity. The Intergovernmental Panel on Climate Change’s (IPCC) Sixth Assessment Re- port (AR6) 6 indicates that 10 percent of households with the highest per capita emissions contribute 34–45 percent of global consumption-based household GHG emissions, while the bottom 50 percent contribute 13–15 percent. As global warming progresses, the adverse impacts of climate change will intensify, leading to widespread devastation

A South-South Mandate and Climate Integration

The OPEC Fund operates with a South-South mandate, which promotes cooperation among developing countries. This mandate drives its engagement in various activities which are in compliance with the OPEC Fund’s ESG Policy. 5 Developed in 2022 and effective from April 2023, the policy ensures that social and environmental risks associated with investment proposals are properly identi- fied and addressed. The policy mandates the consultation of project-affected communities and all relevant stake holders during the preparation and implementation phases of projects. Given the increasing unpredictability of climate change impacts, a heightened focus on climate issues is essential for ensuring sustainable development. Consequently, the screening of projects and assets for environmental and climate risks is becoming critical for assessing potential risks to project sustainability. To this end, the OPEC Fund is implementing such environmental and social screening while introducing mechanisms to better understand and address climate-related risks.

The Paris Agreement aims to limit the rise in global temperatures to 1.5°C above pre-industrial levels, with an ultimate goal of staying well below 2°C.

that could derail the SDGs and endanger the lives and livelihoods of millions of people, particularly in the Global South. The challenge lies in reducing emissions equitably while ensuring that vulnerable communities, especially in the Global South, do not face energy insecurity or a lack of development infrastructure. Achieving sustainable development requires resilient infrastructure capable of withstanding the growing impacts of climate change and promoting long-term progress. Vulnerable regions, often those least responsible for emis- sions such as Least Developed Countries (LDCs) and Small Island Developing States (SIDS), are experiencing significant energy insecurity. The Paris Agreement aims to limit the rise in global temperatures to 1.5°C above pre-industrial levels, with an ultimate goal of staying well below 2°C. This target was agreed by 196 countries in 2015, with commitments first outlined through Intended Nationally Determined Contributions (INDCs) and later through Nationally Determined Contributions (NDCs), de- tailing emission reduction pledges, targets and strategies.

The Growing Climate Imperative

The overarching need today is to reduce emissions while also preparing for the consequences of global warm- ing. This challenge is complicated by the fact that many countries in the Global South, which contribute the least to global GHG emissions, are among the most severely affected by climate change impacts. These countries often

5 OPEC Fund’s ESG Policy 2022 6 Climate Change 2023, IPCC

Chapter 1 | INTRODUCTION

Achieving net zero CO 2 emissions is critical and requires substantial reduction in fossil fuel use, widespread adop- tion of renewable energy, carbon capture and storage as well as improved energy efficiency. Scaling up climate action involves implementing near-term adaptation and mitigation measures, which in turn demand various policy reforms and updates to environmental regulations. Overall, the challenges are complex and difficult to address. Given the current emission trajectory, limiting the global temperature rise to 1.5°C is becoming increasingly diffi- cult, further complicating the achievement of the SDGs. Therefore, there is an emerging consensus on the need for increased climate-focused financing, transforming this challenge into an opportunity and integrating climate con- siderations into all mainstream activities.

Global Climate Finance Needs

According to the Climate Policy Initiative (CPI), global climate finance increased from US$653 billion in 2019-2020 to an annual average of US$1.3 trillion in 2021–2022. 7 Sig- nificant investments have been made globally in emission reductions as climate finance almost doubled between 2019-20 and 2021-22. However, about five times more fi- nancing is required annually to keep global warming be- low 1.5°C. 8 Thus, the demand for increased climate financ- ing has been consistently raised at the global level and the MDB community has been urged to do more in addressing climate change impacts. According to estimates by the IPCC, annual climate finance needs range from US$5 to 12 trillion until 2050. Emerging markets and developing economies alone, excluding China, need US$2.4 trillion annually by 2030 for climate and

7 Climate Policy Initiative: Global Landscape of Climate Finance 2023: Climate Policy Initiative 8 World Economic Forum: Speed, Scale, Pragmatism: How to boost Climate Finance in 2024

Chapter 1 | INTRODUCTION

nature-related investments, plus an additional US$3 trillion to achieve the other Sustainable Development Goals. The IPCC’s Sixth Assessment Report indicates that current climate financing levels need to increase by four to seven times to meet the Paris Agreement targets. The 2024 World Bank Spring Meeting highlighted that the estimated climate finance need is currently US$8 trillion per year, a figure that will rise to US$10 trillion per year after 2030. 9 This substantial financial requirement reflects the increasing frequency and severity of climate-related disasters and the growing need for both mitigation and adaptation strategies worldwide. The analysis and data clearly show that the global need for climate finance is progressively growing due to the increas- ing adverse impacts of climate change. These impacts are manifested by more frequent and more severe climate-re- lated calamities such as floods, droughts and hurricanes, which cause significant economic losses and humanitarian crises. Transitioning to a low-carbon economy requires substantial investment in renewable energy, energy efficiency and oth- er green technologies. Many countries, particularly those in vulnerable regions, need significant funding to build resil- ience against climate impacts, including infrastructure up- grades, disaster preparedness and sustainable agricultural practices. Climate experts have also emphasized the impor- tance of investing in sustainable agriculture and restoring natural capital and biodiversity, addressing issues such as degraded land, deforestation and damage to water supplies and oceans. It is important to note that achieving the SDGs is inherently linked to addressing climate change, neces- sitating integrated and comprehensive financial strategies.

Achieving the SDGs is inherently linked to addressing climate change.

9 https://live.worldbank.org/en/series/2024/spring-meetings

Chapter 2 | THE CLIMATE ACTION PLAN

THE CLIMATE ACTION PLAN

The OPEC Fund Climate Action Plan (CAP) 2023-2030 was developed to enhance the OPEC Fund’s climate finance efforts. The CAP sets out a broad vision and out- look to help better implement the OPEC Fund’s mission and vision.

Chapter 2 | THE CLIMATE ACTION PLAN

The aim is to strengthen operational actions for more climate-resilient investments. The plan is aligned with other MDBs’ climate initiatives and sets clear targets. The CAP was informed by a comprehensive review of the OPEC Fund’s 2019-2021 portfolio, during which climate finance represented 17 percent of the total budget for approved pro- jects. The plan calls for the OPEC Fund to increase its climate finance contributions to at least 25 percent by 2025 and at least 40 percent by 2030 of all new approved financing. To achieve these targets, the CAP focuses on three key areas: a. Support climate diagnostics, planning and policies; b. Promote transformative climate investments 10 ; and c. Drive innovative climate finance solutions for the private sector. The CAP expands on each of these areas with actionable items and technological innovations that can be implement- ed in partner countries to address the impacts of climate change. As part of its support for climate policy and diagnostics, the OPEC Fund has pledged to assist partner countries in re- viewing and updating their national climate policies, includ- ing NDC reports, long-term strategies under the Paris Agree- ment and other regulatory and legislative instruments for managing climate change. When necessary, the OPEC Fund provides grant-funded technical assistance and resources to help countries develop climate risk profiles and prioritize climate measures in partnership with other MDBs, develop- ment finance institutions and development sector actors. The OPEC Fund aims to promote transformative public and private investments in key sectors such as energy, infrastruc- ture, agriculture, food, water and sanitation. Historically, the OPEC Fund’s climate contributions have been concentrated in the energy, water and agriculture sectors. Support to

these sectors will continue under the CAP with an eye to- ward increased impact. For instance, the OPEC Fund is pri- oritizing large-scale renewable energy projects and energy efficiency initiatives such as advanced transmission and dis- tribution technologies. Climate-smart agriculture is another key focus, promoting efficient irrigation, drought-resistant crops, reducing losses and increasing carbon sequestration. The OPEC Fund is also participating in commercially viable transformative projects in the transport sector and smart city initiatives, integrating low-carbon pathways in infra- structure design. Through nature-based solutions, the OPEC Fund is help- ing to conserve ecosystems while building infrastructure and promoting livelihoods. Transformative climate action is envisaged through a combination of sovereign and non- sovereign financing, leveraging OPEC Fund grants, trust funds and partnerships with other institutions to maximize impact and mobilize private sector funding 11 . The OPEC Fund continues to work in conjunction with other partner institutions where relevant and to prioritize projects that crowd-in private sector funding, either within the con- text of the funded project or in the context of replication of the project. The CAP also proposes investing in climate bonds, the proceeds of which will be used to finance mitiga- tion and/or adaptation investments. The OPEC Fund is striving to develop innovative financing solutions to mobilize private capital for sustainable and re- silient infrastructure and low-carbon innovation. Recogniz- ing the critical role of the private sector in achieving climate change objectives, the OPEC Fund is exploring the possibil- ity of providing financing through on-lending mechanisms for low-carbon and green projects. The OPEC Fund is ex- ploring engagement with the Climate Bond Initiative 12 on climate bonds issued by the private sector. 13

10 Transformative climate investments focus on key sectors to reduce emissions or taking adaptive measures. So in case of energy, transformative climate investment will imply global transition to low carbon energy that is resilient to climate change and extreme events. In urban cities, transformative investments will imply improving urban air quality; decarbonizing urban energy systems; promote green and resource-efficient buildings and infrastructure; promote integrated solid-waste management and circular-economy approaches; improve urban transportation; and improve the coverage, efficiency and resilience of urban water supply, sanitation and wastewater treatment. 11 Partnerships for blended finance with agencies offering concessional financing 12 https://www.climatebonds.net 13 As part of this process, the OPEC Fund may also consider supporting the issuance of such bonds in cooperation with other development partners.

Chapter 2 | THE CLIMATE ACTION PLAN

Impacts of Climate Change in Partner Countries

already water-stressed regions. Additionally, rising sea lev- els can lead to the salinization of freshwater in inland areas. These factors contribute to a lack of water availability for ag- riculture, industry and domestic use. The public health implications of climate change are still evolving, but it is evident that extreme weather conditions will lead to an increase in heat-related illnesses such as heat- stroke as well as malnutrition due to food shortages. Public health facilities in the Global South are currently not equipped to address these emerging challenges. Climate change significantly impacts economic and infra- structure development, especially in climate-sensitive sectors like agriculture, fisheries and tourism. This destabilizes fragile economies and leads to increased migration, poverty and so- cial inequality on a large scale. Additionally, the loss of critical habitats, coral bleaching and deforestation further threatens ecosystems and biodiversity. These adverse effects risk re- versing the progress made towards achieving the SDGs.

An actionable strategy to implement the CAP was necessary to effectively address the needs of partner countries, pri- marily in the Global South. Consequently, the OPEC Fund’s strategy is informed by its extensive experience in tackling climate challenges in these regions. Partner countries face a range of climate-related issues, which shape the OPEC Fund’s climate-focused approach and identify the specific risks to be addressed. An overview of these direct and indi- rect climate risks is provided in the following sections. Many OPEC Fund partner countries frequently experience extreme weather events such as hurricanes, droughts and floods. These events lead to widespread destruction of in- frastructure, loss of livelihoods and displacement of com- munities. In regions like East and Southern Africa, the focus is not only on protecting existing infrastructure but also on coping with emerging vulnerabilities due to climate- influenced disasters. Countries with low-lying coastal areas are particularly vulner- able to rising sea levels, which cause coastal erosion, saliniza- tion of freshwater sources and increased flooding. In addition to Small Island Developing States (SIDS), coastal regions of countries like Bangladesh are severely threatened. SIDS are already witnessing the inundation of agricultural lands and habitations, leading to mass migration to urban areas. The agriculture sector is significantly impacted by irregular and extreme weather events. Climate change disrupts crop growing seasons, reduces yields and results in crop losses. This, in turn, leads to food scarcity and threatens the live- lihoods and food security of millions of people, which can quickly escalate from a local to a global threat. These issues are particularly evident in Africa, which is why the OPEC Fund is working closely with governments and communities to safeguard agriculture and livelihoods.

Addressing Climate Justice and South-South Coop- eration

The challenges outlined above highlight the urgent need for effective approaches to climate justice and South-South cooperation to equitably address global climate challenges. Developing countries in the Global South often lack the finan- cial resources and technology required to effectively combat these negative impacts. Achieving climate justice is particu- larly challenging because the burden of adaptation and miti- gation disproportionately falls on these nations. It is essential to support less developed and climate-vulner- able nations through funding, technology transfer, capaci- ty building, data and monitoring support as well as policy alignment tailored to their specific needs. By integrating cli- mate justice principles with South-South cooperation we can ensure that the most marginalized communities receive the support they need, while collectively working towards a more resilient and sustainable future.

Reduced flow in perennial glacier-fed rivers and over-ex- traction of groundwater have exacerbated water scarcity in

Chapter 2 | THE CLIMATE ACTION PLAN

Partnership Strategy for Implementation of the Climate Action Plan

Nature Solutions Finance Hub for the Asia-Pacific Region

In partnership with the Asian Development Bank, the OPEC Fund has launched the Nature Solutions Finance Hub for the Asia-Pacific region 16 . Recognizing the crit- ical role of nature in climate resilience the hub focuses on the rehabilitation and conservation of ecosystems. It leverages nature-based solutions to protect communities, optimize infrastructure and ensure a stable and biodiverse future. This approach includes the restoration of coastal mangroves, wetlands and mountain landscapes; water- shed management; reforestation for cooling; climate-re- silient cropping systems and water resource management. Additionally, the OPEC Fund is expanding its partnership with the Saudi Fund for Development and other institu- tions of the Arab Coordination Group (ACG) to establish a similar Nature Solutions Finance Hub for the MENA and Africa regions.

To address climate mitigation and adaptation effectively the OPEC Fund has implemented a three-way partnership strategy comprised of the:

1. Climate Finance and Energy Innovation Hub, 2. Food Security and Climate Adaptation Facility and, 3. Nature Solutions Finance Hub for the Asia-Pacific Region.

Climate Finance and Energy Innovation Hub

In collaboration with Sustainable Energy for All, an organiza- tion promoting climate-compatible forms of energy, and the United Nations Capital Development Fund, the OPEC Fund established the Climate Finance and Energy Innovation Hub in June 2022. 14 This initiative provides comprehensive policy support to accelerate access to modern energy services and facilitate the energy transition in partner countries. The hub also promotes projects that reduce emissions such as clean cooking technologies in underdeveloped and developing countries, offers advisory services and facilitates knowledge sharing. Its primary focus is on promoting climate mitigation efforts to tackle the dual challenges of poverty reduction and energy security.

Figure 1: Cooperation for Implementation of the Climate Action Plan

OPEC Fund Cooperation for Climate Action

in the Global South

Nature Solutions Finance Hub for the Asia-Pacific Region

Climate Finance and Energy Innovation Hub

Food Security and Climate Adaptation Facility

The OPEC Fund is also spearheading the Food Securi- ty and Climate Adaptation Facility 15 in partnership with the World Food Programme, the International Fund for Agricultural Development and other development part- ners. This facility aims at providing funding for capacity building, project preparation and technical assistance. It supports the development of a bankable pipeline of pro- jects designed to enhance agricultural value chains and strengthen food systems, particularly in the context of climate change. The goal is to effectively address the im- pacts of climate change on food security and nutrition.

Food Security and Climate Adaptation Facility

In addition to these key partnerships, the OPEC Fund has also collaborated with the ACG to collectively pledge US$24 billion in climate finance from 2022 to 2030. This commitment was announced at COP27 at Sharm El–Sheikh in Egypt, underscoring the OPEC Fund’s commitment to addressing climate change on a global scale.

14 https://publications.opecfund.org/view/137836564 15 https://www.wfp.org/news/opec-fund-and-un-world-food-programme-wfp-launch-new-facility-catalyze-us500m-support 16 https://www.adb.org/climatebank/cop28/launch-nsfh-asia-pacific-region

Chapter 2 | THE CLIMATE ACTION PLAN

Commitment to Societal Security and Development

The OPEC Fund is particularly concerned about the devel- opment impacts of climate change on local communities. Ensuring a just transition in the energy sector, promot- ing emission reductions in the transport sector and bol- stering climate-smart agricultural practices for small and medium-sized farmers are key aspects of our climate action approach. Protecting livelihoods, exploring alternative em- ployment opportunities and addressing the needs of women and children are emerging as critical areas of concern. This necessitates active engagement with governments on societal development planning and engaging communities for awareness generation and active participation.

Engaging the Private Sector

Recognizing that advanced economies have historically been the largest contributors of GHG emissions and that public funding from wealthy nations has not kept pace with the growing adverse impacts of climate change, it is clear that public finance from countries most responsible for climate change is insufficient to fully counter its ef- fects. Therefore, engaging the private sector in promoting transformative technologies and innovation is imperative, not only to drive sustainable growth but also to secure the necessary funding and investment that can scale up these solutions effectively. The OPEC Fund actively collaborates with stakeholders to devise mechanisms that de-risk pri- vate capital through guarantees, risk insurance and first- loss compensation. By understanding and addressing climate risks, the OPEC Fund fosters sustainable development and resilience in partner countries, ensuring that climate actions are equitable and effective.

Chapter 2 | THE CLIMATE ACTION PLAN

The OPEC Fund fosters sustainable development and resilience in partner countries by understanding and addressing climate risks.

Chapter 3 | TRACKING CLIMATE FINANCE

TRACKING CLIMATE FINANCE

In line with the Joint Report on MDB Climate Finance, the OPEC Fund publishes details of the climate finance measures for its approved portfolio (excluding trade finance) retrospectively from the previous year. The following section of this report reviews the OPEC Fund’s performance in meeting its climate finance targets in the past three years and evaluates the performance across regions and sectors.

Chapter 3 | TRACKING CLIMATE FINANCE

The analysis of the OPEC Fund’s climate finance initia- tives highlights the institution’s commitment to address- ing the urgent challenges of climate change. By adopting the established terminology and methodology for tracking climate finance, the OPEC Fund demonstrates its dedi- cation to transparency and accountability in its climate finance reporting practices.

37 projects with total OPEC Fund financing of US$1.5 billion. Out of these 37 projects, 25 (67.6 percent of the total num- ber of investments) addressed climate finance, 5 projects (13.5 percent) involved climate change adaptation finance, 10 projects (27 percent) involved climate change mitigation finance and 10 projects (27 percent) were a mix of both. Climate change adaptation finance amounted to US$146.6 million (9.5 percent of total OPEC Fund financ- ing), and climate change mitigation finance amounted to US$368.8 million (23.9 percent). Total OPEC Fund climate finance was US$515.4 million, accounting for 33.4 percent of the total portfolio.

Climate Finance Baseline 2018-2021

The first climate finance review for the OPEC Fund was re- leased in 2022. The results were derived from the entire portfolio (excluding trade finance) during the period 2018– 2021. The analyzed portfolio included 133 projects with a total OPEC Fund contribution of US$4 billion. Of this port- folio, 54 projects (40 percent) addressed climate finance: 23 projects (17 percent of the total number of investments in the reviewed portfolio) were for climate change adap- tation finance, 18 projects (14 percent) were for climate change mitigation finance and 15 projects (11 percent) were a mix of both. Across the board, the OPEC Fund’s climate change adap- tation finance in the period amounted to US$219 million (5.3 percent of total financing), and climate change mitiga- tion finance amounted to US$457 million (11.5 percent of total financing). Total OPEC Fund climate finance was US$676 million, accounting for 17 percent of the total portfolio. The share of OPEC Fund climate finance in the public sector was higher (58 percent) than in the private sector (42 per- cent). The main focus of climate finance was on the energy sector (25.3 percent), followed by water and agriculture.

Out of this US$515.4 million, 80 percent was committed to sovereign projects and 20 percent to non-sovereign projects.

Climate Finance 2023

The latest climate finance review was based on net pro- ject approvals for the year 2023, excluding trade finance projects. Total financing for this period amounted to US$1.2 billion across 34 projects. Of these, 32 projects (94.1 percent of the total number of investments) contrib- uted to climate finance: 13 projects (38.2 percent) involved adaptation finance, 4 projects (11.8 percent) focused on mitigation finance and 15 projects (44.1 percent) included a mix of both. Across the board, climate change adaptation finance amounted to US$205.1 million (16.9 percent of total OPEC Fund financing), while climate change mitigation finance totaled US$212.3 million (17.5 percent). Total OPEC Fund climate finance for 2023 was US$417.4 million, accounting for 34.4 percent of the total portfolio.

Climate Finance 2022

The review of the OPEC Fund's climate finance in 2023 was based on net project board approvals for 2022, exclud- ing trade finance projects. The analyzed portfolio included

Of this US$417.4 million, 68 percent was committed to sovereign projects and 32 percent to non-sovereign projects.

Chapter 3 | TRACKING CLIMATE FINANCE

The Comparative Picture

Sectoral Distribution of Climate Finance

The OPEC Fund’s level of climate financing has notably ad- vanced in recent years. Comparing the baseline period of 2018-2021 to the year 2023, there has been a significant in- crease in total climate finance, rising from 17 percent in the baseline period to 34 percent in 2023. Adaptation finance increased from 5 percent to 17 percent, and mitigation finance increased from 11.5 percent to 18 percent, demon- strating significant progress over the course of just a few years. However, the number of projects is relatively small. As a result, the observed changes may represent shorter- term fluctuations over the last few years, rather than a broad and consistent trend. As the OPEC Fund continues to track its climate finance efforts, more defined trends and observations will become more apparent. The contribution of the OPEC Fund’s Public Sector oper- ations to the institution's climate financing has averaged around 70 percent over the baseline period, primari- ly driven by energy and multisectoral projects. Climate finance from the OPEC Fund’s Private Sector operations accounted for approximately 30 percent, also primarily driven by the energy sector, with additional contributions from banking and finance as well as multisectoral (financial intermediaries) projects.

SECTOR DEFINITIONS

Agriculture This sector encompasses all projects related to farming, livestock, fisheries and forestry. It includes initiatives aimed at improving agricultural productiv- ity, sustainability and resilience to climate change. Financial Institutions This sector includes financial institutions transac- tions, primarily loans to banks. It covers all financial services provided by banks and other financial insti- tutions, including credit, investment and insurance services that support various economic activities. Education This sector includes projects aimed at improving educational infrastructure, access to education and quality of education. It includes investments in schools, universities and vocational training centers as well as educational programs and initiatives. Energy This sector includes projects related to production, distribution and consumption of energy. It covers renewable energy projects (such as solar, wind and hydroelectric power), energy efficiency initiatives and other efforts to transition to sustainable energy sources. Multisectoral This category is used for projects that are cross-cut- ting and do not fit into a single sector. Multisec- toral projects might include initiatives that address climate resilience, energy transition and agriculture simultaneously. This classification is used for loans and other financial transactions that have impacts across multiple sectors. Transport This sector includes projects related to the develop- ment and maintenance of transportation infrastruc- ture. It covers roads, railways, airports, seaports and public transportation systems as well as initiatives aimed at improving transportation efficiency and sustainability. Other This category includes any projects that do not fit into the specific sectors mentioned above. It is a cat- egory for miscellaneous projects that have unique or diverse objectives.

Chart 1: Climate Finance Summary 2018-2023

100%

40%

42%

20%

32%

90%

35%

80%

30%

70%

34,4 %

33,4 %

25%

60%

50%

20%

40%

15%

30%

17 %

10%

20%

10%

58%

80%

68%

Climate Finance (%)

Private Sector (%)

Public Sector (%)

Source: OPEC Fund climate finance reports, 2018-21, 2022 and 2023 See also Annex 7.3, Table 1 and Table 2

Chapter 3 | TRACKING CLIMATE FINANCE

The analysis of the OPEC Fund’s portfolio indicates that the distribution of sectoral investments varied considerably over the three time points (Table 3a, 4a and 5a). Out of the total sectoral allocation the percentage of climate finance showed interesting trends. For instance, financing in the energy sector over this time period varied from US$794.7 million (20 percent) in the base year to US$193 million (12 percent) in 2022 and US$113.1 million (9 percent) in 2023. However,

the contribution of climate finance in the energy sector to total investment in the sector increased from 25 percent in the base year to 59 percent in 2022 to 66 percent in 2023 (Table 6b).

Chart 2 depicts contributions of different sectors for 2018-21, 2022 and 2023. Chart 3 indicates the percentage of climate finance of each sector to total investment in the sector for the respective time periods.

Chart 2: Climate Finance Summary, 2018-2023

200 180 160 140 120 100

80 60 40 20 0

Banking and financial services

Education

Energy

Multisectoral

Transport

Other

Agriculture

2018 2019 2020 2021

2022 2023

Source: OPEC Fund climate finance reports, 2018-21, 2022 and 2023 | See also Annex 7.3, Table 6a

Chart 3: Climate Finance Percentage to Total Sectoral Financing, 2018-2023

70%

60%

50%

40%

30%

20%

10%

Agriculture

Banking and financial services

Education

Energy

Multisectoral

Transport

Other

2018 2019 2020 2021

2022 2023

Source: OPEC Fund climate finance reports, 2018-21, 2022 and 2023 | See also Annex 7.3, Table 10

Chapter 3 | TRACKING CLIMATE FINANCE

Chart 4: Sectoral Contribution to Total Climate Finance, 2018-2023

100%

Agriculture

90%

Banking and financial services

80%

70%

Education

60%

50%

Energy

40%

Multisectoral

30%

20%

Transport

10%

Other

Source: OPEC Fund climate finance reports 2018-21, 2022 and 2023 | See also Annex 7.3, Table 7, 8 and 9

Chart 4 depicts the sectoral contribution of climate finance to total climate finance of the OPEC Fund for the time periods 2018-21, 2022 and 2023. This corresponds with Tables 7, 8 and 9 in the Annex.

The review of the data indicates that the sectoral contribu- tion to the OPEC Fund’s total climate finance over the years (Chart 4) does not indicate a consistent sectoral focus. In the baseline, energy (30 percent) contributed most cli- mate finance followed by banking and finance (17 percent) and transport (16 percent). In 2022, banking and finance (37 percent) saw the highest contribution followed by mul- tisectoral projects (30 percent) and energy (22 percent). In 2023, multisectoral projects (32.4 percent) recorded the highest contributions, followed by energy (18 percent) and transport (17 percent). The energy sector was the main contributor to total climate finance from 2018 to 2021 (baseline period). How- ever, the contributions from the energy sector decreased gradually from 30 percent to 18 percent over the last three

years (Table 10 in the Annex). Climate finance in the ener- gy sector serves primarily energy mitigation projects such as renewable energy. This decreasing trend is mainly due to the reduction in the public sector’s contribution to the energy sector, which fell from 21 percent in the base year to 9 percent in 2022 and zero in 2023 (Tables 11a, 11b and 11c). During this period, the energy sector’s contribution to the OPEC Fund’s private sector operations increased from 42 percent in the base year to 75 percent in 2022, recording 57 percent in 2023 (Table 12a, 12b and 12c). Re- newable energy projects (solar and wind) in the private sector have emerged as key drivers of climate finance in the OPEC Fund. As a result, increased financing in energy in the private sector and the expansion of policy-based loans in the public sector has been yielding higher climate finance.

Chapter 3 | TRACKING CLIMATE FINANCE

Chart 5: Sectoral Contributions of Adaptation and Mitigation Finance to Total Climate Finance 2018-2023

100%

Agriculture

90%

Banking and financial services

80%

70%

Education

60%

50%

Energy

40%

Multisectoral

30%

20%

Transport

10%

Other

2018-2021 Adaptation

2018-2021 Mitigation

2022 Adaptation

2022 Mitigation

2023 Adaptation

2023 Mitigation

Source: OPEC Fund climate finance reports 2018-21, 2022 and 2023 | See also Annex 7.3, Table 10

Chart 5 shows the distribution of different sectors in relation to total mitigation and adaptation for the time periods 2018-21, 2022 and 2023. This corresponds to Table 10 in the Annex.

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