Driving Climate Finance at Scale at COP27

Investing in both climate mitigation and adaptation in emerging economies is a critical pathway to both reducing emissions and creating more resilient societies better able to navigate a changing climate. In 2009, donor countries committed $100 billion a year by 2020 for climate mitigation in developing countries. In 2022, this commitment remained unfulfilled and the OECD estimates that it will take until the end of 2023 to get to the first $100 billion. While this allocation for mitigation is a start, the more urgent investment commitment adaptation and resilience approaches for emerging markets. According to the IPCC, climate adaptation costs for developing countries are $70 billion a year and could rise to as much as $300 billion a year by 2030.

To finance mitigation, adaptation and resilience at these levels requires significant engagement from both public and private finance. In 2021, at COP26, the Glasgow Financial Alliance for Net Zero committed $1.3 trillion towards climate finance. To action this investment commitment, we need different and modified financial instruments and to scale public private partnerships. Donor countries, multilateral banks, sovereign wealth funds and private finance must collaborate on equity and debt financing structures. While it is less likely the private sector will fund adaptation at scale, they should focus on projects with ROI and the multilateral banks should refocus on climate adaptation funding including concessional terms to loans, improved debt reduction mechanisms, providing technical assistance, knowledge and technology and confronting issues of compliance and greenwashing.

Dr Mahmoud Mohieldin, the COP27 High Level Champion for Egypt, recently shared eight goals for COP27 to address this funding gap.

 Analysis of the Eight Climate Investment Goals for COP27

1. Fulfill the $100 billion dollar pledge as a starting point for creating a resilient and adaptive global economy. At COP27, the $100 billion pledge should be used as a lesson and framework to create new, more ambitious goals for public and private finance
2. Diversify funding instruments for climate finance with a focus on investment and equity finance, including foreign direct investment. For private sector finance, continuing to expand investment in renewable energy projects globally
3. Transition funding to on-the-ground and shovel-ready projects. GFANZ funding needs to land quickly and at scale
4. Expand debt reduction mechanisms. Debt restructuring and debt reduction in exchange for climate investment can help developing economies and emerging markets restructure their finances
5. Expand rules for carbon markets. While the Egyptian and London Stock Exchange already began discussion, at COP27 the dialogue around establishing the pillars, by-laws and procedures for carbon markets must continue. Carbon markets are expanding rapidly—in a uniform way—and consistent regulation is necessary for continued growth
6. Continue and grow the green sukuk. This Climate Bonds Initiative promotes Shari’ah compliant financial products to invest in climate change solutions, ensuring project investors that their investment will be compliant with Shari’ah law and ethical standards established by the Clean Energy Business Council in the Middle East and North Africa
7. Codify and harmonize standards, regulations and instruments relating to climate change. There is confusion regarding adherence to rules, metrics, reporting, and more that also increases concern for greenwashing and the effectiveness of state sustainability programs. At COP27, collaboration is needed to bring clarity to these code standards and procedures
8. Align state and national goals for the Nationally Determined Contributions. Clear and coherent policy at all levels of government allow the private sector to invest more and with more certainty. States need to have their budget and climate goals aligned with the private sector, whether it be on the national or local level. The state should be leading by example and showing the private sector which sectors are the most crucial to focus on

COP 27 will be in Sharm el-Sheikh, Egypt from November 7-18, 2022.