COP 28: A Focusing Device For Climate Change Finance
By Dr. Gillian Marcelle, CEO Resilience Capital Ventures
The world comes together at COP28 hosted by the United Arab Emirates at a time when urgent action is needed to close the climate finance gap now estimated to be five trillion dollars.
The COP process is part of the multilateral system in which all state actors have a say, even though the power dynamics that characterize the geopolitical system are ever present.
These are spaces where, even if in the world of commerce and finance, the views of the top 1% dominate, the voices and demands of the 99% cannot be completely ignored.
The UN Conference of Parties #28 brings countries and non-state actors to review progress on commitments made under the Paris Agreement in 2015 and chart a way forward towards reducing greenhouse gas emissions and other goals. Not least because of the host, there will be a great deal of scrutiny on having countries commit to phasing out fossil fuels and investing in clean and renewable energy systems. The UAE is leading with US, the EU, and sixty other countries in an effort to 3x investment in renewable energy by 2030.
In this year’s meeting, for the first time, the effects of the climate crisis on public health are on the table for discussion as is biodiversity loss.
Developing countries are keen to have common and differentiated responsibilities addressed by getting secured commitments for the Loss & Damage Fund.
Context
These issues are being addressed within a broader context of rising income and wealth inequality; changing demographics that favor the African continent and give rise to xenophobia in many other parts of the world; and considerable uncertainty and instability as war and conflicts rage in multiple regions.
Liberal democratic systems, as well as autocratic regimes, are taking strain with rising levels of mistrust of institutions and cynicism being reported in the West and in China.
Business and corporate leaders are often not regarded as trusted and inspirational figures with high levels of social alienation and general anxiety among populations in wealthy countries.
There are efforts to generate solutions and harness human ingenuity as well as activist and protest movements aiming to stimulate behavior change and mindset shifts. At one end, there are radical scholars, intellectuals and advocates who link responses to the climate crisis to the need to confront capitalism and its visible and invisible symbols - stakeholder capitalism and ESG investing. These voices do not get as much attention as the dominant, mainstream and neoliberal ideas, in the media, corridors of power, or institutions of higher learning, therefore the pace of change is sluggish, and many varieties of delay and denial exist.
The COP process is part of the multilateral system in which all state actors gave a say, even though the power dynamics present in the geopolitical system is ever present.
These are spaces where, even if in the world of commerce and finance the views of the top 1% dominate, the voices and demands of the 99% cannot be completely ignored.
The active parties in multi stakeholder processes are governments (member states); business entities; sub national entities such as cities and regions, international organizations including development finance institutions and a wide range of civil society actors. Increasingly there have been calls for increased participation by local communities, indigenous peoples and the youthful. These stakeholders represent communities most affected by the ravages of climate change and wish to have direct representation. Those on the frontlines are demanding that they are also on the front pages. Not being content with being on the receiving end of harm and not consulted about how to devise solutions. Small island nations, women and indigenous people all want to contribute to matters that affect their daily lives.
Achieving these changes requires significantly altering how international development co-operation is done and this alters the very fabric of the United Nations system.
Perhaps the most intractable challenge arises as a result of common but differentiated responsibilities and associated capabilities. While there is a hard-won global consensus on the science behind climate change and the predictions of dire consequences for humans, other species, and the physical environment, there is great divergence wrt the responses required to repair, heal, and regenerate. Agreement on climate change being man-made has not led to shared positions on assignment of roles and responsibilities and measuring contributions to harm and therefore the reparative actions required. The demands of developing countries are met with hostility or paternalism.
Climate transitions are going to be fraught and difficult. These projects are essential long term transformation exercises that require experts, leaders, and beneficiaries to work together for the common good. There are still too few examples of good practice and far too often external experts are parachuted in and perform with arrogance. This despite global consultants coming primarily from cultures and lifestyles that caused the problems in the first place. Recently, in South Africa, there was a very public backlash to externally financed energy transition demonstrating the challenges involved in making dramatic changes in energy systems that have significant implications for fence line communities. This brought technocrats and policy advisors into a direct clash with elected officials and the result was a delay in transition from coal fired power stations.
Constraints and Challenges
The main challenge facing the world’s climate agenda is securing sufficient resources to address burdensome problems – heat, extreme weather events, drought, flooding, changing food production cycles, melting glaciers, sea level rise, coastal zone erosion and ocean acidification – that are widespread and unpredictable.
Financial resources and modernized scientific knowledge are highly concentrated in parts of the world that contribute to the negative effects of climate change but there are few mechanisms in place for burden sharing. While climate change is a global problem, all people do not contribute equally to its causes and the effects are also unevenly distributed. Sadly, these harms affect persons experiencing economic vulnerability and insecurity more acutely than those who are more well off. There is also evidence of racialized and gendered effects arising from barriers of access and more active processes of exclusion and discrimination. While the domestic agenda in the United States under the Biden-Harris administration has made commendable strides in terms of integrating an equity and justice component into climate policy and programming, this is not yet well reflected in the foreign policy and climate diplomacy agenda. The US, several European countries and other OECD countries with heavy emission profiles ought to acknowledge their disproportionate role in causing harm, accept responsibility and chart a future of repair and healing.
According to the most recent United Nations Environment Programme (UNEP) report (2022) on the adaptation gap, there is a five to tenfold shortfall in terms of funds required. Some USD 300 billion is required for adaptation with countries in the Global South having the lion’s share.
Action and Activators
Taking all of the foregoing into account, there are a number of initiatives that seek to increase the quantum of financing and to direct money where it is needed most.
The following are noteworthy efforts of Public Sector and Multilateral Initiatives:
The Bridgetown Initiative - a three-step action plan providing a framework for a reformed global financial system that would support developing countries as they face escalating impacts of climate change by increasing available and affordable financing and encouraging private sector partnership and investment.
The UAE’s response to climate change - The UAE began financing clean energy projects more than 15 years ago and has invested over 40 billion USD in the sector to date. Current trends predict the production capacity of clean energy, including solar and nuclear, to reach 14 GW by 2030, up from about 100 MW in 2015 and 2.4 GW in 2020.
Just Energy Transition Partnerships - funded by the International Partners Group (IPG), aim to support country-led efforts to transition from fossil fuels to renewables, addressing challenges such as balancing cost efficiency with a just transition, innovative financing approaches, and attracting private sector investments in renewables.
Resilience and Sustainability Trust (RST) - helps low-income and vulnerable middle-income countries build resilience to external shocks and ensure sustainable growth, contributing to their longer-term balance of payments stability.
World Bank & IDB - have joined forces to boost support for net-zero-deforestation efforts in the Amazon, strengthen the Caribbean’s resilience to natural disasters, and bridge the digital-access gap across Latin America and the Caribbean.
In addition to Public Sector initiatives, there are a number of notable private sector led efforts in OECD countries, including:
Climate tech investments by Azolla Ventures, including a $239 million blended fund focused on investing in early-stage companies (mostly pre-seed and seed with some Series A) that would otherwise be overlooked by other VCs. For example, Azolla’s blended climate fund is not just drawing on original investors but rather pairing investors with philanthropic partners who are hoping to maximize the impact of their dollars.
Patagonia reimagining its entire business model where sustainability is the driving force of all its actions and culture.
Private equity firm Alpine Investors transitioning to a B Corp to attract the best talent and redefine what types of businesses it will grow.
The work of global corporations including tech giants Apple, Microsoft, Google, Amazon, and Facebook to reduce climate emissions, move to renewable energy, and manage waste is also positive but requires in-depth engagement and amplification.
Increased investments in renewable energy by J.P. Morgan are reportedly on track to finance $1 trillion for green energy by 2030.
There is a global ecosystem of start-ups and social enterprises that is disrupting and transforming industries from agriculture, energy, and healthcare to water access, fashion, and fintech and proptech in ways that are better serving the needs of consumers who want sustainable products. These innovators are demonstrating that sustainability is the business model and are redefining what good investment means.
In the Venture Capital space there are efforts to expand beyond Silicon Valley to fund climatetech startups in the global South as reported by Taj Ahmad Eldridge, an executive at Jobs for the Future.
Resilience Capital Ventures (RCV) provides a unique approach in mobilizing financing from global private capital for deployment in emerging markets and developing countries. Guided by the Triple B Framework, RCV is implementing a national scale demonstration project in The Bahamas. This ambitious effort uses grant financing for ecosystem strengthening efforts, provided by Open Society Foundations, ahead of taking the small island nation to global capital markets. This architecture expands the category of blended finance at a time when traditional flows have plummeted.
Conclusion
It is very difficult and not entirely possible to predict outcomes from the meeting. We have to adopt a forward-looking posture and remain optimistic that a common approach can be secured.
It is not impossible to design venues and engagements with a spread of contributions and respectful engagement. The Heriot Watt climate hub in Dubai and the work of the Milken Institute with sovereign wealth funds are two very positive examples of activation. The Green Climate Fund coming out of its recent Board meetings appears to be engaging with fresh energy in regions such as the Caribbean where not enough had been happening.
The most important outcome will be significant pledges and commitments to the Loss & Damage Fund. Western media outlets have preconceived notions that any conference in the Gulf States is bought and paid for by mega oil and gas companies. Pulling off the announcement of major decarbonization and energy transition projects would partially silence that criticism. The hosts should bend over backwards to be open and inclusive to civil society and feminists addressing climate justice issues. I want to learn from local initiatives and actors in the Arab world continuing from my trip earlier this year to Saudi Arabia. One of the surprising developments is the reemergence of close ties between the African continent and the Gulf Region in every aspect of climate response including research, university education and faculty exchanges. This augers well for many other parts of the developing world.
In July of this year – 2023, global temperatures in Seattle, Shanghai, Paris, and Johannesburg topped 40, 45 and 60 degrees. These heat levels are happening at .1°C above pre-industrial temperatures, it does not bear thinking about what will happen if there is a 2.8°C rise by the end of the century.
To address these potentially disastrous outcomes, it is necessary to contribute to a paradigm shift to replace the industrial age and contribute to what Carlota Perez calls the Green Global Golden Age. That journey will require broad systems change and a reorientation of financial systems away from short term profit maximization and externalizing harm to the natural environment. These shifts will only take place if values in society are altered away from current preoccupations and towards justice. That is a societal project that is bigger than climate change and may take several lifetimes. The Triple B Framework offers a pathway by its insistence of combining social, cultural and knowledge capital with finance and regarding investment as a search for opportunities and harvesting them.
Bringing the world together to solve problems is an important aspect of the international development community. With a mammoth and growing climate finance gap, it is important that we utilize all routes forward. Forging a common approach, undertaking systems change with its inherent difficulties in order to make progress and leave no one behind.
Research assistance provided by Ellen Mudadi and Brian Burton.