In 2009, developed countries at the Conference of the Parties, the annual United Nations climate change conference, committed to mobilizing $100 billion annually in climate finance by 2020, a target finally met in 2022. Under the 2015 Paris Agreement countries agreed to set a new, higher annual, climate finance goal by 2025 — the New Collective Quantified Goal (NCQG) — scheduled for negotiation at COP29, which starts today. While no consensus is yet in sight, the UN recently estimated the need to exceed $1 trillion annually through 2030.
What Is Climate Finance?
When we hear about rich countries helping poorer countries, we typically think of this as aid or charity. But climate finance is capital that is expected to generate returns, especially for private investors or institutions. One example is green bonds, which I discussed in this recent article. Other examples are low-interest loans and equity investments. As such, climate finance often aligns with investment principles, where entities providing funds anticipate either direct returns or indirect financial benefits from climate-resilient economies.
Climate finance is often some type of blended finance, combining public funds with private investment to reduce risk. For example, a government or development bank might provide grants or low-interest loans to attract private investors who might otherwise view a project as too risky. These grants or guarantees are not always repaid, but their primary purpose is to make a project more commercially viable, not to function as charity.
Whilst everyone generally agrees that the amount of climate finance made available must increase, nations disagree on who should contribute, what period of time it should cover, the amount and what it should fund.
For more of what we can expect from COP29, “COP 16 Versus COP 29 – Climate Goals Lead To A Global Funding Fight”.
COP29 Must Rethink Climate Finance
David Miliband is the president and CEO of International Rescue Committee and in their latest report, published today, they identify 17 countries at the epicenter of climate vulnerability and conflicts where climate finance is needed the most. David explains, “Those countries are home to just 10.5% of the global population and only 3.5% of annual greenhouse gas emissions, but one third of all people affected by natural disasters, exacerbated by climate change caused by us in the developed world.”
As an example, over a decade of conflict has shattered Syria’s water, sanitation and health infrastructure. As changes to the climate and more frequent droughts reduced groundwater, rainfall and the flow of rivers in the country, many Syrians turned to contaminated water sources where waterborne diseases like cholera can spread.
Whatever new funding goal is agreed on at COP29, to make climate finance work for conflict-affected regions David suggests that the NCQG must be structured to ensure that at least 50% of climate finance is directed toward climate adaptation, with a particular focus on building climate resilience in fragile states.
The Role Of Private Climate Finance
Whilst the majority of climate finance comes from the public sector, according to the Organisation for Economic Co-operation and Development (OECD) private capital contributed 20% of the overall investments in 2022, which is the most recent year for which official figures are available.
Matt Lerner is the research director at Founders Pledge, representing over 2,000 technology entrepreneurs from 40 countries that have already donated $1 billion of their own money and pledged a further $10 billion. He believes private climate finance in the U.S. will have an even more important role to play when Donald Trump becomes president next year.
While Trump has said he will withdraw the U.S. from the Paris Agreement again and make changes to federal incentives like EV subsidies offered through the Inflation Reduction Act, he is now likely to do so more carefully to avoid disrupting the interests of allies like Elon Musk, who has benefitted from this scheme. Trump’s priorities, such as job creation and reducing reliance on countries like China, could still lead to continued government support for tech companies focused on research and development. The economic advantages of green technology, including job creation and rural development, especially in the states that voted for him like Texas and Oklahoma, might also incentivize indirect support for these sectors, even if climate action isn’t the administration’s primary goal. Several states, like California and New York, are of course going to independently pursue their climate agenda, and continue to make their investments and incentives available.
Major U.S. corporations like Amazon, Microsoft and Google have committed to reducing emissions and investing in renewables, likely ensuring the growth of green technology and renewable energy even without government intervention. Matt concludes on an optimistic note: “Four years is merely a blink in planetary timescales.”
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