SPI Journal, Autumn 2023
Amplifying voices

Five steps for addressing the climate finance gap

Nature-related investment opportunities are waiting, but it’s time to deliver the finance, writes Mahmoud Mohieldin, United Nations climate change high-level champion for COP27, Egypt.

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The global financial system does not sufficiently appreciate the value of nature. Through recognition of the benefits of regenerating nature, we can more effectively reduce emissions, build adaptation and resilience to climate impacts and accelerate sustainable development.

In doing so, we will achieve the interrelated goals of the 2015 Paris agreement, the Kunming-Montreal Global Biodiversity Framework and the United Nations sustainable development goals for 2030.

Nature-positive business is good business, presenting as much as $10.1tn worth of opportunities and creating up to 395m jobs by 2030, according to the World Economic Forum.

Furthermore, nature-based solutions could cover one-third of the cost-effective emissions reductions needed by 2030 to reach net zero emissions by 2050. They can also buffer frontline communities from existing climate change impacts. For example, mangroves hold rising sea levels at bay, tree cover protects people from extreme heat and rainfall and peatlands provide drinking water filtration and store carbon.

Yet, nature-based solutions only attract around $154bn per year of investment – one-third of the $484bn per year needed by 2030, according to the UN Environment Programme.

Unlocking that finance is imperative. This requires concerted action by everyone. Policy-makers must implement regulations that reward sustainability and penalise detrimental practices; financial institutions’ lending and investment criteria should reflect climate and nature risks and opportunities; entrepreneurs and innovators should develop technologies that accelerate nature-based solutions.

The path from COP27 to COP28

Significant steps were taken at COP27 in setting the foundation for a scale-up of finance for nature, and we will build on them at this year’s COP28 in the United Arab Emirates.

The Compendium of Climate-Related Initiatives, released at COP27 by the UN climate change high-level champions, the UN regional commissions and the COP27 presidency, sets out a pipeline of investable, shovel-ready climate action projects. This year, we are working to match project developers with the right investors. The outcomes of the second edition of Regional Platform for Climate Projects that was held this year through partnership between the COP27 and COP28 presidencies, the UN regional commissions and the UN climate change high-level champions will be showcased at COP28.

The Sharm El-Sheikh Adaptation Agenda, launched by the champions and the COP27 presidency, sets out solutions for impact systems transformation within this decade, including food and agriculture, oceans and coastal zones, health, water and nature. Nature-based solutions are at the heart of the SAA given the important role of nature in increasing the adaptive capacity of ecosystems and communities. Similarly, SAA elevates the role of finance, not only as a key sector to advance investments in climate adaptation, but also as the enabler needed by businesses, local governments and communities to accelerate the implementation of climate adaptation solutions across systems. We are now working with businesses, investors, cities and regions to drive action towards fulfilling the agenda.

Next steps

The mobilisation of finance for nature must be part of a wider transformation of the global financial architecture, enabling emerging markets and developing economies to access funds for climate action and sustainable development. This requires governments and financial institutions to urgently implement five important steps.

First, extend concessional capital to emerging markets and developing economies. Governments and development agencies should provide concessional capital to support smooth and transparent financing of climate projects. Multilateral development banks should provide loans to low- and low-middle-income countries with a 1% interest rate, a 10-year grace period and a 20-year repayment term for financing projects that boost resilience to climate change.

Second, create credit enhancement and guarantee schemes that incentivise the private sector to invest in climate action projects in developing countries. These schemes will strengthen investor confidence in projects that are investable.

Third, suspend and reduce debt for low- and middle-income countries, and increase the use of debt-for-nature and -climate swaps. These enable recipient countries to repay their debts by investing in nature regeneration and climate action.

Fourth, establish a fund that helps private investors mitigate foreign exchange risks by providing cost-effective currency hedges for climate action investment in Africa. This multi-partner trust fund would reduce the real and perceived risk of investing in climate projects amid currency volatility.

Fifth, create a turbocharger facility for climate action projects and entrepreneurs in developing countries.

These five steps will accelerate nature-positive investments and drive wider sustainable development. The business opportunities are there and the projects are ready to break ground. Now it’s time to deliver the finance.

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