Climate Finance – 5 things to note at COP28

Adaptation Finance

There is a critical need for more private sector investment in helping countries adapt to the effects of climate change, but OECD shows that most private finance is going to Renewable Energy. COP28 is set to establish a framework for achieving the Paris Agreement’s ‘global goal on adaptation’ which will add further impetus to calls on private finance to ramp-up adaptation financing. In anticipation of this, the UN Principles for Responsible Banking has issued new target-setting guidance for banks on Adaptation Finance. Access the new guidance at  https://www.unepfi.org/industries/banking/climate-adaptation-target-setting/

Transition Finance

Financing hard-to-abate sectors like steel and cement, as well as financing the decarbonisation of energy companies, remains controversial in the face of strident calls for financial firms to divest from carbon-intensive assets and activities and accusations that transition finance amounts to greenwashing. Look out of a new report from the Global Financial Alliance on Net Zero (GFANZ) on four transition finance strategies that tackles this question.

Export credit and Net Zero

Under the GFANZ umbrella, the Export Credit Agencies Net Zero Alliance will be formally launched at COP28. This new alliance will work to align export credit guarantees and other trade finance instruments to the goals of the Paris Climate Agreement. Currently, ECAs are supporting $bn in oil and gas projects around the world, estimated to be sevenfold larger than their underwriting of renewables.

Blended Finance

COP28 will see negotiations for a new global finance target to mobilise additional funds to the Global South for climate mitigation and adaptation. This will extend the current agreement to direct $100bn per annum beyond 2025. But 2023 is the first year that the target has been met. COP28 will also discuss how public finance can ‘crowd-in’ more private climate finance through a Blended Finance approach that pools resources of public development banks, multilateral development banks, governments, philanthropic funds, banks and asset managers.

Climate Finance Innovation

Checkout the Climate Finance Catalyst Contest being launched by COP28. This contest is looking for innovative approaches to solving the complex challenges facing the transition to net zero in the banking sector, including ideas, tools, strategies, and approaches that people in the sector can use to have an immediate impact in supporting accelerated transition within banking institutions and their clients, enabling finance for new and innovative solutions, and practical ideas for approaches that ensure a just transition. More details can be found at https://www.climatesafelending.org/catalyst-contest.