Increasing transparency in the working definitions of international climate finance is critical to ensure the accuracy of climate finance accounting as well as trust between different stakeholders
World leaders, climate experts and activists gathered once more for the annual climate conference in Sharm el-Sheikh, Egypt to work towards achieving the world’s collective climate goals. The 27th Conference of the Parties (COP27) of the United Nations Convention on Climate Change (UNFCCC) came to a conclusion on Sunday, November 20, following two weeks of intense climate change discussions among country stakeholders from all over the world.
COP is structured to serve as the supreme decision-making body of the UNFCCC and is responsible for assessing measures taken by member Parties and non-Party stakeholders to achieve the objectives set forth on climate change. The event consisted of a wide variety of climate-related topics that included input from both the public and private sectors.
Based on scientific evidence of increasing and irreversible risks when surpassing a global temperature of 1.5°C and ongoing climate disasters regularly occurring around the earth, the focus on climate change has emerged as one of the world’s top public policy priorities with a sense of urgency hastily spreading among decision-makers and citizens.
Actions of each stakeholder and the alignment of policy tools with global climate goals, however, seem to lag behind. Subsidies for fossil fuels are still operational in some countries, hampering effective and rapid decarbonization, reflected by climate action investments still coming up short. A commitment by developed countries to mobilize $100 billion per year toward developing countries to bolster climate action aligned with UNFCCC thresholds has not been met—$83.3 billion was provided and mobilized in 2020, according to the OECD 2022 report.
A 2021 Climate Policy Initiative report shows that “climate finance must increase by at least 590% – to $4.35 trillion annually by 2030 – to meet the climate objectives.”
Given this large-scale investment required, the role of the private sector becomes extremely important. Putting appropriate public interventions and policy support in place will be key in scaling up sustainable investments by the private sector to increase climate finance flows moving forward.
Climate finance was one of the key agenda items for COP27 to advance the implementation of the Paris Agreement Article 2.1c, ensuring its effective and inclusive mobilization towards climate adaptation and mitigation activities. Considering that COP27 was crucial in finalizing the details of the Paris Rulebook following the prior COP26 in Glasgow, it is imperative to revisit key highlights of COP26, which was recognized as a critical conference in raising the level of ambition after five years of the Paris Agreement.
A brief recap of COP26 related to climate finance transparency and mobilization
The momentum of COP26 provided Parties with a sense of direction regarding which activities require additional support and urgent attention. When it comes to finance, mobilizing and scaling-up climate finance from the public and private sectors was highlighted for the successful implementation of climate actions, particularly for the most vulnerable countries. The needs for enhancing transparency in climate finance by monitoring and reporting its flows was emphasized.
Climate adaptation finance
With the goal of achieving the balance between adaptation and mitigation, developed country Parties were urged to at least double their provision of adaptation finance from 2019 levels by 2025 at COP26.
As a result, there were several new financial pledges to the Adaptation Fund of over $350 million and to the Least Developed Countries Fund (LDCF) of over $600 million, among others.
The role of the private sector
Private sector involvement in mobilizing finance was also emphasized to support efforts for the transition. More recently, financial institutions that manage trillions of assets have started to take action through sustainable finance practices and public commitments. In Glasgow, the Glasgow Financial Alliance for Net Zero (GFANZ) – a global coalition of leading financial institutions committed to accelerating the transition to a net-zero global economy – was created. The GFANZ aims to provide a financing roadmap along with estimates of long-term investment needs for the net-zero transition.
Climate finance transparency
Discussions on how developing countries can plan the preparation process of the BTR (currently Biennial Update Report (BUR)) and set its implementation roadmap were held at the launch event of the Biennial Transparency Report (BTR) Guidance and Roadmap Tool by the Partnership on Transparency in the Paris Agreement (PATPA) and the Food and Agriculture Organization of the United Nations (FAO). The role of the Capacity Building Initiative for Transparency (CBIT) was established to help meet the enhanced transparency requirements of the Paris Agreement and was also presented in several events, including GCF-GEF side events.
Expectations and Takeaways for COP27
At COP27, capitalizing on the momentum built during COP26 with detailed implementation plans was key to achieving the desired outcomes across the globe. The theme for this year, “Delivering for people and the planet,” aimed to prioritize and accelerate implementation efforts in alignment with existing climate commitments under the Paris Agreement.
High-level discussions featured a set of key focus areas:
Supporting nature and climate finance in developing countries. The Global Environmental Facility (GEF), in partnership with the Green Climate Fund (GCF), hosted a joint pavilion that covered financing mechanisms for loss and damage to nature. In addition, the UNFCCC’s Standing Committee on Finance (SCF) recently launched its flagship report for COP27, which included four reports that set the stage for climate finance discussions at COP27 that details the Fifth Biennial Assessment and support needed for effective implementation.
Scaling up efforts for adaptation. The 2022 IPCC 6th Assessment report on Impact, Adaptation and Vulnerability urges that climate extremes have led to widespread adverse impacts on natural and human systems, disproportionately increasing the vulnerability of those already marginalized with low income. The push to increase funding for adaptation remained steadfast. The World Bank Group (WBG) outlined the urgency for additional funding to be allocated towards adaptation efforts and the need to double-up salient solutions in theirCOP27 priorities list.
Decarbonizing the global economy and utilizing sustainable finance taxonomies. At COP27, the Climate Bonds Initiative (CBI) delivered notes on the existing taxonomies around the world as well as practices to accelerate the transition to a low-carbon economy.
Translating commitments to meaningful action. The time for meaningful action is now and cannot be delayed any longer. As COP27 aimed towards streamlining implementation, accountability continues to be paramount in looking forward as mentioned by the CDP. The disclosure frameworks of the CDP, GRI, SASB and TCFD, among others, will be key in upholding the standard of companies worldwide.
Key Takeaways: Regarding climate finance mobilization and transparency from COP27
Communication for the effective collaboration and partnership between the public and private sectors
In addition to mobilizing climate finance, the prompt and effective use and allocation of resources was emphasized by country Parties and non-Party stakeholders at COP27. In doing so, effective communication among donor countries and international funds proved to be essential for using their resources in a more efficient manner, avoiding any duplication of efforts including financial and technical support across recipient countries or sectors. By sharing expertise, as well as regional and thematic focus with partners and other donors, a strategic and complementary partnership and collaboration could be achieved.
Moreover, proper communication and interaction between public and private sectors are vital for raising private capital. In this regard, international and domestic public funds are recommended to provide transparency on how they could help mitigate investment risks. This can also close information and data gaps, while raising awareness for the private sector regarding financial and technical support available. This, in turn, will attract more investment opportunities driven by the private sector.
The needs for reform of climate funds and MDB practices for scaling up climate finance and investment
Climate finance mobilization in COP27 outlined reforms of existing public funds. The Green Climate Fund (GCF), Climate Emergency Fund (CEF), and Adaptation Fund (AF) were called upon for a substantial increase in the second replenishment of the GCF and other financial support under the GCF Readiness Programme. “Needs-based” support to developing country Parties could be facilitated with the enhanced collaboration mechanisms among public funds through effectively communicating the status quo, challenges and the areas where support is needed.
The Sharm El-Sheikh Implementation Plan also emphasized the call for shareholders associated with multilateral development banks and international financial institutions to pivot towards the best practices and priorities highlighted in Egypt. The aim is to simplify the process of accessing climate finance from a variety of sources while also considering more operational models, channels and instruments for approved projects. Public intervention to share investment risks could play a critical role to attract private capital towards projects from a hard-to-abate sector, where it is difficult to generate revenue streams at an earlier stage. More flexibility and commitment to providing first-loss capital or concessional finance by MDBs and philanthropic funds will allow a broader range of private sector engagement while engineering more innovative financial instruments.
Best-practices and knowledge sharing
Engagement in knowledge-sharing activities served to be insightful for developing countries. The World Economic Forum (WEF) reminds us that COP27 encouraged the sharing of best practices as well as lessons learned in order to minimize any negative efforts while also maximizing positive outcomes. For countries that remained in the early stages of relevant framework development and implementation, these activities could provide guidance to eliminate common barriers and reduce anticipated risks in a collaborative manner. Sharing insights on overcoming hurdles around climate-related efforts ultimately will reinforce a holistic approach to meeting country’s NDCs.
Climate finance transparency
Transparency continues to be one of the key agenda items for negotiations and discussions. Increasing transparency in the working definitions of international climate finance is critical to ensure the accuracy of climate finance accounting as well as trust between different stakeholders. Yet, there is concern about how views on certain definitions can differ in three areas: which climate-related activities should be financed, how finance should be accounted for and which actors should be included.
COP27 aimed to provide clarity and insight into the definitions to be used. This entailed a consensus related to the operational definition of climate finance provided and received. Additionally, Parties were suggested to use new reporting tables to enhance information transparency and the New Collective Quantified Goal (NCQG) on climate finance:
Sectors and sub-sector information
Whether finance contributes to capacity building or technology transfer
Voluntary reporting of grant-equivalent values
An interactive web portal for summary information.
Ensuring these data gaps are filled will enable leaders to make the most informed decision possible based on the best scientific information and data available.
CCAP at COP27
CCAP supported countries and partners by raising knowledge and awareness of climate finance transparency through the sharing of best practices and experiences. CCAP, together with ICAT and Nigeria, hosted an Official Side Event on the topic of Transparency to Drive Inclusive Climate Action and Mobilize Finance. CCAP and the World Biogas Association also organized an exhibitor stand in the Blue Zone that attracted active engagement with countries, donors and partners.
While following the UN Climate discussions, CCAP was actively participating in and attending numerous events and meeting with world leaders to help find solutions in achieving their country's climate goals. During the conference, CCAP and GIZ additionally published an innovative policy brief on Sustainable Finance Taxonomies to help countries shift their financial flows. Towards the end of the conference, CCAP launched the new Recycle Organics-Caribbean program with Environment and Climate Change Canada (ECCC) to support the implementation of the Global Methane Pledge in the waste sector for four Small Island Developing States (SIDS): Belize, Grenada, Guyana and St. Lucia.
CCAP’s mission is to support every step of climate action, from ambition to implementation. A recognized world leader in climate policy and action, CCAP creates innovative, replicable climate solutions, strengthens capacities, and promotes best practices across the local, national, and international levels to accelerate the transition to a net-zero, climate-resilient future. CCAP was founded in 1985 and is based in Washington, DC.