This year’s Finance Day took place in the shadow of negotiations on the New Collective Quantified Goal (NCQG). With universal acknowledgement of the scale of climate-related finance needs but contrasting views on how they could be met – and a live debate on who should step up with increased funding – the tone of discussions has been different than in previous years. There were fewer showstopping headline announcements and more discussions that grappled with real-world problems.
Independent High-Level Expert Group Report
The flagship release on Finance Day was the third report from the Independent High-Level Expert Group on Climate Finance (IHLEG), a collaboration of world-leading experts in climate change, economics and finance. As part of the global challenge to mobilise just over $6tn per year to meet global climate goals, they estimate a need for $1tn per year in international investment in developing countries by 2030.
Reaching this total would require a doubling of support from countries, as well as a tripling in investment from multilateral development banks like the World Bank (far more ambitious than the $120bn in lending that was committed to earlier this week). It would also require a step change in the mobilisation of private finance into developing countries, and the delivery of ‘innovative’ finance from sources like levies on high emitting sectors, the voluntary carbon market and risk transfers.
New public finance commitments underemphasis adaptation
While headline announcements were sparse, some notable commitments were made. The Asian Development Bank (ADB) announced the world’s first sovereign guarantees for climate lending, enabling an increase of up to $7.2bn in climate finance. The Climate Investment Funds (CIF) Capital Market Mechanism launched a new bond listing program on the London Stock Exchange to raise large-scale climate finance for developing countries, using reflows from the Clean Technology Fund.
Developed countries have recently shown progress towards doubling adaptation finance. But the $38mn pledged to the Adaptation Fund was far below the Fund’s $300mn goal and will put donors’ commitment to grant-based adaptation finance under the spotlight. This comes as IDA, the world’s largest provider of adaptation finance, struggles to meet its replenishment target.
Likewise, there was little in the way of commitments to the Loss & Damage fund, with only Sweden coming forward with new money, alongside their pledge of 8 billion crowns ($736mn) for the next replenishment of the Green Climate Fund.
Private sector transition plans are still a big deal, and taxonomies are back
Private sector transition plans were once again a favoured topic. The UN Secretary-General asked firms to come to COP30 with high-integrity transition plans in line with 1.5 degrees, building on a stocktake by the Net Zero Policy Taskforce. A new International Transition Plan Network will foster dialogue between official actors and a wider community of practice to secure global norms and strong action at national level.
Meanwhile, taxonomies – tools to define what constitutes ‘green’ or ‘transition’ finance – are back in the spotlight. The International Platform on Sustainable Finance published a suite of documents mapping taxonomy use and expanding a Common Ground Taxonomy which currently includes the EU, China and Singapore with more collaborators potentially to come. Azerbaijan, the COP29 host, also announced its own green taxonomy.
In a year of unprecedented climate impacts and related insured and uninsured losses, the insurance sector – a key enabler of a climate-resilient economy – took a full seat at the table with several notable reports and initiatives announced, including Howden’s work with the Climate Champions on insurance as a transition enabler, and UNEP FI’s guide to transition plans for insurance.
Looking Ahead: The long shadow of the NCQG and the role of the G20
The NCQG aims to establish a new benchmark for climate finance, replacing the previous target of $100bn a year from developed to developing countries. A significant increase in international support is clearly needed, but the level of finance that governments are willing to commit to now will not be up to the scale of the challenge, even if private finance flows increase exponentially. This means governments will need to ensure the NCQG acknowledges the need to go beyond current commitments and taps in to a wider range of support measures, such as those outlined in the IHLEG report.
The high stakes of the NCQG discussions are increasingly evident, especially in the context of a debt crisis for developing countries which makes it difficult for them to take on additional borrowing, or to invest in climate resilience and clean growth. All eyes are now on the G20 Leaders’ meeting at the weekend to help unlock progress.
