The multimillion-dollar commitments made at the previous editions of the summit have not really moved the funding needle for the Global South. Will Baku break new ground?
Collaboration across geographies to accelerate private fund flow from developed to developing nations is crucial to help emerging markets and developing economies (EMDEs) stay on track of their decarbonisation plans. The UNFCCC's Conference of Parties or COP serves as a flagship platform to establish such partnerships.
However, ambitious commitments notwithstanding, disbursement from COP-established funds have been slow and focused on loans, limiting catalytic private investments. To ensure real impact, Baku must go beyond mere announcements and prioritise implementation, granularity and private sector involvement.
The commitment of rich nations at COP15 to support the climate action of the South with $100bn was a landmark pledge, expected to unlock private capital at scale by providing public financing support. As we head into COP 29, this commitment remains mired in controversy over the quality of the funds and, more fundamentally, even their definition.
Cut to COP26, where the Just Energy Transition Partnerships (JETPs) were established to support energy transition in coal-dependent countries like South Africa and Indonesia. A $8.5bn JETP for South Africa was announced by the Global North at the conference. As of July 2024, only a tenth of the funds have been secured, essentially as foreign currency loans, fanning doubts over the very effectiveness of the JETP concept in financing the Global South's energy transition.
COP27 provided a much-needed breakthrough on financing loss and damage through a dedicated fund and financing mechanism. This was touted as a significant step towards financing adaptation needs in vulnerable countries, as opposed to mitigation that had historically received the lion’s share of climate finance. While not focused on mobilising private capital, this would eventually help vulnerable countries direct scarce public resources to derisk private investments. However, this initiative too is floundering, with no real, measurable action expected before 2025.
At COP28, a $30bn catalytic fund was launched by the UAE to unlock private finance to the tune of $250bn by 2030 in the Global South, focused on energy transition, industrial decarbonisation, sustainable living and climate technologies. COP28 also saw $792mn being pledged for the loss and damage fund created at the previous COP.
In a nutshell, it is safe to say that the rich have nations are yet to walk the talk and the multibillion-dollar commitments thus far are yet to translate into the transformational change they were meant to for the Global South.
Though the $100bn goal announced at COP15 was achieved in 2022, two years behind the deadline, it has been fraught with concerns over the quality of finance mobilised. There are valid doubts over even what kind of funds must count as climate finance. Additionally, while public funds from both bilateral and multilateral channels accounted for 80 per cent of the total flows in 2022, mobilised private capital reached only $21.9bn, a far cry from what was needed to fuel transition in the Global South.
The South Africa JETP announced at COP26 has secured only one-tenth of the funds it needs, as of July 2024. Most of the support is in the form of loans in foreign currencies, which may not have any catalytic effect on mobilising private capital. South Africa had been negotiating loan guarantees to unlock private capital with its donors. The lack of grant and concessional funding, along with a focus on commercial loans, casts doubt on JETPs' credibility as a viable financing mechanism for the Global South's energy transition.
The Loss and Damage Fund has met a similar fate. Despite soaring needs for adaptation funds from vulnerable nations, the fund itself is not expected to hand out any money until 2025. Instead of simple grants, the board of the fund is considering providing concessional loans that could financially burden countries like Pakistan and Zambia.
The $30bn fund, ALTÉRRA, announced at COP28, has, however, made good progress, having placed $6.5bn with private sector financial institutions BlackRock, TPG and Brookfield. However, one of the funds anchored by Blackrock has invested $300mn in a major fossil gas pipeline in North America, which goes against the grain of the climate fund.
The track record of finance mobilisation from funds announced at COP events does not match the fanfare with which they are announced.
The devil lies in the details here. The fine print of the negotiations should be agreed upon in as much granularity as possible when these funds are announced to avoid delays in disbursement.
Fund mobilisation mechanisms should not be cumbersome for countries to access. Funding commitments should be negotiated based on the consideration of catalytic potential for private capital mobilisation and should aim at de-risking private sector investments, rather than competing with them for commercial return generating projects and assets.
Finally, the identification of funding opportunities and pipelines should be made a key feature of such funds to avoid delays. The private sector should be made an implementing partner, rather than a beneficiary of such funds to ensure its concerns are addressed during fund design and negotiation.
COP29 in Baku is being touted as the “Finance COP”. However, it must focus on implementation modalities, rather than big bang announcements to drive real change.
(The author is Research Lead, Sustainable Finance & Climate Risk, South Asia at the Institute for Energy Economics and Financial Analysis. Views expressed are personal)