Funding Paths for Climate Change Transformation

The G20 New Delhi Leaders' Declaration has highlighted the urgent need for developing countries to secure substantial funding to meet their climate goals. To achieve this, an estimated USD 5.8-5.9 trillion is required in the pre-2030 period, and USD 4 trillion per year for clean energy technologies by 2030, with the ultimate aim of reaching net-zero emissions by 2050.

To drive private investment in low-carbon technologies, policies that mandate corporate sustainability reporting and carbon pricing mechanisms are essential. These measures can provide the necessary transparency and incentives for businesses to invest in climate-friendly projects.

Multilateral Development Banks (MDBs) and Development Financial Institutions (DFIs) can play a pivotal role in this endeavour. They can offer capacity-building programs to help emerging market and developing economies (EMDEs) develop the necessary skills and knowledge for climate policy and project implementation.

Creating conducive policy environments, developing innovative financial instruments, employing blended finance, and fostering strong partnerships are all crucial steps towards unlocking the trillions of dollars needed for climate transitions in EMDEs like India. MDBs and DFIs should align their objectives with the Paris Agreement to ensure their efforts are focused on achieving the agreed climate goals.

Recently, the World Bank, International Monetary Fund (IMF), Asian Development Bank (ADB), Green Climate Fund (GCF), and development agencies like GIZ and USAID have increased their efforts to mobilize public and private funds for climate transition finance in developing countries. Mobilizing private sector capital and leveraging it through collaboration with MDBs, DFIs, and other stakeholders is crucial to meeting the financial demands of climate action.

Innovative financial instruments such as green bonds, sustainability-linked loans, and climate funds are essential for channeling private capital into climate projects. Building robust financial markets that can support large-scale climate investments is equally important. This includes developing regulatory frameworks that ensure transparency and accountability, fostering climate risk disclosure, and enhancing the capacity of financial institutions to assess and manage climate risks.

Local financial institutions also play a critical role in financing climate transitions in EMDEs. They can be supported by MDBs and DFIs through technical assistance, capacity building, and co-financing arrangements. Strengthening local financial ecosystems can ensure that climate finance reaches communities and projects in EMDEs.

Public-private partnerships (PPPs) can be instrumental in sharing risks and rewards between the public and private sectors for climate projects. Expanding the market for green financial instruments through standardization and regulatory support can attract more private investors. Collaboration between MDBs, DFIs, and the private sector can be facilitated through platforms that share knowledge and foster partnerships.

Governments can create a favorable investment climate for climate-friendly projects by offering tax incentives, subsidies, and guarantees. Green bonds have seen significant growth, with many corporations and financial institutions issuing them to finance renewable energy projects, energy efficiency upgrades, and sustainable infrastructure.

MDBs and DFIs should work closely with the private sector to identify and finance projects that have significant climate impact. They can enhance their financial support through concessional loans, grants, and guarantees for climate projects.

These efforts will be pivotal in achieving the ambitious goals set forth by the Paris Agreement and ensuring a sustainable future for all. However, the first Global Stocktake (GST) report at COP28 UAE indicates that the world is not on track to reduce emissions sufficiently to limit global temperature rise below 1.5°C. Therefore, it is crucial to maintain and intensify these collaborative efforts to meet the challenges of climate change.