Long-term financing for climate action, biodiversity and adaptation measures
Back in 2009, the world’s advanced economies signed the Copenhagen Accord, undertaking to collectively mobilise USD 100 billion per year by 2020 to support climate change mitigation and adaptation measures in developing and emerging countries. At the 2015 UN Climate Change Conference in Paris, this commitment was extended to 2025; a new, post-2025 climate finance target will be the subject of negotiations at COP26 in Glasgow.
These funds will not solely be provided from public funds, but from a variety of sources that include bilateral and multilateral undertakings as well as private climate finance. Accordingly, public funds must also be deployed effectively to mobilise private financing for climate change mitigation.
"Green" financing and investments
In the Paris Agreement (PA), the signatory countries also agreed to design global financial and investment flows to be consistent with a pathway towards low-carbon, climate-resilient development (PA, art. 2.1(c)). To achieve this, it is essential that climate and adaptation requirements are accounted for in all investment decisions (mainstreaming). The same applies for the development of general conditions aimed at diverting a large volume of investments. This process also furthers the goals of sustainable development (SDGs).
Multilateral funds have an important role to play in climate finance: these include, for example, the Green Climate Fund (GCF), which in 2019 was topped up for the 2020–2023 period with the equivalent of approximately USD 10 billion. Other notable funds include the Global Environmental Facility (GEF), the Adaptation Fund (AF) and the Climate Investment Funds (CIF). Alongside multilateral funds, multilateral development banks (MDBs), bilateral development banks and bilateral cooperation projects also have a significant role to play.
In addition, the Paris Agreement also includes signposts towards the development of a market-based, global carbon market for low-carbon, climate-resilient economic development. In this market, rights in the form of certificates to emit greenhouse gases (GHGs) are traded and a price is set for the GHG emission itself. Article 6 of the Paris Agreement also establishes the legal basis for introducing cooperative mechanisms that enable a transfer of certificates between countries and which are intended to strengthen the ambition of nation states to take action on climate. This creates an incentive to reduce greenhouse gas emissions and especially where this can be done most cost-effectively. The underlying basis is a robust policy framework that is currently being negotiated.
IKI approaches to sustainable financing of climate action and biodiversity conservation
To date, there has been a lack of climate action projects capable of being funded and therefore open to investment from public and private investors. IKI works with its partners in international development activities to promote pioneering pilot projects that are aimed at implementing art. 2.1(c) and art. 6 of the Paris Agreement, and the financing of projects targeting mitigation, adaptation and biodiversity. These projects include sustainable business models as well as innovative financing instruments for private investment in climate action and adaptation that have a transformational effect. As these projects successfully integrate climate-relevant aspects into public and private investment decisions-making, this boosts the sum total of funds invested in sustainable technologies.
Since 2015, approaches to PA-compatible financial market development have become increasingly important. Accordingly, IKI also orients its funding programmes towards providing consulting services to policymakers, the development of financial institutions and on investors, so as to provide them with support for harmonising investments, regulatory frameworks and legislation with the political mitigation and adaptation targets of the Paris Agreement. IKI is also helping its partner countries to prepare and implement market-based instruments and pilot projects.
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