Despite taking place during one of the most difficult political environments for climate negotiations since the 1992 adoption of the United Nations Framework Convention on Climate Change, delegates at COP29 in Baku reached consensus on a new global climate finance framework known as the New Collective Quantitative Goal.
Succeeding the 2009 Copenhagen Accord, the NCQG is of a far greater magnitude. The NCQG calls on all public and private sources to scale climate financing for developing countries to at least $1.3tn per year by 2035. Taken together, these goals dwarf the Copenhagen Accord’s $100bn-per-year target.
In an effort to bridge the financing gap in developing countries for achieving the Paris Agreement – estimated at between $455-584bn per year, with another $215-387bn per year required annually for adaptation – it commits developed economies to take the lead in mobilising at least $300bn per year by 2035 for developing countries.
But it is not just the overall quantum of climate finance that renders the NCQG a landmark. The NCQG underscores the critical importance of increasing the ratio of finance mobilised from public sources and innovative instruments such as first-loss instruments, guarantees, local currency financing and foreign exchange instruments – all elements of the blended finance toolkit.
Though the NCQG does not include specific targets for the amount of private finance mobilised for climate action in developing countries, analysis by the Independent High Level Expert Group on Climate Finance suggests that about half, or roughly $650bn per year, of the $1.3tn annual target will need to be supplied by private sources. But even this sum likely understates private finance’s role as a considerable portion of climate finance expected to be deployed. Bilateral and multilateral sources would include the private finance these sources mobilise through blended finance and other tools.
Beyond the overarching goals of $300bn and $1.3tn per year and the passing references to innovative instruments, the NCQG is relatively light in detail on how such sums of climate finance are to be mobilised. To help develop the solutions needed, the ‘Baku to Belém Roadmap to 1.3tn’ was launched to report back at COP30 on the ways that climate finance can be scaled in developing countries.
While a comprehensive approach to mobilising the $1.3tn will require advancements across a wide range of policy areas, from domestic resource mobilisation and the development of local capital markets to addressing the growing debt burdens of developing countries, blended finance will need to be at the heart of efforts to channel the hundreds of billions of dollars of private capital towards climate solutions. The private and public sectors must work closely together to be at the forefront of the transition and innovate and develop effective and scalable financial instruments.
The good news is that many of us in the private sector have already begun the process of thinking deeply on how to scale blended finance to the levels needed to achieve the Paris Agreement.
Three such sources include first, the ‘Call to Action on Private Capital Mobilization’ published at COP28 in Dubai which is focused on the role of multilateral development banks and development finance institutions. Second is the recommendations of the B20 Task force on Climate and Infrastructure, which emphasise the importance of catalytic capital, upstream project preparation and permitting reform and regulatory capital and rating agency policy reform. Third is the handbook, Blended Finance Best Practice, developed by the Sustainable Markets Initiative Blended Finance Task Force, which illustrates a number of successful examples of blended finance which can serve as templates for much needed market standardisation.
Taken together, these three documents can provide a thorough foundation for the deliberations of the ‘Baku to Belém Roadmap’. If implemented, they will also help enable the private sector to meet the burden of responsibility that the international community has placed on its shoulders for achieving our global climate objectives.
Marc-André Blanchard is Head, Executive Vice-President and Global Head of Sustainability and Erich Cripton is Director of Business Relations at CDPQ Global.
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