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Central to achieving climate change mitigation and adaptation is the issue of access to climate finance from the private sector, stakeholders at the Common Market for East and Southern Africa (COMESA) meeting reckon.
The sentiments came to the fore today during the COMESA Regional Meeting on Private Sector Climate Finance Investment Mobilization in Harare today.
In his address, while officially opening the meeting, Ambassador Raphael Tayerera Faranisi, the Permanent Secretary for the Ministry of Environment, Climate, Tourism, and Hospitality Industry said parties to the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement do have climate change commitments through the Nationally Determined Contributions and the National Adaptation Plans.
“I am informed that almost all NDCs from the COMESA member states are conditional on the provision of means of implementation such as finance, technology development, and transfer from multilateral and international partners. For example, Zimbabwe submitted its revised Nationally Determined Contribution (NDC) in September 2021, setting an ambitious target to reduce the nation’s greenhouse gas emissions by 40% per capita across the economy by 2030. The mitigation options outlined in the revised NDC require an amount that is estimated at US$4.8 billion.
“Furthermore, my Ministry is currently in the process of finalizing its 1st National Adaptation Plan (NAP), which will outline costed adaptation options for key socio-economic sectors. Estimates are indicating that Zimbabwe will need over US$1 billion annually until 2030 to implement the prioritized adaptation options. The NAP points out the financial resources mobilisation challenges from the private sector for adaptation projects due to the lack of a business case and the absence of returns from their investments.
“The financial resources required for NDCs and NAPs implementation are quite huge to be provided by national governments alone, more so, by the private sector without business focus. This brings in the need for strategic engagement with the private sector for mutually beneficial financing and implementation of the NDC. It is therefore paramount that we are gathered here today deliberate on the best approaches to engage and mobilize resources from the private sector to leverage the public sector and multi-lateral climate finances towards climate change mitigation and adaptation,” Ambassador Faranisi said.
Mr. Washington Zhakata, a Director in the same ministry alluded to the importance of multi-stakeholder collaboration in climate financing and called for up-scaled financing with respect to emerging issues like the intense impacts of climate change.
“There are competing needs for the funds. We should encourage governments to prioritize climate financing. Stakeholders need to speak with one voice and not in silos and climate change should be mainstreamed at the government level, with the government taking a lead in climate financing before the private sector chips in. The private sector should be capacitated to assist the government in terms of the implementation of green funding initiatives and the NDCs,” Mr. Zhakata said.
Global investment to achieve the Paris Agreement’s temperature and adaptation goals requires immediate actions—first and foremost—on climate policies that should be accompanied by commensurate financing flows to close the large financing gap globally, and in emerging markets and developing economies (EMDEs) in particular.
Mr. Lwembe Mwale, the COMESA Project Officer for Climate Change said even with the rapid increase in private sector investments in recent years, climate finance needs remain large, notwithstanding considerable uncertainty around the size of mitigation and adaptation needs.
“Estimates of global investments required to achieve the Paris Agreement’s temperature and adaptation goals range between US$3 to $6 trillion per year until 2050. Global climate finance currently adds to about US$630 billion annually with debt being the main source of funding for these investments. Green bonds represent less than 3 percent of global bond markets, and most of them are issued in developed markets and China.
“Estimates of financing needs vary because of large data gaps in the tracking of climate finance data, especially in sectors other than renewable energy, energy efficiency, and transport. In addition, data on climate finance are partial, as data collection and disclosures at present are not required in several countries. The climate crisis is too big, too serious, and too urgent to rely on the resources of public institutions alone. Today, the private sector manages more than USD 210 trillion in assets but only a very minor part of it is dedicated to climate investments,” Mr. Mwale said.
He said the devastating impacts of climate change continue to pose a serious threat to the development efforts of COMESA member states.
“The impacts can be clearly seen from the deepening energy insecurity and food insecurity facing the COMESA region. With revised and updated NDCs in place, many countries are ready to implement their mitigation and adaptation interventions. However, central to achieving climate change mitigation and adaptation is the issue of access to climate finance.
“Those of you familiar with the UNFCCC Conference of Parties processes agree with me that every year, climate finance remains a huge agenda item at the conference of parties. It has been noted that leaving the huge financial deficit of climate finance to the GCF, GEF, and adaptation fund cannot take us anywhere. Therefore, innovative means of financing climate action are required and one of the most critical stakeholders is the private sector. The IMF recognizes that scaling up private capital is crucial to financing vital low-carbon infrastructure projects, particularly in less developed economies,” he added.
In order to attract private sector climate financing, key solutions include adequate pricing of climate risks, innovative financing instruments, broadening the investor base, expanding the involvement of multilateral development banks and development finance institutions, insurance companies, impact investors, philanthropic capital, and others.
While many opportunities exist in both the public and private sectors, increased access remains a challenge. Mr. Mwale said COMESA is fully aware of the challenges and opportunities that exist hence the convening of this meeting to share experiences, strengthen south-south cooperation, and identify the challenges and opportunities for increased access to private sector climate finance.
As more governments put in place targeted policies and incentives to achieve their climate change and green growth ambitions, the private sector has an unparalleled opportunity to deliver the investment needed to spur innovation and create thriving markets for climate, spanning across clean energy, sustainable transport, green infrastructure or climate-resilient agriculture.
As a risk-inclined and impact-oriented institution, GCF plays a pivotal role in shifting and catalysing financial flows managed by the private sector into low-emission and climate-resilient investments in developing countries.
Climate finance policies can complement mitigation and adaptation policies. Such policy options include adopting carbon pricing paths to ensure a well-functioning market and prices; increasing public investment in infrastructure, research and development, and renewable energy technologies that will support and incentivize the inflow of private sector climate capital; implementing policies to complement carbon pricing (sectoral policies; feebates, where political support for adequate carbon pricing is lacking); and addressing climate data gaps, data disclosure standards, and developing taxonomies for sustainable financing.
This should also include elevating commitments and coordination of all participants; enhancing regulations for sustainable finance; and creating clear transition pathways.
Regulations may encompass three areas: prudential regulation, reallocation of capital across industries, and enhancing market practices through transparency. In Europe, Asia, and parts of Latin America, all three areas are covered. Transition in this note covers mitigation and adaptation, or simply stated, the move toward a low-carbon, climate-resilient economy.
Diana Tapedzanyika, the Climate Finance Officer for FBC Bank said multiple constraints preclude attracting and scaling up private sector climate finance.
“These include supply and demand factors, macro-financial and microeconomic impediments, unattractive risk-return profiles in unproven markets, high fossil fuel investments, and data-related constraints. Key market failures include knowledge spillovers, high-risk perceptions because of uncertainties about future climate policies, technological costs, and the economic effects of climate impacts; and high upfront costs and risks associated with mitigation and adaptation investment projects, which imply insufficient returns given risks,” Tapedzanyika said.
Several supply and demand factors affect both sustainable finance and climate finance. They can be addressed by reducing externalities. Supply-side factors include changes in energy supply, production technologies, and deployment of carbon dioxide removal technologies that would keep demand end-users invariant. Demand-side factors revolve around modifying the demand for goods and services toward more sustainable options in consumption, behavior, and lifestyle.
Supply and demand factors translate into financial constraints and various risks, which are important on macro and microeconomic levels, for countries and private sector investors.