London - As the world edges towards the UN Conference of Parties on Climate Change (COP27) in Sharm El-Sheikh, Egypt, in November, it is no surprise that the global narrative is resetting towards this trajectory, notwithstanding the entrenched impacts of a receding Covid-19 pandemic, the changing Ukraine conflict and dealing with the global shocks of rising inflation, food and fuel prices and a cost-of-living crisis.
Last week Barbara Creecy, Minister of Forestry, Fisheries and Environmental Affairs, joined fellow ministers from Africa at the Egypt-International Co-operation Forum in Sharm El-Sheikh before COP27 in their clarion call for a sharp increase in climate financing for Africa in particular, while at the same time pushing back against any abrupt and arbitrary move away from fossil fuels, especially coal, oil and gas, on which many African countries as primary producers are dependent.
According to the AU, the continent is faced with an annual climate financing gap of about $108 billion (R1.9 trillion). This is exacerbated by the fact that climate finance is biased against climate-vulnerable countries, which goes against the demand to “let the polluters pay”.
Never mind that climate change affects all sectors, including food insecurity. According to the IMF, sub-Saharan Africa is the world’s most food insecure region. Africa benefited from less than 5.5% of global climate financing despite having a low carbon footprint and suffering disproportionately from climate change.
Aminath Shauna, Maldives Minister of Environment, speaks for climate vulnerable states when she laments: “One of the main outcomes we wish to see out of the multilateral process is mitigation ambition in line with the 1.5°C goal.
COP made some progress in keeping this ambition alive, yet funding for the root causes of climate change is still exponentially greater than funding to the response to climate change. At least $1.6 trillion were spent on fossil fuel subsidies over the 5-year period since the adoption of the Paris Agreement in 2015.”
The Maldives is one of the small island states whose very existence is threatened by climate-related rising sea levels.
Against a current global macroeconomic background, policy implementation of mitigating climate change by transition to clean and green energy governed by net zero targets and time lines set by the Paris Climate Agreement and subsequent COPs, and achieving the UN SDG agenda targets by 2030 are being delayed.
Governments are recommissioning or extending the use of coal-fired power stations, nuclear plants and turning to increasing fossil fuel extraction and fracking to reduce dependency on Russian gas and oil imports, if only for the short to medium term.
The reality is that the COP process and the climate action discourse is steeped in a fundamental dichotomy which has undermined the very exercise from the onset straddling differences in ideology and science on climate change, on whether past polluters whose very economic success was based on pernicious pollution should bear most of the financial burden of mitigation, and whether there should be target expansions for major current polluters such as China and India in their push for industrialisation.
It’s disheartening that we are still far from the goal to mobilise $100bn annually by 2020 towards climate finance as promised by the rich countries. It seems that promises are made only to be broken.
The truth is that climate action, mitigation and adaptation costs money – lots of it. Inaction today will only result in a much bigger spend tomorrow. Climate action cannot be achieved by governments alone. Partnerships with multilaterals to deploy innovative de-risking solutions are critical to create bankable projects in high-risk markets. Multi-stakeholder collaboration is vital to unlock institutional and private investor assets.
In July the IMF published a detailed note on mobilising domestic and foreign private sector capital in developing economies in support of climate projects by overcoming existing constraints.
Estimates of global investments needed to achieve the Paris Agreement’s temperature and adaptation goals range between $3 and $6 trillion per year until 2050. The variation is because of the large data gaps in the tracking of climate finance data and underdeveloped disclosure.
Global climate finance currently totals about $630bn annually, with debt being the main source of funding for investments.
Green bonds/Sukuk represent less than 3% of global bond/Sukuk markets. The African Development Bank estimates that South Africa would require $30bn to finance a just energy transition alone.
At the GEPF Conference 2022 in Cape Town last week, Finance Minister Enoch Godongwana reminded pension funds and private sector investors of their “enormous responsibility to ensure that capital flows towards not only economic returns, but also social impact”, adding: “This presents opportunities that climate change presents to the industries and risks – a role that investors can play in enabling the African continent to transition to more resilient and sustainable economies and prepare for climate-driven events and catastrophes.”
Pension funds and financial services, he adds, have major roles to play in helping reach net-zero emissions and by influencing other investors to align towards investing for impact in social, climate and environmentally friendly projects. This is in line with The Presidency’s South Africa Country Investment Strategy which sees gross fixed capital formation reach 30% of GDP by 2030, as outlined in the NDP, and a greater role for public private partnerships (PPPs) to fill capacity constraints and mobilise investment funding. Pretoria is banking on PPPs in infrastructure and climate action to drive an elusive GDP growth.
This is easier said than done! Climate Action – finance, mitigation and adaptation, concluded a forum last Thursday organised by OMFIF. The independent central banking think tank is hampered by a cornucopia of constraints.
These include “unnecessary bureaucracy”, risk aversion, lack of harmonisation of disclosure standards for sustainable finance, proliferation of worldwide fragmented green taxonomies for guiding sustainable investments, and the need to achieve an appropriate framework for public and private investors and financial institutions to channel private investments into the vast opportunities for sustainable and green finance.“
Parker is an economist and writer based in London
Cape Times