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OPINION: Is climate finance a pipedream or a reality?




With the United Nations Climate Change Conference, COP27, underway in Egypt, the Asian Development Bank (AfDB) announced a $15 million technical assistance program for the Southeast Asian region. This financial assistance to develop projects promoting the adaptation and mitigation of climate change is a welcome step.

But is it too little too late?

Low-income and developing countries bear the brunt of climate change even though they are the least responsible for it. Thus, in 2009, industrialized countries pledged 100 billion dollars per year by 2020 to least developed countries (LDCs) and developing countries. With little movement on commitment, a mechanism has been put in place to meet the climate finance target by 2023. However, with a majority of finance going to LDCs, countries like India must generate their own financing to achieve climate goals.

With immense development opportunities, India is waking up to the need to develop in a sustainable and responsible way. Looking closer at the numbers, we need around $2.5 trillion by 2030 to meet our updated commitments at COP26. The current followed green finance represents less than 25% of the total needs in all sectors to meet the Nationally determined contributions (NDC). And that only accounts for mitigation while financial flows for adaptation are even rarer.

Moreover, India needs over $10 trillion to reach our net zero emissions by 2070! Thus, the achievement of the climate objective depends on the availability of finance.

Actively pursuing climate action, India, ahead of the start of COP27, had set its agenda for this year’s discussions. As a forerunner in raising tough questions at global climate summits, India continues to highlight how low disbursements of climate funds from developed countries make climate finance a sore point for developing countries.

As most funds have been raised domestically with little transparency in the flow and tracking of funds, the urgency for India to define climate finance is pragmatic. A clear definition will help hold developed nations accountable.

India has strongly tabled the proposal to have a new global climate finance target because the cost of combating and adapting to climate change is in the trillions of dollars for developing countries. India’s push for a new collective quantified target (NCQG) on climate finance must be seen in the light of the fact that rich countries have been the main contributors to emissions into the atmosphere, and that they must assume as soon as possible. now the responsibility for a sustainable future.

Despite all these efforts, the trend so far suggests that we cannot rely on developed countries to secure funds to mitigate climate change. We need to explore other sources of climate finance, especially as the pandemic, followed by a global economic downturn, has cast a shadow over fundraising efforts.

Let’s evaluate our choices:

Multilateral and bilateral organizations: Financial institutions (FIs) such as the world Bank must step up their efforts and act as a center of knowledge for developing countries. Historically, the majority of FIs have supported low-income countries. However, middle-income countries like India need finance and guidance from FIs to invest in low-carbon and climate-resilient infrastructure. This could be an effective way to raise funds for the climate.

Carbon pricing: Carbon pricing is a form of deterrence because a price is put on emissions by industries. This drives organizations to innovate and find alternatives to brown energy and carbon-emitting operations. In addition, carbon pricing generates revenue for the government. Organizations can also raise funds while offsetting their emissions through the carbon credit market mechanism. The accumulated funds can be invested in projects such as wind or solar parks or to protect carbon sinks.

Multi-asset approach: Such an approach, including equity and debt, is compelling in the field of climate finance. Asset managers can offer investors targeted exposure to the climate theme while carefully managing risk with higher return potential.

Sustainability Linked Financing (SLF): Over the past few years, the SLF has become a powerful tool for raising capital as the world moves towards a greener global future. The SLF encourages companies to achieve long-term environmental and social goals while enabling countries to achieve their goals. Sustainable development Goals. Businesses can use SLFs in almost any industry and location, but most SLF issuances take place in high-income countries.

Public funding: Public finance has played an important role in increasing green finance flows. The Indian government’s recent announcement on the first-ever green bond framework to fund solar power projects and wind and small hydro projects is an attempt to tap into the domestic debt market to fund clean projects. . Although the impact of the initiative will be determined in the years to come, we can accelerate the implementation for quick wins in climate change.

Private funding: Companies are playing a role in mobilizing private finance, while companies are setting new examples of decarbonizing their respective industries. For example, a steel giant signed a memorandum of understanding (MoU) with a US-based fintech company to decarbonize its steel production. As part of the MoU, exploring turnkey financing is important, a model that can be replicated in other industries and sectors for faster movement on climate action.

International financial support remains essential, but India must fight its way to achieve its climate goals. India has several funding opportunities to explore, but the challenge is to find the right mix that meets our specific needs.

Sauna Saha
is a climate change and sustainability services partner at EY India.

This column is part of a year-long campaign (2022-23) themed “One Earth: Supporting People, Planet and Prosperity” by Business Insider India’s Sustainability Insider.

Disclaimer: The opinions expressed by the author/interviewee do not necessarily reflect the views of Business Insider India. The article has been partially edited for length and clarity.

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