It has been almost 14 years since a delegation of developed economies vowed to mobilise $100bn annually by 2020 for climate action in emerging markets. The promise was immortalised in the Copenhagen Accord – the nonbinding political agreement that came out of the COP15 summit in the Danish capital.

It is now widely agreed that the target was not met, although there is little consensus on exactly how far off the mark rich countries were. According to the OECD, they managed a not-insignificant contribution of $83.3bn in 2020. However, this has since become a contentious, and contested, figure.

In a report issued earlier this year, the charity Oxfam estimated that the real value of financial support for climate action in developing countries was somewhere between $21bn and $24bn. It claims the OECD’s figure is an overestimate because it includes both projects ‘where the climate objective has been overstated’ and loans cited at their face value. Loans, as opposed to grants, are potentially harmful to emerging markets as interest rates rise, given some of these countries already have onerous debt burdens.

New negotiations 
As the COP28 conference approaches, the international community is still grappling with the question of who should pay for climate adaptation and net zero infrastructure. Delegates at the summit, which is being held in Dubai, will continue their discussions on a new climate finance commitment to replace the $100bn/y target.

Various organisations have devised their own estimates of the amount of capital needed to combat climate change and, perhaps predictably, these vary widely. The International Energy Agency (IEA) estimates that by the end of the decade annual spending on clean energy in developing economies needs to exceed $1tn in order to align with net zero by 2050. This figure does not include any provisions for adaptation.

The Independent High-Level Expert Group on Climate Finance, a group of economists and climate specialists, wrote last year that annual investments in emerging market and developing economies (EMDEs) to cut emissions and deal with loss and damage should exceed $2tn by 2030. The group also met in Dubai in August, ahead of COP28.

‘All forms of finance must be made more available, more accessible and more affordable,’ said COP28 President-designate Dr Sultan Al Jaber at the meeting’s conclusion. ‘Multilateral development banks (MDBs) must be adequately capitalised and provide much more concessional finance to lower risk and bring more private capital to the table.’

As the COP28 conference approaches, the international community is still grappling with the question of who should pay for climate adaptation and net zero infrastructure.

Unlike commercial banks, MDBs don’t exist to generate profits for shareholders. Rather, they pursue development and sustainability goals – lending at low or no interest to support projects in these areas. A report from 10 of these institutions, including the European Investment Bank and the World Bank, claimed that their combined climate financing reached a record high of nearly $100bn last year. Nearly $61bn of this was for EMDEs – with 63% of it going to climate change mitigation and the remainder for climate change adaptation finance.

On paper this sounds like decent progress – but Oxfam’s research has cast some doubt over the true climate impacts of MDB financing. The charity calculates that the banks reported almost $32bn in climate finance in 2019–2020. However, the actual figure may have been as low as $6bn according to its own calculations and impact criteria. According to Oxfam’s researchers, this is because it’s difficult to independently scrutinise the banks’ claims.

‘Project-level reporting is patchy, and even where project data is reported, the basis on which the climate component is calculated is inconsistent – or in many cases, absent,’ Oxfam wrote in the Climate Finance Shadow Report. Only around 25% of reported public climate finance is in the form of grants (which don’t need to be repaid). The rest is in the form of loans, many of which are thought to be non-concessional, meaning that they’re not provided at a discount to standard market rates.

Underfunded 
Multilateral climate funds (MCFs), international institutions funded by a group of developed countries to distribute grants and loans, are another potentially important source of climate finance. The UN’s Green Climate Fund (GCF), which was also established in Copenhagen in 2009, is the largest such organisation in the world. The UK, Germany, France and Japan are among its largest contributors to date. Renewed funding pledges were made at a meeting in Bonn, Germany, at the start of last month – although there were some notable abstentions.

Neither the US nor China, the world’s top two polluters, offered up any new funding for the GCF. The latter is not necessarily a surprise, as China has proven reluctant to engage with any UN-driven climate initiatives. Officials in Beijing have stated that the countries which industrialised first – such as the US and UK – should lead in global carbon mitigation. Meanwhile, the US representative in Bonn indicated the country wants to wait for clarity on its domestic budget before committing further funds to the GCF.

At the conference’s close, the Fund had attracted a total of $9.3bn in financial pledges from 25 countries for the next four years. This is a significant way off its $100bn target. Environmental campaigners were quick to voice their concern. ‘To show up at the UN climate talks without the necessary scaled-up finance is a worrying indication that governments are not backing their words with actions,’ said Stephen Cornelius of WWF International. ‘Rich countries must reflect deeply on this in the weeks before COP28.’

Others were quick to single out the US for its perceived lack of ambition. Erika Lennon, a Senior Attorney at the Center for International Environmental Law, said the country ‘has failed in its responsibility to provide the finance needed to address the crisis it’s largely caused’. Despite a pledge by President Joe Biden to provide more than $11.4bn in international climate finance annually by 2024, Congress approved just $1bn last year.

Fig 1: Climate finance in $bn – public financing, both bilateral and multilateral, has long outstripped private financing
Source: OECD

Private capital 
COP28 will mark the conclusion of the first ever Global Stocktake (GST), a process designed to assess progress towards the goals of the Paris Agreement at five-year intervals. While there’s no doubt it will show evidence of forward momentum, the evaluation will likely deduce that we’re far from achieving climate targets.

Some of the GST’s key findings were published in a September synthesis report – which concluded that public finance should be deployed to incentivise investment in mitigation and adaptation. However, ‘domestic capital markets are likely to be the primary source of capital’ for scaling up these activities, the report said.

While governments and multilateral institutions might be able to get the ball rolling in terms of climate finance, the UN thinks that the private sector must take up the challenge for the long haul. But recent geopolitical turmoil has sent oil prices higher – meaning that returns for investors in a major oil stock might be far more attractive than the return on, say, a stake in an onshore wind farm.

The longer-term goal of decarbonising the global economy does not always align with the short-term profit motive, which makes the prospect of mobilising private capital for the climate seem daunting.

‘Significant finance flows continue being directed, including through subsidies, towards investments in high-emissions activities and infrastructure that lack resilience,’ said the authors of the GST synthesis report. ‘Shifting these flows is critical to making rapid and durable progress towards achieving the Paris Agreement goals.’

Delegates present at COP28 will be given the opportunity to deliberate on the so-called New Collective Quantified Goal (NCQG), which will replace the $100bn annual funding target when it expires in 2025. If recent performances are any indicator, the talks could get contentious quickly. Only a few weeks ago, discussions on setting up a dedicated fund to help emerging markets cope with climate loss and damage fell apart. Delegates were unable to agree on who should hold the funds, with some stating that the World Bank would be unsuitable due to its perceived closeness to western nations.

The decision has now been deferred to another meeting scheduled for early November in the United Arab Emirates (UAE). Negotiators took up the ‘loss and damage’ issue at last year’s COP27 conference in Egypt. Sceptics might say that these sorts of meetings have failed to yield any meaningful progress – but the countries most impacted by climate change have few other forums to make themselves heard.

At the moment, finance for mitigation and adaptation is still being funnelled through public channels, while private sector enthusiasm lags behind. Whether COP28 can catalyse the necessary change remains to be seen.