COP 29: HOW TO CLOSE THE $8 TRILLION ANNUAL PRIVATE FINANCE CLIMATE GAP - By Dr Rory Sullivan

COP 29: HOW TO CLOSE THE $8 TRILLION ANNUAL PRIVATE FINANCE CLIMATE GAP

Dr Rory Sullivan

The Climate Policy Initiative’s Global Landscape of Climate Finance 2023 suggests that current annual climate finance flows remain far short of the USD 8 to 10 trillion needed annually over the next 30 years, with these shortfalls being particularly acute in the least developed countries and for adaptation.

Can we address these shortfalls through private finance? The short answer is yes, but only if we understand how private finance analyses climate-related risks and opportunities, and then design policy to explicitly address and overcome the barriers to investment.

So. what do policymakers need to recognise:

1.         That climate-related investments need to be attractive relative to conventional investments and relative to the returns that may be achieved from other sectors.

2.         That governments may need to provide additional incentives to overcome investor concerns about policy uncertainty and policy longevity.

3.         That investors look for higher returns to compensate for the actual and perceived risks in emerging markets.

4.         That governments can help address investor concerns about investing in emerging markets by taking action to address corruption, strengthen the rule of law, ensure that contracts are enforceable and enforced, and to support better management of the economy as a whole.

5.         That most adaptation measures are not that attractive to private investment, and that the economic case for investment is not the same as the financial case for investment. While there are often clear economic or societal reasons to support such investments, it is often the case that relatively few of the benefits from adaptation finance accrue directly to the entity providing the investment. Even if there are private benefits, these are often long term. 

Can COP 29 make a difference? The answer is yes, if governments have the right level of ambition and, critically, are willing to properly analyse and assess the risks that need to be managed.

Notes

1.           Dr Rory Sullivan’s article ‘Three priorities for scaling private climate finance’ can be downloaded from: https://sdg-action.org/three-priorities-for-scaling-private-climate-finance/

2.           The Investor Agenda report The Changing Climate Policy Landscape: Considerations for Policymakers and the Needs of Investors can be downloaded from: https://theinvestoragenda.org/wp-content/uploads/2023/09/The-Changing-Climate-Landscape_Considerations-for-Policymakers.pdf

3.         The 2024 Global Investor Statement to Governments on the Climate Crisis, supported by over 500 major financial institutions, can be downloaded from: https://aigcc.net/wp-content/uploads/2024/09/FINAL-2024-Global-Investor-Statement_17-Sep-2024.pdf