Institutional Finance Update: Mobilizing Private Sector to Reach 2020 Global Goal on Climate Finance

30 September 2019: In 2010, developed countries committed to the goal of jointly mobilizing USD 100 billion a year by 2020 to address the needs of developing countries in the context of meaningful mitigation actions and transparency on implementation, with the understanding that funding may come from a wide variety of sources. In 2015, the 21st session of the Conference of the Parties (COP 21) to the UNFCCC extended the goal through 2025, and decided that, prior to 2025, a new goal from a floor of USD 100 billion per year shall be set.

A review of climate finance is expected to be one of the difficult issues to be discussed at COP 25 in December. This Update highlights the recent climate finance reports feeding into the the Santiago Climate Change Conference, along with relevant climate finance pledges made over the last months by public and private financial agencies.

A compilation and synthesis report by the UNFCCC Secretariat provides an overview of information submitted by developed country Parties on their expected levels of climate finance mobilized from different sources. It highlights, among other issues, Parties’ difficulties in tracking and estimating private finance mobilized by public interventions owing to the lack of an international methodology or reliable disaggregated data. In their submissions, some countries refer to reports by the Organisation for Economic Co-operation and Development (OECD) as evidence of the commitment to and progress towards meeting that goal.

The latest OECD report on climate finance provided and mobilized by developed countries in 2013-2017 shows that the overall trend points upwards: reaching USD 71.2 billion in 2017, up from USD 58.6 billion in 2016. Presented estimates include bilateral and multilateral public finance, officially supported export credits and mobilized private finance. The report confirms that all regions benefited from increasing climate finance in 2017. Among other findings, the report highlights:

The amount of climate finance going to adaptation activities rose to USD 13.3 billion in 2017 from USD 9.1 billion in 2013, meaning that adaptation now accounts for 19% of total climate finance, up from 17% in 2013. The share of climate finance going to mitigation activities was 73% in 2017, compared to 76% in 2013, with the rest going to crosscutting activities.
For public climate finance, the ratio of grants to loans was relatively stable over 2013-2017. Grants made up over a third of bilateral and about 10% of multilateral finance, while loans represented 60% of bilateral and nearly 90% of multilateral finance. At 36%, the share of grants in public climate finance in 2016-2017 for least developed countries (LDCs) and, at 54%, for small island developing States (SIDS) was higher than that for developing countries as a whole (24%).
The private component of climate finance consisted of private funding for climate projects mobilized by developed countries’ public climate finance instruments. These included investments in companies and special purpose vehicles, loan guarantees, credit lines, loan syndications and co-financing schemes. The public component consisted of bilateral climate finance and multilateral climate finance attributable to developed countries. Officially supported climate-related export credits are accounted for as a separate component.

MDBs Pledge to Raise Climate Finance to USD 175 Billion by 2025

Climate financing by the world’s largest multilateral development banks (MDBs) in developing countries and emerging economies rose to a record high of USD 43.1 billion in 2018, representing an increase of more than 22% from 2017, and a 60% increase since the adoption of the Paris Agreement on climate change. In addition, MDBs account for another USD 68.1 billion in net climate co-finance – investments from the public and private sectors – bringing the total climate finance for the year up to USD 111.2 billion.

These figures are presented in the 2018 Joint Report on MDBs’ Climate Finance, which combines data from the African Development Bank (AfDB), the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Inter-American Development Bank (IDB) Group, the World Bank Group and the Islamic Development Bank (IsDB).

During the UN Secretary-General’s Climate Action Summit in September, nine MDBs announced plans to increase global climate action investments they support each year to USD 175 billion by 2025. The joint financing pledge is structured into three streams:

Annual combined MDB climate finance globally will rise to USD 65 billion by 2025, constituting a 50% increase from current levels, with USD 50 billion for low- and middle-income countries (LMICs).
Within this total, annual combined climate adaptation finance will double to USD 18 billion by 2025.
Annual co-financing for investment in climate action is expected to rise significantly to USD 110 billion by 2025. Of that, USD 40 billion is expected to be mobilized from private sector investors.

EBRD, IDB Issue Green Bonds Totaling Over USD 1 Billion

Over the last month, we saw new green bonds and bond portfolios emerge.The EBRD launched a dedicated climate resilience bond, raising USD 700 million with the issuance. The proceeds from the five-year bond will be used to finance the Bank’s existing and new climate resilience projects in the areas of infrastructure, commercial operations and agriculture and ecological systems. The bond launch follows the adoption of Climate Resilience Principles by the Climate Bonds Initiative.

IDB issued a CAD 600 million Sustainable Development Bond, which will finance IDB projects aligned with the SDGs. The proceeds of the five-year fixed-rate bond will support sustainable and climate-friendly economic and social development in IDB member countries, aligned with the Bank’s strategic priorities to reduce poverty and inequalities in Latin America and the Caribbean (LAC).

AIIB, Amundi Launch USD 500 Million Asia Climate Bond Portfolio

The Asian Infrastructure Investment Bank (AIIB) and asset manager Amundi in Europe announced a USD 500 million Asia Climate Bond Portfolio, which aims to accelerate climate action in the Bank’s members and address the underdevelopment of the climate bond market. Through a managed fixed income portfolio, the joint project expects to mobilize another USD 500 million from climate change-focused institutional investors. Investments will focus on labeled green bonds and unlabeled climate bonds to help companies increase their climate resilience and green leadership. A portion of the investment proceeds will be allocated to market education, engagement and issuer support.

32 “Responsible Banks” Commit to Immediate Climate Action

In view of the need for more ambition in climate investment from the private sector, many Climate Action Summit participants supported a group of 130 banks from 49 countries, collectively holding USD 47 trillion in assets, which signed up to the UN Principles for Responsible Banking. The six Principles, launched in advance of the Summit, aim to accelerate the banking industry’s contribution to achieving the SDGs and the Paris Agreement. Thirty-two of the Principles’ signatories with over USD 13 trillion in assets announced a collective commitment to immediate action towards aligning with global climate goals. They set out concrete and time-bound actions, including:

aligning their portfolios to reflect and finance the low-carbon, climate-resilient economy required to limit global warming to well-below 2°C above preindustrial levels, striving for the 1.5°C limit;
taking concrete action within a year of joining, and using their products, services and client relationships to facilitate the economic transition required to achieve climate neutrality; and
being publicly accountable for their climate impact and progress on these commitments.

GCF, GEF Gear Up for Santiago Climate Change Conference

In preparation for the Santiago Climate Change Conference, the Global Environment Facility (GEF) and the Green Climate Fund (GCF) released two reports, which, along with their programming developments and relevant pledges, will feed into the climate negotiations in Chile.

The GEF report to the COP presents progress of GEF initiatives, including the Impact Programs under the seventh replenishment of the GEF Trust Fund (GEF-7), and initiatives related to private sector engagement, complementarity in climate finance, and gender equality. The report also addresses GEF achievements in the areas of, inter alia: climate change mitigation and adaptation; the Capacity-building Initiative for Transparency (CBIT); and technology transfer. Specific information is provided on national, regional and global technology activities as well as GEF-7 funding envelopes and allocations. Annexed to the report are summaries of projects and programmes approved in fiscal year (FY) 2019 under the GEF Trust Fund, the Least Developed Countries Fund (LDCF), the Special Climate Change Fund (SCCF) and the CBIT Trust Fund.

Similarly, the GCF report to the COP informs of the GCF’s resources and activities in FY 2019, with specific information focusing on accessing the Fund’s resources and on its support activities in the areas of forest-related actions, technology and capacity building as well as facilitating direct access proposals in the GCF pipeline. The report also addresses issues such as: engagement with the private sector; complementarity and coherence with other funds; gender, social and environmental considerations; and developments of GCF investment and operational frameworks, among others.

The GCF report also presents pledges to the Fund in the initial resource mobilization period (2015-2018) as amounting to a USD 10.3 billion equivalent, as of 31 July 2019.

In October 2018, the GCF Board decided to launch the process for the first formal replenishment of the GCF, with consultations held in 2019. In August 2019, the GCF convened a global programming conference under the title, ‘Realizing Climate Ambitions,’ in Songdo, Republic of Korea, at which many called for global support for the GCF’s first replenishment. Subsequently, during the Climate Action Summit, public and private sector actors pledged new financial contributions to the Fund, raising the GCF’s replenishment total beyond USD 7.4 billion. A pledging conference is scheduled for 24-25 October 2019 in Paris, France.

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The SDG Knowledge Hub publishes monthly climate finance updates, which largely focus on multilateral financing and cover, inter alia, mitigation and adaptation project financing news and lessons, institutional events and news, and latest developments in carbon markets and pricing. Past climate finance updates can be found under the tags: Finance Update: Climate Change; and Finance Update: Sustainable Energy.