New York Climate Week: The UN Climate Change High-Level Champions today launch two important papers that specify recommendations to break financing barriers for just climate transition and restore nature in Emerging Markets and Developing Economies (EMDEs).

The recommendations and reforms seek to address the fact that climate and nature finance is inefficient, insufficient, and unfair. They are designed to help to secure the $1 trillion in annual finance that developing countries need by 2030 to take effective climate action and restore nature, as shown in the Sharm-El-Sheikh Adaptation Agenda (SAA), and the 2030 Breakthroughs.

The Climate Champions’ Blueprint for Addressing the Climate & Nature Finance Gap comprises:

1. One Percent for 1.5 C. Multilateral Development Banks (MDBs) need to provide low and low-middle income countries with a 1% interest rate, a ten-year grace period and a 20-year repayment for financing projects that boost resilience to climate change. Governments and development agencies need to establish substantial and adaptable pools of concessional capital to support smooth and transparent financing of climate projects, in line with countries’ Nationally Determined Contributions (NDCs).
2. De-risk climate and nature projects: Introduce credit-enhancement and credit-guarantee schemes to attract private sector involvement through co-financing and risk sharing and scale sustainability-linked sovereign debt instruments.
3. Suspend and reduce debt burden for low and middle-income countries. Around 60% of low-income countries are in or at high risk of debt distress. Suspending or canceling debt would enable EMDEs to invest in biodiversity protection and climate action. Moreover, debt conversion mechanisms for nature (debt-for-nature swaps) are enabling recipient countries, such as Ecuador, to repay debts by investing in nature and climate adaptation.
4. Foreign Exchange Guarantee Mechanism: A fund must be established to help private investors mitigate foreign-exchange risks by providing cost-effective currency and country hedges for climate investments. A so-called ‘Multi-Partner Trust Fund (MPTF)’ would help reduce the real and perceived risk of investing in climate projects in regions such as Africa, even in the face of currency fluctuations.
5. Turbocharger facility for climate action projects and entrepreneurs: Lastly, a facility should be formed to accelerate projects and programs that preserve nature and help EMDEs to adapt to extreme weather events such as droughts and floods, including nature-based solutions. The facility could be set up by existing funders and investment instruments operating in regions such as Africa, with further input provided by the private sector.

The reforms above would significantly derisk investment in nature and climate projects. In addition, the Champions have also shaped key interventions to encourage private sector institutions to scale these projects across their business models and supply chains, including:

Set clear targets: Adopt science-based target-setting and disclosure frameworks, including carbon and nature accounting standards to assess, manage and disclose nature and climate-related impacts, risks and dependencies.

Integrate adaptation & resilience into business and investment strategy: As businesses and financial institutions increasingly seek to address nature and climate-related risks, for example in the insurance sector, investment in Nature-based Solutions (NbS) can improve resilience against climate shocks.

The reforms are especially critical for the mobilisation of private capital for nature-positive solutions, such as reforestation, landscape restoration and coastal protection, which are pivotal – but currently underestimated, climate approaches. Since strengthening natural capital brings climate and social co-benefits, as well as boosting resilience and sustainable development – nature-positive business models have been valued at USD 10 trillion.

Nature-based Solutions (NbS) can deliver 37% of the global climate change mitigation required by 2030, and are a “low-risk, no regret” action to build resilience to climate change impacts in landscapes and communities.

Razan Al Mubarak, UN Climate Change High-Level Champion for the UAE’s COP28, said:

“Markets are waking up to the fact that our natural ecosystems are formidable allies in cutting emissions and building resilience against climate impacts. However, an alarmingly high trust deficit is blocking investment between the Global North and the Global South.

“Concessionary finance is a lifeline that MDBs should now extend to the Global South. This would create investor certainty and unleash a wave of private capital for climate and nature projects some of which are currently of a very poor standard.

Recently a wave of innovative financial tools, such as debt conversion mechanisms for nature and sustainability-linked bonds, have landed in financial markets – generating vital capital for climate action and nature restoration – and proving their scalability. E.g.:

• In August 2023, the Government of Gabon and The Nature Conservancy announced the refinancing of $500 million of sovereign debt, generating an expected $163 million for ocean conservation. This debt for nature conversion is the first of its type in mainland Africa and is framed within Gabon’s ambitious national effort to protect 30% of its ecosystem by 2030. The project also benefits from a credit enhancement mechanism provided by the US Development Finance Corporation, giving investors additional confidence and lowering relevant interest payments.
• This month, Peru and the U.S. agreed a debt-for-nature deal – to redirect $20 million of Peru’s national debt to conservation efforts in some of the most biodiverse areas in the Peruvian Amazon.
• AFR100, a pan-African initiative aiming to restore at least 100 million hectares of land across 34 countries by 2030, is leveraging a $2bn ‘Vumbuzi Fund’ – which blends $500m of concessional finance from the Arab Bank for Economic Development in Africa (BADEA) with $1.5bn in private investment. The Bezos Earth Fund recently pledged $22.8 million to accelerate restoration in Africa.

To scale sustainability-linked sovereign debt instruments like debt conversion mechanisms for nature for climate and nature finance, the Working Group for Sustainability-linked Sovereign Financing of Nature and Climate was recently formed. The Group aims to pool the capacities of international financial institutions to issue credit support instruments such as partial risk guarantees and political risk insurance. The Group is led by the Sustainability-Linked Sovereign Debt Hub and The Nature Conservancy and supported by the Champions and the COP28 Presidency.

Mahmoud Mohieldin, UN Climate Change High-Level Champion for Egypt’s COP27, said:

“The challenge of climate financing for developing countries is not due to a lack of a pipeline of investable projects. Last year, for example, we held, in partnership with the COP27 Presidency and the UN Regional Commissions, five regional forums showcasing more than 100 shovel-ready projects in Africa and other developing countries.

“Now is the time for multilateral lenders to remove systemic barriers to climate finance, to empower the climate leaders in waiting in the developing world. To reform the financial sector we need the full commitment of multilateral development banks, regulators, investors and civil society.”

“Our trusted MDBs hold an important key to tackling the existential climate crisis. MDBs need a transformative upgrade to channel concessionary finance into the Global South, this would empower developing countries to adapt to current climate impacts, and to become the climate champions of the near-future.”

The reforms will feature within two key reports that will be released at New York Climate Week:

• ‘Breaking Financing Barriers for Just Climate Transition in Africa’ – A report co-authored with the Center for Global Commons at Tokyo University (CGC), will be launched at the side event on ‘Regional Platforms for Climate Projects: Building an Impactful Climate Finance Marketplace’ on the 17th September. The event will demonstrate SDG 17 (Partnerships for Sustainable Development) in action, heightening the visibility of projects for public and private investors, as well as developers of projects on climate mitigation, adaptation, and resilience.
• ‘Mobilizing private capital for nature to meet climate and nature goals.’ A report co-produced with Systemiq and Center for Global Commons at Tokyo University, will be launched on 18th September, presenting insights to increase the flow of private capital to Nature-based Solutions to accelerate climate action. It contains clear calls to action for the private sector on how they can co-create the conditions for scaling up private finance for NbS by focusing on six priorities. It was shaped through the Champions’ engagement with investment banks and climate and nature project developers in numerous countries over the last nine months.

ENDS