Pussyfooting The Climate Financing Issue?

Climate finance as a necessity has been bandied about at different world climate action summits for more than a decade, but not much has come of such talks. Now, the 28th Conference of Parties or COP28 has bucked the trend by putting climate finance centre stage with pledges of billions of dollars to enable the emerging markets and developing economies (EMDEs) to achieve their net zero targets.  

India has been very vocal on the issue of climate finance at the United Nations Financial Confederation on Climate Change (UNFCCC). At the recent COP28 too, PM Narendra Modi voiced the concerns of the global south and reiterated the urgency of making climate finance available to the developing countries to help them achieve their climate goals and implement their nationally determined contributions (NDCs).  

In fact, India has consistently exposed the failure of developed nations to honour their climate finance pledges, which has led to a substantial shortfall in the funds mobilised so far. At COP15 in Copenhagen in 2009, developed nations committed to mobilising $100 billion annually by 2020 for climate action in developing countries. This goal was formalised at COP16 in Cancun and reiterated at COP21 in Paris, which extended the deadline to 2025 from 2020.  

The failure of developed nations to meet the target of $100 billion per year so far has been brought up in a recent OECD report. The concerns over the shortfall has preoccupied the Intergovernmental Panel on Climate Change, which in a recent evaluation report, highlighted the pressing need to increase the current financial allocations for climate change mitigation by three to six times to meet the average annual requirements by 2030.  

Climate Finance Actions 

At COP28, world leaders operationalised the Loss & Damage Fund initiated at COP27, where the UAE Presidency secured over $57 billion within the first four days. Chandni Khosla, Director, Neo Securities explains, “The L&D Fund is meant to provide funding for economic and non-economic loss and damage associated with the adverse effects of climate change. The World Bank will manage the fund for four years, beginning in 2024. Importantly, funds will be voluntarily committed and directed to those ‘particularly vulnerable’ to damage from climate change, and all developing countries will have access to the fund including India.”  

COP28 also witnessed the largest-ever replenishment of the Green Climate Fund, totalling $12 billion.  

Besides, a New Global Climate Finance Framework was declared at COP28 to integrate development and climate finance, addressing the inadequacy of the current global finance structure. India, France, Kenya, Barbados, the UK, the US, Germany, Ireland, Ghana, Senegal, Columbia and the UAE championed and endorsed the framework. The framework seeks to rebuild trust by delivering on past commitments, seizing the economic opportunity for climate action, and most importantly, delivering at scale. The UAE launched the ALTÉRRA fund aiming to mobilise $250 billion globally by 2030. Multilateral development banks, including the World Bank and Inter-American Development Bank, made significant commitments to increase climate finance targets and triple climate lending, respectively. 

Elaborating on the pledges Khosla says, “The funds are also expected to provide support for both short-term and long-term actions, as well as actions to address slow onset events. An example of such funding may include the development of national response plans, addressing insufficient climate information and data, and promoting equitable, safe, and dignified human mobility in the form of displacement, relocation, and migration, in cases of temporary and permanent loss and damage.” 

India Inc & Its Financing Needs 

India Inc has predominantly relied on domestic funding sources to tackle climate issues. This includes support from the government budget, alongside a combination of market mechanisms, fiscal tools, and policy interventions. In 2021 India mobilised resources domestically for financing which considerably surpassed the cumulative international funding received. 

To finance its requirements, the Indian government issued the initial portion of its inaugural sovereign green bond, amounting to $980 million on January 25, 2023.  On February 9, 2023, it declared its intention to release an additional $968 million in sovereign green bonds.  

Currently, climate initiatives in India receive only $44 billion annually, falling far short of the estimated one trillion US dollars needed for adaptation finance by 2030, as per the Climate Policy Initiative. The crucial goal is to attract private sector investment to support India's mitigation and adaptation objectives. 

States Khosla, “Climate transition finance for India will only translate once we have a sustainable taxonomy in place covering the entire spectrum of incentives for renewable energy and green technology based investments while dissuading flows of capital toward brown and dirty sectors of the economy that are unwilling to transition. A sustainable taxonomy is the ‘Ramban’ to enhance transparency in clean and transitioning sectors’ capital flows, attracting all kinds of financiers and investors with a commitment to sustainability.” 

In conclusion, the pledges have been made and commitments have been drawn, but what remains to be seen is the ease of accessibility of these funds by the EMDEs, whether the committed amount will be sufficient to ‘transition away from fossil fuels’ to enable the world to reach net zero by 2050, especially the developing and emerging economies, and whether the global south will be seeing a day different from what it expected.