Request Free Trial

COP28 Round-up: Finance day focuses on development banks and carbon markets

COP28 UAE climate sign
(Photo: Giuseppe Cacace/AFP via Getty Images)

A summary of key announcements from the 2023 UN climate conference, why they matter and what is still missing

COP28’s fifth day, which has been dedicated to finance, comes to a close with at least 40 different finance pledges, though the financing needs to support developing economies’ transition is still evident. For example, the Green Climate Fund replenishment pledges of $12.7bn have surpassed previous assurances, but at least $2.4tn in climate finance is needed for developing countries by 2030.

The findings of the second report of the Independent High-Level Expert Group on Climate Finance were announced, showing a yawning gap in the climate finance needed by emerging markets and developing economies. According to the IHLEG, by 2030 we need a fivefold increase in concessional finance, a threefold rise in multilateral development bank finance, and a 15-fold increase in private climate finance to EMDEs. The group noted that finance for adaptation and clean energy are both inadequate. It said: “Climate finance is concentrated in developed economies and China, and in mitigation rather than adaptation. Private finance is insufficient. Climate finance is primarily delivered in the form of debt. And most financing remains in its country of origin.”

The IHLEG recommends “purposeful” collaboration to build country platforms, create investment pipelines and increase fiscal space. Systemic reforms such as reimagining the role of MDBs, and debt relief measures, will be required. Kate Levick, E3G associate director and co-head of the UK’s Transition Plan Taskforce secretariat, said: “Adaptation is notable by its absence, not being given the same level of prominence, the Cinderella of climate finance.”

During a briefing, E3G’s spokespeople also commented on the newly launchedcountry sector platforms” that MDBs are set to use to create policy and investment packages focusing on certain sectors or themes relevant to a specific country’s transition. The think-tank said this approach could be useful in customising financing to national needs and also replicated at scale, but was skeptical that this approach could move capital faster than the existing Just Energy Transition Partnerships structure.

Also today, the UK, France and five MDBs including the World Bank and the European Bank for Reconstruction and Development made new commitments to include climate-resilient debt clauses in their loans, allowing borrowers to delay repayments if hit by a natural disaster. A total of 73 governments called on donor countries to expand the use of these clauses by 2025.

In addition, eight multilateral and development finance institutions signed a non-binding joint declaration that mentions the creation of a Task Force on Sustainability-Linked Sovereign Financing for Nature and Climate. The aim of the declaration is to increase collaboration to lower credit risks for sovereign debt investors. Credit insurance, political risk insurance and credit guarantees are some of the mechanisms under consideration.

Axa, Munich Re and Willis Towers Watson are among the insurers to have come out in support of the declaration. Despite the financial instrument not being explicitly mentioned in the declaration, Hassatou Diop N’Sele, the African Development Bank’s vice-president for finance and chief financial officer, stated that “our motivation for being part of this [task force] is to bring debt-for-nature swaps and related instruments to the forefront”.

On Sunday, 10 MDBs had issued a joint statement to increase collaboration on several climate fronts, but the document did not feature any specific deadlines or funding commitments.

Again on Monday, the World Bank published a discussion paper about measuring the impact of climate finance. Presenting the document, it wrote: “Existing reporting of the MDB climate finance commitments does not tell the whole story. The MDBs have made significant progress in scaling up climate finance commitments. However, climate finance neither measures the results nor the outcomes of climate actions.” It called for “a common approach” to reporting outcomes that could be adopted by development banks as well as other financial market participants.

The US and the Nordic countries launched the Investment Mobilisation Collaboration Arrangement to speed up blended finance instruments for climate financing in emerging and developing countries. The initiative hopes to attract billions of dollars for climate mitigation and adaptation, biodiversity and nature-based investments by the end of 2025, with the World Climate Foundation appointed as the operating partner. The initiative will work together with an “asset owner advisory board” to find possible transactions and propose private finance incentives. Following that, engagement with asset managers will take place to agree on blended finance options, as well as with asset owners for financial backing.

Voluntary carbon markets featured heavily across COP28’s finance day as private sector and development finance practitioners offer VCMs as a practical solution to unattainable global policy action. During a panel discussion, Standard Chartered chief executive Bill Winters said that it would be preferable to have compliance carbon markets and a global carbon tax but that these are “not going to happen”. Winters, who also sits on the advisory group to the Integrity Council for the Voluntary Carbon Market, said he doubts the UN’s latest efforts to create a global carbon market governed by Article 6.4 of the Paris Agreement will succeed because of the challenges of reaching consensus on technical details across countries.

Meanwhile, VCM standard-setters announced their intention to work together on an “end-to-end integrity framework”, which would provide a guide to companies using carbon credits as part of their transition strategy. The Voluntary Carbon Markets Integrity Initiative, the ICVCM, the Greenhouse Gas Protocol and the Science-Based Targets initiative support greater collaboration across the VCMs. 

“Unity across the standard-setters will give companies the direction and clarity needed to spur on increased high-integrity climate action,” said VCMI executive director Mark Kenber in a statement. And in a joint blog, Kenber and ICVCM chair Annette Nazareth said: “Together, we are working hand in glove to deliver clear, cohesive standards for corporate climate action.”

World Bank president Ajay Banga, UN climate envoy Mark Carney, and US climate envoy John Kerry all expressed support for the development of higher-quality VCMs. Kerry also commended the US Commodity Futures Trading Commission for its proposed guidance on the trading of voluntary carbon credit derivatives, which is up for consultation until February 16. Nazareth said the guidance will be “creating greater liquidity and enabling the market to scale”.

Supporting market solutions, US Treasury secretary Janet Yellen called for the 2024 launch of the Climate Investment Funds’ capital markets mechanism “well ahead of COP29”. The $7.9bn CIF directs concessional finance to low and mid-income countries through six MDBs, including the World Bank. The US also extended a $568mn loan to the CIF’s clean technology fund.

In other news, the Dubai Adaptation Billions Challenge, launching today, aims to mobilise $5bn-$10bn in private capital

adaptation investment

. It is convened by LightSmith Group, a member of the Sharm El-Sheikh Adaptation Agenda’s task force.

Further, the Glasgow Financial Alliance for Net Zero, the group co-chaired by Carney, published its 2023 progress report and its priorities for 2024. The alliance is planning to integrate nature into net-zero transition plans, to “unlock high-integrity carbon markets” and to work closer with Brazil to deliver the country’s green growth agenda as COP30 will take place in the Amazon city of Belém. Gfanz has faced a number of significant exits over the past year, raising doubts over its ultimate real-world impact.

The International Sustainability Standards Board announced that its climate disclosure framework has received the backing of 64 jurisdictions through a declaration of support. In June, the organisation finalised its first two sets of sustainability reporting standards. During a panel discussion today, ISSB vice-chair Jingdong Hua noted Brazil’s decision to mandate the body’s standards from 2026, the first country to do so.

The ISSB intends to advance the adoption of its sustainability standards through bilateral dialogues with governments and regulators, said chair of the IFRS Foundation trustees Erkki Liikanen, who set up the ISSB at COP26 in Glasgow.

There remains a wide gap between disclosure rates for climate and nature, according to a new analysis released by standard-setter CDP. Only 38 per cent of the more than 23,000 companies disclosing under the CDP framework are providing nature-related information beyond climate. Moreover, only 10 per cent of all disclosing companies have set targets for renewable energy consumption. “CDP’s latest insights underscore an upward trend in companies reporting on their energy use. However, with 44 per cent still not reporting and only 10 per cent of all disclosers setting targets for renewable energy consumption, corporate ambition to phase out fossil fuel continues to fall short,” noted Sue Armstrong-Brown, global director of thought leadership and environmental impact at CDP.

The Asian Development Bank launched a Nature Solutions Finance Hub for Asia and the Pacific to attract funding for nature-based investment solutions. ADB president Masatsugu Asakawa said that nature loss threatens two-thirds of gross domestic product in these regions and “hence the hub is a much-required platform for bringing technical and financing solutions to this theme in the region”. The ADB is aiming to raise at least $2bn, half of which would be dedicated to de-risking strategies such as guarantees, impact-linked payments and blended finance. No concrete deals were announced, but the ADB stated that advanced discussions are under way with several entities.

Also today, the Gender-Responsive Just Transition & Climate Action Partnership was launched by more than 60 countries to incorporate gender considerations into climate action. Due to their disproportionate presence in industries particularly vulnerable to climate change, women and their livelihoods are expected to be affected more negatively during the transition. The partnership aims to provide better quality data for resource allocation; more effective finance flows to regions impacted the worst by climate change; and better education, skills and capacity building. The group will reconvene at COP31 to assess progress.

A service from the Financial Times