Date: 14/12/2022
Relevance: GS-3: Climate Change and International Conventions.
Key Phrases: Climate Finance Trends Report 2022, Climate Change, Climate Adaptation, COP(Conference of Parties), UNFCCC, Developed Countries, Mitigation Efforts, Global Warming, Climate Adaptation Cost, Credibility, OECD, Climate Challenge, GHGs Footprint, Corporate Social Responsibility, Carbon Neutrality, Net Zero Emission.
Context:
- OECD’s Climate Finance Trends Report 2022 indicates the gap between the goal of 100 billion USD and total climate finance provided and mobilized by developed countries for developing countries.
Key Highlights:
- In 2020, the initial target year of the USD 100 billion goal under the UNFCCC, total climate finance provided and mobilized by developed countries for developing countries amounted to USD 83.3 billion.
- This means that the collective level of developed country climate finance remained USD 16.7 billion short of the goal.
Issues of Climate Finance:
- Widening Gap in Climate Finance
- The global thematic split reflects that of the $83 billion, $49 billion was invested in climate mitigation activities focused mainly on cleaner energy and transport, while about $28 billion was spent globally on climate adaptation, mainly for agriculture, water supply, forestry restoration, coastal fishing and sanitation.
- This $49 billion in 2020 mitigation investment globally pales in comparison with India’s $250 billion renewables installation needed by 2030.
- It is expected that the adaptation finance needs of developing countries will gallop to $340 billion annually by then. Hence, we have a widening gap to bridge.
- Lack of Support
- International support for climate adaptation is skewed towards mitigation projects.
- The modalities of financing mechanisms have seen a shift from grants to loans.
- Risk in depending on Western Funding
- Experience suggests that depending solely on timely Western public funds will be unwise in times of geo-strategic competition and recessionary fears.
- Monies from rich countries are unpredictable, yet the allocation thereof by global agencies is predictably done among least developed and developing nations across Asia (42% of the 2020 total), Africa (26%) and Latin America (17%).
- With India already the fifth largest global economy and moving towards shaping world agendas, we must temper our expectations of such funds on concessional terms.
- Actual figures in India’s kitty will thus continue to be insufficient for our needs.
- Local Nature of CSR Initiatives
- Often actions under CSR are directed by context-based targets that represent the most critical challenges of the environment where businesses are embedded.
- Therefore, the nature of the initiatives mostly remains local.
Climate Finance
- Climate finance is "finance that aims at reducing emissions, and enhancing sinks of greenhouse gasses and aims at reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts", as defined by the UNFCCC Standing Committee on Finance.
- In a wider sense, It refers to all financial flows relating to climate change mitigation and adaptation.
- Climate Finance works to provide the necessary monetary backing to fight the adverse effects of climate change.
- At the 15th Conference of Parties (COP15) of the UNFCCC in Copenhagen in 2009, developed countries committed to a collective goal of mobilizing USD 100 billion per year by 2020 for climate action in developing countries.
- The goal was formalized at COP16 in Cancun, and at COP21 in Paris, it was reiterated and extended to 2025.
Banking Framework: A solution to Climate Finance
- We could aim for a banking framework wherein Indian banks are nudged
to lock in long-tenure, low-cost private climate capital from alternative
sources, like overseas investor institutions, global pledge
organizations, private philanthropy, CSR budgets, etc and are
incentivized to on-lend cheaper loans to diverse businesses.
- This mechanism can fulfill a wide set of goals, while fintech startups and digitization can play a big supporting role in connecting small clients with banks.
- Regulators and financiers need to evaluate various use-case scenarios before implementation.
OECD
- The Organisation for Economic Co-operation and Development (OECD) is an intergovernmental organization with 38 member countries, founded in 1961 to stimulate economic progress and world trade.
- The majority of OECD members are high-income economies with a very high Human Development Index (HDI) and are regarded as developed countries.
- It is recognised as a highly influential publisher of mostly economic data through publications as well as annual evaluations and rankings of member countries.
- The OECD is an official United Nations observer.
- OECD has its headquarters in Paris, France.
OECD’s Climate Finance Trends Report 2022
- USD 83.3 billion was provided and mobilized jointly by developed
countries for climate action in developing countries in 2020.
- Of this, bilateral and multilateral public climate finance from the developed West stood at $68 billion {comprising concessional and non-concessional loans (71%), grants (26%) and equity (2%)};
- while private climate finance and export credit extended via agencies comprised just $15 billion.
- Mitigation finance remained the majority, but adaptation finance continued to grow, in both relative and absolute terms.
- Loans continued to be the main instrument used to provide public climate finance.
- Climate finance mainly targeted Asia and middle-income countries.
Way Forward:
- Low coupon sustainability-linked bank loans or overdraft facilities at the entity level would be a more practical adaptation solution for many across the rural and urban divide.
- As India lays out a G20 agenda, the government should set the direction for augmenting our private climate finance framework, too.
- From the private sector, CSR allocations can be reimagined as adaptation finance.
- Channeling CSR funds more effectively towards climate adaptation
may provide a new source of climate finance.
- CSR funds potentially represent the third largest pool of climate finance after government spending and multilateral financing.
- There is a potential to address climate adaptation but it will
require industries to pool finances.
- The industrial sector is the second highest user of freshwater in the country.
- For developing countries to enhance their ambition, developed countries must provide enhanced support.
- Need for nature-based solutions to link actions on mitigation and adaptation in terms of planning, financing, and implementation, which would provide co-benefits.
- It requires urgent efforts to increase the financing and implementation of actions designed to adapt to the growing impacts of climate change.
Conclusion:
- Inclusive growth with relentless and resilient development should be our mantra, as the country marches forward in its quest towards net-zero emissions powered by a people’s movement as much as low-cost climate finance.
Source: Live Mint
Mains Question:
Q. What are the issues related to climate finance? Suggest measures to address these issues. (150 Words)
