Good COP, bad COP, confused COP

It has been a month since COP27 began and reflecting on our time at the world’s annual climate summit, views on the legislative progress are at best mixed. But where climate policy has weakened, a clear gap has emerged for finance’s role in the transition to a low carbon economy.

The “Africa COP” was shaped by pressures in the developing world, and the developed world’s lack of capacity to alleviate it. Not since the global financial crisis have we seen such strain on developing countries. Decisionmakers in the Global South worry that efforts to accelerate decarbonisation will impinge on development. This dynamic set the scene for the outcomes that emerged, many of which left us wondering — what now?

One of the most hailed outcomes of COP27 was the announcement of a loss and damage fund for vulnerable countries. With the failure of developed countries to mobilise the $100bn a year by 2020 for developing countries, there is broad acknowledgment that funding may be easier said than done.

To some, the focus on loss and damage distracted from focusing on the cause of the problem: anthropogenic greenhouse gas emissions. If anything, climate policy regressed on addressing the issue of fossil fuels: calls to include oil and gas in the phase-down commitments made on coal in Glasgow were rebuffed, and surging oil prices gave oil lobbyists a firm seat at COP27.

Barbados Prime Minister Mia Mottley called for reforms to the international finance system to better serve crisis-affected lower-income countries. She rallied a global coalition of nations under the “Bridgetown Initiative” to reform the World Bank and IMF. The aim is to accelerate developing countries’ access to resources to relieve financial stress, enable economic development and address climate change.

This sentiment was echoed by IMF MD Kristalina Georgieva, and US climate envoy John Kerry challenged multilateral development bank (MDB) reform to be catalysed by the World Bank spring meetings scheduled for April 2023.

The Bridgetown Initiative and the MDB movement seek to catalyse greater financing for mitigation projects in emerging and developing (EMDE) countries. The International Energy Agency estimates that China is the only EMDE that can self-fund its transition. Therefore, significant capital flows will be needed to fund the transition.

These have so far been limited: the recent State of Blended Finance report from Convergence showed that blended finance flows slowed by up to 60% from 2019 to 2021. This is a huge missed carbon opportunity: Africa gets about 3% of global climate finance flows but is expected to account for up to 40% of the growth in future emissions. 

While it was really Egypt’s COP, some African countries profiled country-led transition strategies, indicating strong continental climate leadership.

Namibia’s plans set it up to be a key green hydrogen supplier globally post 2030 — and the EU has its sights set on offtake. Besides the signed strategic partnership on raw materials and hydrogen, the country also agreed a €500m loan with the European Investment Bank to help finance renewable energy and green hydrogen projects. It also launched the SDG Namibia One Fund — a blended finance platform to accelerate development of Namibia’s green hydrogen sector.

SA launched its much-anticipated Just Energy Transition Investment Plan, (JET- IP) after the Just Energy Transition Partnership announced at COP26. This road map charts how SA will leverage the $8.5bn climate finance deal, among other sources of finance.

The JET-IP indicates implementation costs to 2027 will be about $88bn — in contrast to the $8.5bn package — a mere 10% of what is required. This investment plan is the first of its kind and indicates a country-led transition is under way.

After SA launched its JET-IP, a $20bn plan was announced at COP27 for Indonesia. Half the funding will come from private sector members of the Glasgow Financial Alliance for Net Zero, with the balance coming from developed market sovereigns. Discussions are under way to replicate the model in Vietnam.  

Given lessons learned from SA, to catalyse meaningful change the Indonesian transitional model should be realistic, with discussion on renewable energy buildouts in key emerging market countries. However, given the state of play in development finance institutions, the quantum of concessional financing available to really move the needle may disappoint.

The result is that the private sector in middle-income emerging markets will play a big role in their transition. This might pose risks to the Indonesian model, but it is an opportunity for private sector investment.

Corporates drive the bottom-up transition 

The highlight of our COP27 was the large range of corporates — many from emerging markets and high-emitting sectors — announcing substantial progress in their own decarbonisation journeys. Corporates are revolutionising entire industries by investing in critical technology and innovation that will either pivot their industry or decarbonise their products — making them leaders in the low carbon future economy.

With corporates acting, private capital need not sit on the sidelines while governments unravel the politics around MDBs and loss and damage funding. Investing to tackle the problem is a real opportunity for private capital and financing the transition to net zero is already under way. For all of us committed to a net zero future, the time to turn ambition into action is now.   

• Moola is chief sustainability officer, and Brouwer sustainability specialist, at Ninety One.