With the end of the COP26 climate conference, we find a greater consensus amongst the negotiating countries towards climate action. There is clear ambition to reduce greenhouse gas emissions (GHGs) and more comprehensive and effective implementation of the Paris agreements. However, a critical issue that caught everybody’s attention was the glaring financing gap to meet the SDGs. This issue was briefly discussed during the COP26 summit regarding the lag in achieving the $100 billion target of the Paris agreement and the lack of a financing fund for climate change mitigation and adaptation strategies.
Climate finance plays a significant role in risk reduction and developing innovative technologies for climate change adaptation and mitigation. All by making capital accessible to entrepreneurs and organizations working in this field. The tools of financial economics, designed for valuing and managing risky future outcomes, can therefore be used to help society assess and respond to climate change risks and problems successfully.
However, climate finance has been highly dependent on public financing, as highlighted in the recent COP26 discussions. Since multilateral or bilateral finance supports public sector climate financing. Assistant Professor of International Relations at Johns Hopkins School of Advanced International Studies, Nina Hall, already identified in 2017, that these means of climate financing suffer from the drawbacks of both epistemic and strategic ambiguity, with states being uncertain about the nature of the tasks or their ability to reach consensus over a task (Hall, 2017). Thus, highlighting the need for developing alternative channels of climate finance that work along with public climate finance channels of the ‘global north’ and ‘global south’.
One solution is to develop green climate funds in development banks to drive the climate transition. Another is to develop a holistic ecosystem of grants, loans, and incubation programs to encourage and initiate innovative technologies while reducing risks. The COP26 discussions and outpouring of criticism regarding meeting ambition with substance, highlights the need to tap into especially potential of the private sector and attracting commercial financing to achieve the SDGs. This, in collaboration with governments and other key stakeholders to develop collaborative and innovative financing solutions that work for varying local contexts together.
As an organisation, WASTE, has long worked on conceiving viable innovative financing projects and models while navigating through the web of funding mechanisms underutilized in development. Primarily, this effort has been through developing sustainable finance systems by collaborating with different local stakeholders, aiming to bridge the gap of access to finance while supporting small & medium enterprises (SMEs) and small & growing businesses (SGBs) working to meet especially SDGs 11 (sustainable cities and communities), 6 (clean water & sanitation) and 8 (decent work and economic growth).
The need of the hour is to engage with more sustainable financing for climate change mitigation and adaptation initiatives. That is possible through stakeholder interactions to promote financial inclusion and funding for climate-related micro insurance to climate finance.
Hall, N. (2017) “What Is Adaptation to Climate Change? Epistemic Ambiguity in the Climate Finance System,” International Environmental Agreements: Politics, Law and Economics, 17(1), pp. 37–53. doi: 10.1007/s10784-016-9345-6.
Opinion piece authored by Deepakshi Singh
Deepakshi is a communications intern at WASTE studying development and economics with a focus on impact financing
at the International Institute of Social Studies (ISS) of Erasmus University Rotterdam