Need for Innovative Green Finance
Rising carbon emissions and biodiversity losses, which have resulted in huge imbalances, pose one of the gravest threats to the existence of mankind. The vagaries of human-induced environmental threats spare none, with every section being battered by its ill effects.
Vulnerability of socially and economically weaker sections is compounded by their position. This doesn’t mean that the more privileged are likely to get away with it. This calls for the privileged to think about and put in place innovative finance solutions to deal with the crises arising from the huge climate and biodiversity losses and their deleterious impact on the human race.
A Loss and Damage (L&D) Fund was established at the 27th Conference of Parties to the United Nations Framework Convention on Climate Change (COP27) summit in Sharm-el-Sheikh, Egypt, in November 2022. The fund, as its name suggests, is proposed to be set up to assist developing countries that have been harmed and are ‘particularly vulnerable’ to adverse effects of climate change. However, fine details are yet to be worked out. It is doubtful that the promises will be kept.
Rich countries failed to meet the annual $100 billion commitment to support developing countries in addressing the impacts of climate change, a commitment made at the 2009 Copenhagen summit.
The fifteenth Conference of Parties to Convention on Biodiversity, held in Montreal in December 2022, resulted in a global commitment to raise international financial flows from developed to developing countries to at least $30 billion per year by 2030.
Going beyond, the summit also saw enthusiastic members committing themselves to mobilise at least $200 billion per annum from public and private sources for biodiversity-related funding by 2030. Again, there is no clear roadmap to meet the goals.
Hazy negotiations raise suspicions about the possibility of meeting such targets. Hence, there is a need for innovative agnostic solutions with a clear implementation strategy, free from political vagaries.
Creating a fund
While COP27 saw several countries express an interest in exploring ‘innovative sources’ of finance, nearly six months later these sources are yet to be identified. The G20 Bali Leaders’ declaration in November 2022, too, called on leaders of G20 countries to unlock innovative sources of financing to support the achievement of SDGs in lower- and middle-income countries.
The declaration exhorted multilateral development banks to mobilise and provide additional financing to address global challenges. However, the identification and implementation of such precise solutions and their methodology has not seen any tangible progress.
Several funds have been created over the last 30 years, with a host of commitments to address concerns for climate change. To name a few, the Green Climate Fund (GCF), Adaptation Fund, Special Climate Change Fund (SCCF) have been created to support global climate and environmental financing efforts. But the gaps between requirements and commitment are worryingly widening.
Various proposals are being discussed currently to create an overarching fund for the planet’s recovery, such as a Global Carbon Tax, Digital Services Tax, Property Tax, Airplane Tax, Cesses for Carbon Emissions, Biodiversity, Climate Resilience, Climate Adaptation, Financial Transactions Tax (FTT) etc. Together, these can be a good bouquet to create a fund of funds to deal with both climate and biodiversity issues.
Delivering meaningful finance solutions is intrinsically connected to our efforts to arrest the backslide of targets set out under the Sustainable Development Goals (SDGs). SDG 13 (which covers climate action) calls upon states to take urgent action to combat climate change and its impacts. Similarly, SDG 15.5 calls for taking urgent action to reduce the degradation of natural habitats and halt the loss of biodiversity.
Private capital financing has a vital role to play in plugging the gaps for global sustainable financing, particularly so in emerging markets and developing economies, where governments are inhibited by capacity constraints. Raising the scale of private capital financing in sustainability initiatives could help infuse billions into a host of initiatives.
There is a need to create an ecosystem that incentivises the creation of financial assets that can contribute towards the reduction of emissions and biodiversity conservation targets. Though private capital financing has increased over the last decade, it needs to be scaled up significantly to meet the agreed targets.
As ill effects of climate and biodiversity losses take a toll on the planet and the human race, the world urgently needs an overarching framework that is transparent, verifiable, agnostic, and accountable. Targets ascertained by the international community can only be met if it follows up with a timely allocation of the required funds. This will require exploring a variety of resources through a bouquet approach.
We face a race against time to leave a cleaner and greener world for future generations. Delivery of critical action needs to be both adequate and timely.