Scaling up climate finance and increasing available funding, with a focus on adaptation and the countries of the South
“Moving from billions to trillions”
Scaling up substantially climate finance by 2020 and beyond
The “COP22 Climate Finance Pathway” was developed by the Moroccan Presidency to (i) follow up on discussions held by the parties during the HLMD on climate finance held in November 16 th , in conjunction with the twenty-second session of the COP in Marrakech, (ii) to address priority areas of action, as identified during those discussions, in relation to increasing the flows of climate finance with a particular focus on high-impact actions in favor of the South, with a view for the Moroccan Presidency to report back on progress and achievements during the upcoming twenty-third session of the COP and related events, as well as during the third session of the HLMD on climate finance and other relevant international meetings.
INTRODUCTION & CONTEXT
As per its mandate, the Moroccan Presidency is entrusted to lead and ensure the concretization of all decisions and recommendations of the Parties during the COP22 held in Marrakech in November 2016. Subsequently, the COP Presidency is fully engaged to impulse a real dynamic of collaboration and exchange among Parties and other relevant international organizations and partner institutions towards the effective and tangible implementation of announced initiatives and commitments during the COP22 meetings.
In particular, and in relation to the discussions held during the second session of the High-Level Ministerial Dialogue (HLMD) on climate finance on November 16th , 2016, in conjunction with the twenty second session of the COP in Marrakech, the Moroccan Presidency developed the “COP22 Climate Finance Pathway” to address key priority areas of action as identified by the Parties during the HLMD on climate finance and other related COP22 meetings in Marrakech.
With regard to climate finance, three priority themes were identified through official deliberations during COP22 around the common goal of substantially scaling-up climate finance for the Global South, with the view to “Move the Billions into Trillions”:
1. Increase available funding for developing and least developed countries by 2020 as part of the global commitment by developed countries to mobilize 100 Billion USD per year by 2020, while enhancing efficiency of use of mobilized resources, taking into account the Roadmap to the target 100 billion USD per year by 2020 presented by developed countries;
2. Increase substantially available funding for climate action in the South under the Paris Agreement commitment, with enhanced delivery processes of climate finance and better accessible information for more efficient impact;
3. Catalyze additional finance for climate action, mainly by
- (i) enhancing public leverage to further mobilize private actors and stimulate effective and deeper shift of private investments towards a low-carbon economy,
- (ii) implementing adequate country-driven public policies to create the necessary institutional, regulatory and business environments to enable a fair and rapid transition of flows of capital towards low carbon investments, and
- (iii) diversifying sources of finance dedicated to climate action, including adaptation projects, such as philanthropy and social investors, institutional investors, municipal finance, etc.
The COP22 Climate Finance Pathway revolves around the principles of collective action, collaboration among Parties, and synergetic initiatives, and sets three core priority areas:
- (i) Deploying budgetary and fiscal policies for NDC implementation;
- (ii) Increasing adaptation finance and deepening its impacts;
- (iii) Enhance public resources leverage to catalyze private climate finance flows at scale for targeted impact.
Priority (1) under the COP22 Climate Finance Pathway
Deploy country-driven budgetary and fiscal policies to support NDC implementation through effective implementation of the “CAPE Initiative”.
The first priority area of the CFP is to promote country-driven budgetary and fiscal policies to accelerate the effective implementation of Nationally Determined Contributions, by strengthening the role of Ministers of Economy and Finance in driving national climate action to deliver tangible and visible impacts on populations and territories.In that regard, the COP22 Moroccan Presidency leads and supports the Climate Action Peer Exchange (CAPE) Initiative. CAPE membership targets ministers and senior officials in charge of fiscal policy and management, essentially from Finance Ministries.
The CAPE is an initiative proposed by the Moroccan Presidency of COP22/CMP12/CMA1, in partnership with the World Bank, and was presented and discussed during the High-Level Ministerial Dialogue on climate finance held on November 16th, 2016 in Marrakesh. The initiative received wide support with effective endorsement by several countries to be core founding members, including France, Germany, Nigeria, Indonesia, Canada, Philippine and Morocco.It aims at establishing a forum for peer learning, lessons sharing and mutual advisory support of knowledge exchanges, intended to
- (i) assist countries increase the capacity of Finance, Economy and Planning Ministries to support NDC implementation based on best practice and lessons sharing; mutual technical assistance and advisory support; peer assessments and self-evaluation; and
- (ii) help countries adopt comprehensive climate policies including budgetary and fiscal policies and planning tools.
CAPE is designed to bring together senior technical experts from Finance Ministries across the world, as well as key global experts and World Bank staff, to discuss fiscal challenges and solutions for implementing the Nationally Determined Contributions (NDC). It is also open to senior officials of Budgeting and/or Taxation agencies that engage in a country’s fiscal activities.
While CAPE emerged around an initial core membership, it is expected to be extended to other country members over the course of the coming 2 years. Several countries have officially announced their intention to join and support the CAPE partnership, mainly during the side-event organized by the Moroccan Ministry of Economy and Finance during COP22 in Marrakech, and following the second session of the HLMD on climate finance.
Membership will be extended to all interested parties, and a particular attention will be given to regional diversity, as well as context and regime-based differentiation taking into account various budgetary and legislative approaches, specific economic contexts, minimum institutional capacities, leading experiences, etc.
Main topics of focus:
- Fiscal instruments for low carbon growth and resilience; carbon pricing; emission trading systems, fuel taxes; feed-in tariffs and subsidies for renewables and other green technologies.
- Macroeconomic modeling to estimate economic growth and public debt trajectories under different transition paths to low carbon associated with the implementation of the NDC.
- Fiscal risk assessments to estimate potential impacts of different low-carbon transition paths on public sector debt and to assess the impact of ‘contingent liabilities’ associated with natural disasters.
- Climate change financing frameworks to integrate climate strategies into national planning, budgeting and M&E cycles.
- Public investment choices under uncertainty; the economic costs of adaptation to a changing climate both within key sectors (energy, agriculture, transport, water) and economy wide;
The main expected results over the next 2 years (as per the upcoming 3rd biannual High Level Ministerial Dialogue on climate finance planned for 2018), include:
- Allow for the effective implementation of the CAPE forum for peer learning, lessons sharing and mutual advisory support, and knowledge exchanges dedicated to the Finance Ministers from member-countries. A dedicated team has been established by the World Bank in its headquarters in Washington DC, and works closely with the Moroccan Presidency to lead and support the operationalization of CAPE;
- Create the necessary conditions for effective peer-exchange and mutual supports among Minsters of Finance on climate action and alignment of budgetary and fiscal policies to climate resilience requirements and objectives of climate action, based on (i) best practices and international standards, (ii) lessons from leading national experiences, success stories and knowledge sharing among peers, and (iii) taking into account differences of budgetary frameworks, legislative and regulatory approaches, and macro-economic environment structural characteristics as per specific regional and national contexts.
- Develop a global framework of guidelines in line with the above mentioned “Charter” for Ministers of Finance on climate action in favor of accelerating the implementation of NDCs and allow for effective transition towards low-carbon economy. Such framework is expected to include standard tool-boxes for systemic integration of climate action requirements and objectives in (i) budgetary and fiscal policy-making processes (including climate friendly policies, carbon pricing tools and mechanisms, regulatory, prudential and cost incentives), (ii) public investments and expenditure planning and evaluation processes, and (iii) more generally public financing management systems and effective impact measurement tools.
- Disclose and share conclusions and recommendations with the global community while making tools available to all Parties and interested countries;
- Submit the CAPE work conclusions and recommendations for consideration by the 3rd session of the High Level Ministerial Dialogue on climate finance to be held in conjunction with the Twenty fourth session of the COP;
Provisional Calendar of activities
- March 2017: 1st preparatory Technical Meeting (Morocco)
- April 2017: 1st CAPE membership meeting (on the margin of the WB/IMF Spring Meetings – Washington DC)
- May 2017: Progress meeting in Bonn (In-session meeting on climate finance)
- Sept. 2017: Technical/regional workshops under CAPE partnership (tbd)
- Sept. 2017: 2nd CAPE membership meeting in preparation of the COP23 (on the margin of the 72 nd UN General Assembly)
- Nov. 2017: COP23 / Restitution and Specific side-event on CAPE
- 2018: 3rd Session of the HLMD on Climate Finance in conjunction with COP24
Priority (2) under the COP22 Climate Finance Pathway
Increasing adaptation finance and deepening its impacts.
The second priority area of the COP22 Climate Finance Pathway focuses on creating the necessary conditions and institutional environments to allow for a substantial increase of adaptation finance.
In that regard, and in order to achieve effective and meaningful results, the Moroccan Presidency has identified key priority domains for action, articulated around the (i) the need to provide clarity on the measurement of adaptation so as to enable better information and decision making across sectors, and (ii) strengthen local capacity to carry out adaptation investments with a view to enable additional climate finance.
Subsequently the Moroccan presidency will facilitate collaboration and collective action around the following 3 action domains:
(A) Build on the CMA1 decision that the Adaptation Fund should serve the Paris Agreement, and propose appropriate arrangements as soon as possible;
(B) Stimulate the development of a comprehensive set of Adaptation Metrics to better plan, design, implement and report on adaptation, by building on existing initiatives and bringing together policy makers, business leaders, investors and industry representatives, academia and civil society actors.
The objective of such tools is to provide investors and donors with adequate and coherent analytical tools to inform decision making and allow for comparability through the entire process of project design, planning and implementation, as well as measurement of effective impact of climate adaptation action.
To that end, the Moroccan Presidency will capitalize on the conclusions and recommendations of the Conference on Adaptation metrics organized by Morocco (held in Skhirate on Sept. 2016), and will continue to mobilize relevant actors towards converging measurement approaches and shared adaptation metrics, taking into account sectorial and territorial specificities and specific context to adaptation projects.
Key actors include development banks and multilateral agencies, rating agencies, private sector (insurance, pension funds, asset managers,…), academia and the scientific community, as well as the various specialized institutions on climate finance tracking and follow-up.
Considering the very wide extent, contours and complexity of the subject, 3 sectors were identified as initial pilots: Water, Agriculture and Infrastructure.
Provisional Calendar of activities:
- April 2017: 1st Technical meeting IDFC/MDBs (around the WB/IMF Spring Meetings – Washington DC)
- May 2017: Progress report during the In-session meeting in Bonn
- June 2017: 2nd Technical meeting IDFC/MDBs (tbd)
- Sep. 2017: 2nd Edition of the Workshop on Adaptation Metrics
- Nov. 2017: COP23 / Restitution and Specific side-event
(C) Enhance the conditions of access to available adaptation finance by countries of the South, and reinforce institutional and operational capacities at national and sub-regional levels, by:
Enhancing the institutional and operational efficiency of existing direct access mechanisms to adaptation finance, mainly by reviewing and optimizing the accreditation processes of national and sub-regional agencies for enhanced efficiency of mobilized resources and strengthened local impact;
Supporting direct access accreditation and pipeline preparation to national and sub-regional agencies;
Reinforce and/or build capacity in developing countries for adaptation action, through decentralized and networked technical centers, while also developing the adequate local delivery mechanisms (leverage outcome /impact /enhanced spill-over effect);
Deploying targeted capacity building programs aimed at reinforcing national capacities to structure projects and mobilize necessary financing, including fast-tracking of direct access of national entities, while coordinating with existing initiatives such as the NDC partnership.
Priority (3) under the COP22 Climate Finance Pathway
Enhancing public leverage to catalyze private flows and to enable the diversification and scaling-up of private finance.
Under this priority track, the Pathway identifies necessary actions to address the urgent need to leverage public resources, including concessional finance, to decarbonize and climate-proof growth through scaled up private financing. The COP22 Presidency will convene a structured conversation about
- a) the tools, rules and incentives needed to scale up business-as-usual investments flows, and
- b) the strategic use of concessional finance to direct private finance to support low carbon and resilient investments, particularly for the most vulnerable people and regions.
Subsequently, the Moroccan Presidency will pursue actions to achieve the following:
A) Promote adequate economic and regulatory environment so as to expand investment opportunities in the green economy for the private sector, including:
- Adequate public policies and regulations in favor of the green economy and climate resilient investments, along with appropriate support mechanisms for the private sector (mobilization of production resources, infrastructure, removal of regulatory and administrative barriers, …);
- Enhancing business climate, particularly in relation to reinforcing markets transparency on “price formation”, access to information, judicial security of transactions, public procurement procedures, and more generally promoting and protecting investments;
- Supporting country-driven efforts to establish carbon pricing mechanisms and tools including municipal and national fiscal policy tools, including the use of generated revenues in adaptation projects.
B) Use guarantee mechanisms provided by development banks and multilateral agencies and concessional finance to catalyze private investment towards funding climate action projects in developing and least developed countries;
There is a clear opportunity to build mutualized mechanisms of guarantee provided by MDBs and dedicated to investments in climate mitigation and/or adaptation projects in developing and least developed countries, so as to allow for:
- Significant investment risk reduction in developing and least developed countries, including credit risk, commercial risks, political risks, as well as regulatory and administrative barriers, especially for transborder projects;
- Mobilization of new actors including philanthropists and impact investors by mutualizing available finance around large-scale projects in the South and providing adequate finance at various project stages, as well as risk coverage for specific countries;
- Maximized leveraging of public resources mobilized through mixed financing structures and public-private partnerships.
Concrete initiatives in this regard should include the creation of co-guarantee platforms/facilities for climate resilient projects (such as renewable energy projects, public transportation, infrastructure,…) in developing and least developed countries, aimed to catalyze private finance with a significant leverage effect (with an ambitious initial target of about 4 to 1). Such platforms/facilities would be conceived to lower transaction costs for project developers/lenders, and aimed to:
- Achieve economies of scale and efficiency by aggregating guarantees from multiple institutions with improved coordination to support riskier climate related projects;
- Use guarantee mechanisms to attract institutional capital;
- Significantly enhance the credit score of climate projects in developing countries, and help remove political, regulatory and administrative barriers especially for cross-border projects.
C) Ensure the effective alignment of the financing systems with low carbon climate resilience and sustainable development goals, and in particular by:
(1) Engaging Central Banks in a collective action to launch a broad discussion on how to articulate and reconcile climate action objectives with macro-prudential norms, monetary policy and regulatory tools (including banking regulations and prudential frameworks such as BASEL III, among others), and more generally with financial stability requirements, with the view to develop a common and shared vision taking into account:
- The need to enable an effective shift of the global economy towards resilient, low carbon development and sustainable growth dynamics, in particular in relation to long term financing of climate mitigation and adaptation action in developing countries (risk coverage of long term projects, infrastructure projects, specific tools and incentive mechanisms for low-carbon investments/lending,…);
- The need to ensure rigorous regulation and supervision of financial systems through efficiency-enhanced macro-prudential management models and monetary policy intervention tools, especially with regard to the global developments within the banking and lending industry.
- Concrete initiatives in this regard should include the set-up of an exchange forum of peers and experts, while building on existing initiatives, with the view to develop a comprehensive set of recommendations and guidelines, to share experience and subsequently formulate relevant recommendations.
(2) Promote the development of green capital markets and climate resilient investments practices, in order to allow savings to flow towards low-carbon and climate resilient investments. (See The Marrakech Pledge, below.)
The Moroccan Presidency will support and promote initiatives aimed to foster the establishment of green capital marketplaces, especially in developing countries and least developed countries, and the systemic integration by Capital Markets of climate resilience principles, by:
- Promoting the development of adequate financial instruments, green investment vehicles and specific innovative regulatory and policy tools in favor of increasing substantially capital flows towards low-carbon economy (including listed green bonds, dedicated listing and trading boards for green equity, specific capital markets indices and associated investments funds,…);
- Promoting transparency and access to information by implementing the adequate regulatory frameworks in relation to (i) financial disclosure rules and regulations for issuers and asset managers, (ii) dissemination mechanisms by exchanges and financial institutions, and (iii) labeling standards and processes for qualified green projects, guiding principles on green investments qualification, on use of proceeds, and third parties verification requirements and controls; (Considering in particular, the work and recommendation of The Task Force on Climate-related Financial Disclosures (TCFD) in relation to voluntary climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders).
Reinforcing and building global and national capacities within the industry in relation to climate related investment practices, financial transaction structuration of financing and investment products in green assets, exchanges and market infrastructures’ operating systems, as well as the public investing community in general.
(3) Engage actively with the Insurance Sector by mobilizing industry leaders and major actors on their double capacity as:
Providers of insurance and risk wavers, with the view to further develop sophisticated management tools and hedging instruments for climate risks in favor of enhanced economic and financial feasibility characteristics of climate mitigation and adaptation projects;
Institutional investors and catalyzers of long-term financial saving, in favor of a significant increase of investment proportion in green assets and low-carbon projects, along with a systemic integration of climate resilience principals within their asset allocation strategies and investment-decision-making processes.
The diversification of the provision of private finance around bankable projects, by engaging institutional investors such as sovereign, pension and investment funds to leverage their critical role as vehicles towards scaled up investments in low-carbon initiatives, around bankable projects in countries from the South.
The Marrakech Pledge for Fostering Green Capital Markets in Africa
Led by Morocco, 19 African regulators and Exchanges, representing 26 African countries, endorsed the “Marrakech Pledge” for Fostering Capital Markets in Africa, committing to act individually and collectively in order to build a continental partnership of African Capital Market Authorities and Exchanges, aimed at fostering Green Capital Markets in Africa, around a set of collective target commitments to be deployed and implemented over different time spans within our respective local markets and at the continental level, with the view to:
- Promote Africa as a prominent region for green financial markets and an attractive destination for green and climate-resilient investments, by enabling the development of an effective ecosystem to support the establishment of Green Capital Markets in Africa;
- Voice Africa’s Climate Finance concerns and priorities by ensuring that the global developments within capital markets and financial systems (i) take into account regional economic and institutional disparities and address effectively both adaptation and mitigation issues in the African Continent, (ii) are aligned with real economic structures across Africa, and contribute to achieve sustainable growth in African economies.
- Enable African-led innovative climate finance initiatives, both globally and for Africa, and the building of local climate finance knowledge and expertise amongst the Continent’s market players;
- Create and implement the necessary mechanisms to allow for (i) effective matching of demand and supply of green equity and climate-resilient investment opportunities in the region, and (ii) building local knowledge resources, conducive and facilitative policy and regulatory environments and expertise around African-led initiatives and innovative ideas.
Under this partnership, three priority areas of collaboration were identified and translated into a set of Collective Action Commitments:
- Enable the development of an effective ecosystem to support the establishment of green capital markets in Africa;
- Support the development of green financial instruments and climate-resilient investment vehicles in Africa;
- Promote transparency and accessible information on green finance and climate resilient investments in Africa.
In order to accelerate and ensure the delivery of the Collective Commitments to Action under this partnership, a permanent Task Force for “Fostering Green Capital Markets in Africa” is being set up by member-countries, and will be mainly in charge of (i) driving and coordinating collective initiatives, (ii) ensuring communication and experience sharing among members & reporting, as well as (iii) extending support for the organization of regular and specific events under the present partnership, including the annual members meeting and associated conferences.
While built to be an African led partnership, it is intended for that this initiative to be extended to other countries from the South and other relevant sub-regional groups.
The COP22 Climate Finance Pathway was included in the report from the 2nd Biennial High-Level Ministerial Dialogue on Climate Finance, released for general distribution on 28 August 2017 by the UN Climate Change Secretariat.
The full Note (posted online as PDF) was summarized as follows:
This document, prepared by the President of the Conference of the Parties (COP) with the support of the secretariat, contains a summary of the second biennial high-level ministerial dialogue on climate finance held during COP 22 in Marrakech, Morocco, which focused, in accordance with decision 5/CP.21, paragraph 4, on the issues of adaptation finance, needs for support to developing country Parties, and cooperation on enhanced enabling environments and support for readiness activities.