Private sector finance at COP28: Commitment and capacity building

Financial sector participants at COP28 are being asked to step up and meet climate finance demands. Based on announcements at the conference, they plan to do so by allocating capital to green projects, working with public finance and multilateral development banks, and supporting their peers in vulnerable economies.

Two days ago on Finance Day, COP28 delegates heard from Lord Nicholas Stern, co-chair of the Independent High-Level Expert Group on Climate Finance (IHLEG) about the need to multiply private sector climate finance “by a factor of 15” to help provide the annual US$2.4 trillion needed until 2030 to help the world meet the goals of the Paris Agreement.

Climate finance flows already almost doubled between 2020 and 2022, reaching US$1.3 trillion – and about half of that came from commercial financial institutions, private investors and corporations. 

Multiplying private sector finance by a factor of 15 would bring these funding flows to more than US$9 trillion, but it’s also key that the money reaches the countries and organisations that need it most – so how this increase is achieved matters.

New commitments to unlock climate finance

Several financial pledges have already been made at COP28, by private sector players or as part of public-private initiatives. UAE banks including Mashreq and First Abu Dhabi committed to mobilise about US$270 billion in green financing by 2030, strengthening their recent climate action efforts.

The UAE government also contributed US$30 billion to its ALTERRA fund, which aims to attract US$250 billion of financing from the private sector by 2030. The fund already has the support of asset managers BlackRock, Brookfield and TPG, and will invest in climate projects along the four pillars of energy transition, industrial decarbonisation, sustainable living and climate technologies.

Meanwhile, the Green Climate Fund, which partners with commercial financial institutions to finance climate projects in emerging economies, received another US$3.5 billion of pledges from five different countries, bringing it to a record US$12.8bn.

Net zero financing through trade

Several initiatives have also been launched to ensure that the financing of trade flows supports climate goals. For instance, the UN Environment Programme announced the creation of the Net Zero Export Credit Agencies Alliance (NZECA). 

ECAs are generally public organisations that help derisk trade finance transactions through insurance or funding, helping exporters attract more private finance. The alliance follows the framework of the Net Zero Banking and Net Zero Asset Managers Alliances, and can be joined by any ECA “ready to commit to net zero by 2050”.

Additionally, the International Chamber of Commerce (ICC) launched the second wave of its Principles for Sustainable Trade, with the goal of helping banks “recognise and set standards for sustainable trade and sustainable trade finance through widely accepted definitions”.

The principles include a “grading calculator” to support banks in their assessments, and lays out the path to a fully automated grading system.

And 10 multilateral development banks (MDBs), including the Inter-American Development Bank (IDB), the African Development Bank (AfDB), and the European Investment Bank (EIB), committed to greater transparency and collaboration to attract private capital at scale. 

To achieve this, the MDBs say they will work together to “enable regulatory environments that remove distorting subsidies and require or reward green investments; green local financial systems; develop pipelines of climate and green investments; address currency exchange risks; and develop innovative instruments, including blended finance, and carbon pricing instruments”.

Climate finance research and capacity building

The sector is aware that its current frameworks and dynamics often hinder climate investments that are deemed too risky or less profitable than other assets. So the Global Climate Finance Centre (GCFC), launched on December 4 and hosted by Abu Dhabi, aims to address these barriers to help make climate finance “available, affordable, and accessible”. 

Described as an independent think tank and research hub, the GCFC is backed by HSBC, BlackRock, and Ninety One as founding members, as well as the World Bank, Abu Dhabi Department of Development (ADDED) and (Abu Dhabi Global Market) ADGM, the Children Investment Fund Foundation (CIFF), and former Bank of England Governor and Co-Chair of the Glasgow Financial Alliance for Net Zero (GFANZ) Mark Carney.

As its mandates, the organisation has identified private-sector focused research and policy, advisory and engagement with private and government stakeholders, as well as capacity building through its ‘Climate Finance Academy’, which will provide training modules and courses for finance professionals in the UAE.

It is joined in this purpose by the Global Capacity Building Coalition, also launched at COP to support climate finance capacity building for financial institutions in emerging markets. The coalition is backed by Bloomberg Philanthropies, the UN, World Bank and other MDBs, the IMF, ISSB, Network for Greening the Financial System, GFANZ, and the Principles for Responsible Investment.