Accelerating Climate Action: The Crucial Role of Private Finance at COP28

The Importance of Private Finance in Climate Action at COP28

As the esteemed leaders of the world convene at COP28 in Dubai to deliberate on the future of our planet, a significant question takes precedence in discussions: the role of private finance in hastening the journey towards net zero emissions. It is abundantly clear that the private sector must markedly amplify its investment in net zero initiatives, as it currently only contributes 40% of climate mitigation investment, falling short of the 80% required by 2030, as outlined in the analysis by the International Monetary Fund (IMF).

Private sector contributions towards supporting net-zero transitions in developing countries have been lacklustre. The developed world has failed to uphold the pledge made in 2009 to provide $100 billion in annual climate finance to developing nations, with the 2020 deadline extended to 2025. Furthermore, private finance has remained at a standstill since 2017 and remains markedly low, as emphasized in a report by the Organisation for Economic Co-operation and Development (OECD) from November.

The evolving role of private finance in climate action has prompted a shift in the global financial sector’s perspective. While there was once optimism that finance would lead the transition, there is now a growing recognition that it will need to adhere to regulatory frameworks and policies. This shift in perception has been influenced by several obstacles faced by the Glasgow Financial Alliance for Net Zero (GFANZ), which witnessed key members withdrawing and encountering legal challenges.

Despite setbacks, GFANZ is expected to play a significant role at COP28 and is anticipated to make announcements regarding private finance for climate action. However, there are concerns surrounding certain proposed strategies, such as the concept of Expected Emissions Reductions (EER), which has been criticised for potentially rewarding high-emitting entities.

The International Energy Agency’s recommendation to cease new investments in fossil fuel supply projects has not been fully embraced by financial institutions, with many continuing to invest in the fossil fuel industry. This has engendered calls for governments to take the lead in phasing out fossil fuels, with a focus on the role of regulation in steering financial institutions away from investments that pose risks to the environment.

COP28 will also witness negotiations for a new global climate finance target post-2025, presenting an opportunity for global leaders to deliberate on how public finance can mobilise private sector investment towards net zero. Furthermore, discussions will ensue around reforming the global financial architecture, with the potential for financial commitments towards initiatives aimed at facilitating access to international financing for countries most vulnerable to climate change.

The role of private finance in adaptation efforts is equally crucial, with an urgent need for heightened efforts to leverage private sector investment for adaptation. However, there are challenges in attracting private finance to adaptation investments, especially when compared to investments in renewable energy.

In conclusion, COP28 presents the promise of addressing critical issues pertaining to private finance in climate action, and the collaboration between the private and public sectors will be instrumental in driving meaningful change. The engagement of private finance, alongside robust regulatory measures and global financial commitments, will be pivotal in accelerating the transition towards a sustainable future.