Two gatherings in the present fortnight crystallise a central dilemma facing the Paris agreement implementation process.
In Bangkok, Thailand, an additional interim meeting of the UNFCCC, called to try to overcome a lack of progress on ‘Paris rulebook’ issues that need to be finalised at COP24, has just ended. COP president Frank Bainimarama of Fiji said at the opening session that “this is not just an additional session. It is an urgent session … [because] frankly we are not ready [for COP24]”.
By all accounts (here’s a sample), progress was mixed, and on a topic critical to developing countries, especially the poorest ones – climate finance – stalled altogether. Developing country representatives said that a proposal by a number of developed countries would essentially “let them off the hook” over reporting their promised contributions, in the words of Brandon Wu of Action Aid. Noting that the proposal would allow commercial loans to be reported as climate finance, Wu said that it “essentially says ‘countries should report what they want.’” Developed countries want climate finance to be clearly additional to development ODA and private sector investment.
A few days after the close of the UNFCCC meeting, on the other side of the Pacific, the great and good of national and sub-national politics, business, investment and think-tankery will assemble for the Global Climate Action Summit (GCAS) in San Francisco. As well as the official two-day programme (on 13/14 September), there are hundreds of side events in the days before and after.
Though the official programme features a couple of events related to Paris/NDC finance, it’s telling that what’s billed as “The Investor Agenda” centres mainly around the concerns of major institutional investors, featuring issues such as corporate engagement, investor disclosure and policy advocacy, with even the “investments” theme focussed on transparency and divestment issues. These big institutional investors, as we have pointed out before, won’t be the ones providing of primary finance for NDCs in developing countries.
That will be provided by blended finance of one kind or another, so it’s equally telling to note that just a handful of the side events cover this topic specifically.
Therefore, though much great work and many useful pledges will doubtless get done in and come out of the GCAS, will it do much to advance the ball on the kind of money that developing countries need to fulfil their NDCs? The answer to that has to be “most likely not”.
What’s the linkage, then, between these two events, apart from the Rise for Climate Action protests around the world that was held over the weekend in between?
I believe they demonstrate the failure to build a community around the financing of the Paris agreement.
Paris is more than “The Transition”
Events like GCAS indicate that there is some kind of commonality of purpose emerging around the big issues that affect investors in what is generally called “The Transition,” that is, the major institutional investors. “The Transition” is, of course, a shorthand for the transition to a low carbon economy. But it’s actually a shorthand of a shorthand, meaning a transition to a low carbon economy in the developed world that these investors focus on, plus perhaps China and India.
A huge amount of donor money has been thrown at institutional investor concerns
That such a commonality of purpose may be emerging at the upper (institutional) end of the climate finance food chain would not be surprising – a huge amount of donor money and think-tank resources have been thrown at advocacy on things like disclosure and divestment for a decade or more now.
But it creates a disconnect from the Paris agreement, and a potentially dangerous one.
The danger arises because if “the transition” thus narrowly defined is achieved, then those for whom fixing climate change is simply a numbers game about mitigation will start to feel that the problem is being solved and there’s no need to do any more. After all, the major economies are the major part of the problem, so sort their emissions out and you are done, goes the ‘theory of change’.
Yet the Paris agreement is of course about much more than just mitigation in rich and / or populous places. It includes the adaptation element as well, not to mention loss and damage and issues of justice and equity. If the NDCs are going to be financed and implemented, the right people need to be got together, with the right tools available to get the job done.
Community not just Capacity
That’s in part about capacity building, and much is being tried and done to achieve that, mainly through ODA and DFI programmes.
But it’s also about community building, and there we haven’t even made a start, it would seem. Rather, as former UN climate change head Yvo de Boer has just said in a piece for Climate Home News, “we have failed to generate trust between [rich and poor country] parties,” and “any country seeking coherent support for systemic implementation of its nationally determined commitment, would be hard-pressed to find it.”
Most bankers have never even heard of the NDCs
What then might we mean by “community”, in this context?
One defining aspect of a community is that individuals or organisations are able to self-identify as a member of it. Thus anyone with a disability can identify with “the disabled community”. That ability simply doesn’t exist in the NDC finance sphere at the moment. A civil servant in Bogota charged with implementing some element or other of her country’s NDC won’t see herself as connected to a banker in London who could be providing the money. Most bankers, meanwhile, have never even heard of the NDCs, though they actually represent for banks a huge project finance opportunity.
The NDC community is in fact quite easy to identify. It sits in the national and sub-national and city ministries and departments that will have responsibility for delivering NDCs – energy, transport, natural resources, planning, finance and so on. It sits in development and investment banks and private equity firms, both local and international. It sits in the professional service providers to finance – ratings agencies and accountancy and law firms. It sits in donor organisations – both private philanthropies and public aid agencies – and in the NGOs, think tanks and academic institutions that advocate and educate on climate matters.
From experience of the users of the NDCi.global website, we reckon this community probably numbers somewhere around 25,000 people globally.
Connecting the community
It is also eminently possible to connect up this community – one example of creating a self-identifying community absolutely from scratch is impact investing. A decade ago that term didn’t exist, now it’s a widely recognised financial “asset class”, with thousands of people working within it who relate to the ‘badge’ they perceive themselves as wearing – and wearing with pride.
NDCi has made a small contribution to community-building through its Climate Finance Accelerator (CFA) concept, first operationalised in 2017. This brought multi-stakeholder delegations (including civil servants, development banks and private financiers) from Mexico, Colombia and Nigeria to London and paired them with financiers from global investment banks and DFIs. Follow-up work indicates that the methodology the CFA introduced – creating multidisciplinary teams (policy-meets-finance) to work on specific projects – is now seen as powerful (and grounded) way to help fund NDC projects.
Trust is key
An interesting side-product of the CFA, however, was the establishment of trust between the various parties involved – an outcome that wasn’t in anyone’s delivery contract or theory of change for the project, but was perhaps its most useful one.
Civil servants were able to see that bankers – far from their usual demonic stereotyping – were human beings of goodwill, while bankers were able to see in the civil servants people well capable of understanding finance and the specifics of policy adaptation needed to make specific projects viable. The creation of mutual track records working on actual projects can only help build trust between these groups further over time.
We need to create an “NDC Finance Community”
Trust is of course the underpinning of finance – “credit” means trustworthiness. In the climate finance world as it is presently constructed, however, trust in any person-to person sense appears to be deliberately engineered out.
The GCF is a perfect example of this dynamic. It could have taken a course of building trust through human interaction and gradual improvement. This it could have done by financing projects and counterparties that may not have been perfectly formed on day one, but that with goodwill could be improved over time. Instead, it employs an accreditation system that (despite its name) assumes that no party is trustworthy, and imposes project conditions that demand the perfect and thus displace the good. The results of this approach are plain to see: just a few hundred million dollars actually disbursed to projects in nearly three years of operation, and the vast majority of project approvals mired in probably unresolvable paperwork.
On the finance side of Paris (as opposed to the science or the rules), we need to move beyond the formal structures and mechanisms of the UNFCC and create an “NDC Finance Community” that will, through the age-old means of getting things done (probably imperfectly to begin with), creating relationships and building track records, start to embed trust and produce results.
To create that community, a number of things need to happen. Donors need to wake up to the fact that climate change is not just about “The Transition,” but about all aspects of the Paris agreement and look beyond just the concerns of institutional investors. The UNFCCC needs to be encouraging of new forms of interaction. NGOs maybe need to prioritise their concerns on agendas that affect the viability of projects. DFIs certainly need to change their risk appetites to bring in more co-financing from a private sector which in turn needs to be more pro-active about identifying pipeline.
None of these things is easy to do in isolation, because people fear being seen to ‘climb down’. We need to create a community where action and interaction can occur that make change the positive option. Working as part of that community needs to become a source of pride, not tension and distrust – what is there, after all, more important that one could be working on?