Discussion brought together experts during the Forum for Climate Finance

Creating opportunities for the economic and social development of developing countries and seeking innovative alternatives in order to mobilize resources were the topics debated in the third panel co-organized by the Institute for Climate and Society (iCS) at the Brazilian Forum for Climate Finance, during the second day of the event held in São Paulo, on February 27.

“Latest trends for the strengthening of the climate finance agenda” was the title and the panel was a partnership between iCS and the European Climate Foundation. The urgency of leveraging the flow of financial resources to reduce carbon emissions and to pay for the adaptation to climate change was at the center of the discussions. The topic is fundamental because, in its most recent survey, the United Nations Adaptation Gap Report 2023 indicated that the progress in climate adaptation is slowing down instead of accelerating

In the forthcoming years, it will be decisive to direct public, private and philanthropic resources to fill this gap, advised the director of Partnerships, Communication and Knowledge of iCS, Alice Amorim, during the opening of the panel. “Ten years ago, the debate was focused on the context of the Climate Convention, with the discussion about the transfer of public resources. We are a significantly long way from where we need to be and the debate has progressed and become even more complex,” she said.

According to Alice Amorim, there are many figures available but the functioning of the different finance instruments is not clear. She argued that financial resources, whether taxation mechanisms, subsidy redirection, public resources, and private or philanthropic investment, need to help to solve real-life problems. After all, 2023 registered record temperatures, while storms, floods, droughts and heatwaves demonstrated the urgency of financing strategies to tackle climate change.

The moderator of the debate, the president of the Talanoa Institute, Natalie Unterstell, discussed the need to relocate resources for the low carbon economy to flourish. According to her, data from the permanent finance committee of the Climate Convention indicates that between US$ 5.8 trillion and US$ 5.9 trillion are needed to implement the national goals for the reduction of climate emissions, the NDCs, of developing countries. Natalie said that just over half of this amount should be covered by private investment, 25% by financiers and 20% by innovative mechanisms. “We need philanthropy and all the types of resources heading in the same direction.”

How can the finance gap be closed? One of the proposals comes from Laurence Tubiana, the current CEO of the European Climate Foundation. The former French Climate Change Ambassador was one of the main architects of the Paris Agreement, adopted at COP21, in 2015. Laurence stated that additional resources need to be found for adaptation and losses and damages. “We must keep in mind the element of social justice in the climate finance issues,” she reinforced. “We need different types of financing.”

Among the proposals presented by Laurence during the event was the initiative launched by France, Kenya and Barbados, at the end of last year, which discusses the issue of international taxation, including sectors considered taboo, such as aviation and navigation, and also wealth.

Challenge of the cooperation between public and private resources

For the former deputy general manager of the Bank for International Settlements (BIS), Luiz Awazu, the major challenge is in increasing the cooperation between public and private resources. “Climate is risk. Mitigation mechanisms of this risk are needed so that the transition to carbon neutrality projects is effective.” He presented some proposals to confront this challenge, including the securitization of risk, with assets of increasing risk so that investors can evaluate which they consider acceptable in the application of their resources.

Another cited suggestion is “catastrophe bonds,” which are capable of providing insurance to countries that are currently unable to insure themselves, such as small islands and those at extreme risk. Awazu stated that private investments alone, with calculated risk, are not enough. “It is necessary to expand the grant mechanisms because poor countries, islands and other developing nations will need finance to confront any catastrophic climate accidents.”

A consensus was evident among the speakers. More than the US$ 100 billion promised to developing countries will be needed for there to be a transition to a low carbon economy. “There is a market, a technical instrument, an algorithm and a technology: it is a question of putting it all into practice,” said Luiz Awazu.

Asger Garnak, the leader of Investments and Finance at the Dutch think tank CONCITO, pointed out that resources alone are not enough. “Countries need international support, technical assistance and financial instruments to address risks, and one of the ways to do this is to negotiate debts as collateral,” he said.

In the opinion of the senior fellow at the Brazilian Center for International Relations (CEBRI), Rogério Studart, most developing countries do not have the capacity to mobilize resources. “The ecosystem of climate finance needs to evolve, with more promising models that can help create instruments to facilitate and build a bridge to international financing,” he commented.

New technologies can help to strengthen public policies and climate finance, according to Ruurd Brouwer, the CEO of the TCX Fund, which is dedicated to providing currency risk solutions for borrowers in emerging and bordering countries. “With so many problems to confront, there is a risk of paralysis, which translates into talking more and more but not taking any action,” he warned. External crises also have their effects. “The risk increases and the money disappears,” stated Brouwer.

“It is necessary to have qualified data in order to understand and map the reality, which is not always the case. This is why the initiatives that exist are very specific,” stated the Undersecretary for Sustainable Economic Development of the Ministry of Finance, Cristina Fróes de Borja Reis.

The challenge, according to the undersecretary, is to develop income opportunities that are attractive so that traditional financiers will to want to migrate to this new path of sustainability. “Projects need to be appealing in order to attract investors and they need to provide results with inclusion, combating inequality, and providing employment and income for the people who need it the most,” she concluded.

The Brazilian Forum for Climate Finance was jointly organized by the Arapyaú Institute, the AYA Institute, Institute for Climate and Society (iCS), the Igarapé Institute, the Itaúsa Institute, the Open Society Foundations and Uma Concertação pela Amazônia.

Credit: Fotoka/Divulgação

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