We will need to find our own sources of climate finance

Source: The post is based on the article “We will need to find our own sources of climate finance” published in the Livemint on 13^th November 2022.

Syllabus: GS – 3 – Conservation, environmental pollution and degradation.

Relevance: About climate finance.

News: The agreement to create a loss and damage fund might largely trickle in through concessional loans instead of proper funding.

What is the present state of climate finance?

According to the OECD’s climate finance trends report 2022, of the targeted $100 billion aggregate climate funding, about $83 billion was mobilized from developed nations via global agencies through 2020. Among these, concessional and non-concessional loans stood at 71%, grants at 26% and equity at 2%.

Of these, private climate finance and export credit extended via agencies comprised just $15 billion.

Thematic split of $83 billion: a) Majority of the funds are invested in climate mitigation activities($49 billion) focused mainly on cleaner energy and transport, b) After that about $28 billion was spent in climate adaptation, mainly for agriculture, water supply, forestry restoration, coastal fishing and sanitation.

Regions: Asia (42% of the 2020 total), Africa (26%) and Latin America (17%).

Why does the world need to work on climate finance?

The adaption finance needs of developing countries will gallop to $340 billion annually by 2030. For instance, India alone will have to install around $250 billion worth of renewables by 2030.

Small and medium-sized enterprises and local communities are left out of major government plans such as India’s long-term Low Emissions Development Strategy (LEDS).

What should be done to improve climate finance in India?

Focus on sustainability: For that, India’s credit curve requires a different approach that rewards entities seeking to build resilience through sustainability.

Improve banking access: Indian banks should be nudged to lock in long-tenure, low-cost private climate capital from alternative sources, like overseas investor institutions, private philanthropy, CSR budgets, etc. They should be incentivized to lend cheaper loans to diverse businesses.

Encourage new climate technologies: This can be done by nurturing finance instruments and venture capitalists.

Bridge urban-rural divide in climate finance: This can be done by providing low coupon sustainability-linked bank loans or overdraft facilities at the entity level.

Delineated projects of larger companies or well-rated special-purpose vehicles should meet pre-set mitigation specifications and has to be encouraged to raise funds through domestic financial institutions (DFIs), project financiers and private and sovereign green bonds.