Ideas for Garnering Private Climate Finance
Geeta Sundaram
Ex-Ogilvy, Brand Strategist & Creative Director/writer, over 20 years in the business; open to relocating anywhere
After Dubai, yet another oil rich country got a chance to host the UN Climate Change Summit or COP as it is known. I am not sure what the purpose of this is, but an obvious implication is that it would tend to limit conference discussions and deliberations, given that there would be resistance to moving away from fossil fuels from the host country itself. As it turned out, it was reported that the leader of Azerbaijan hit out at western economies saying that fossil fuel was a gift from God, at the COP29 Summit just recently held at Baku in Azerbaijan. As ridiculous as this sounds, he should know that EU countries import LNG from Central Asia in the wake of the Ukraine-Russia war and also invest heavily in the region. Besides, even the US that now produces more oil and gas than any other country is exporting plenty to Europe, and with Trump returning to the US Presidency this trend will only accelerate.
As it also turned out, leaders from most developed economies were not present at COP29 this year, which tells us how serious the entire global conversation on climate change really is. I am not sure that COP29 dates clashing with the APEC Conference and the G20 Leaders’ Summit was the only reason, though this too might have been very conveniently arranged by our unprofessional PR agency idiot bosses in India who interfere in schedules and venues of international conferences, besides meddling in the conference agenda and discussions as well.
From what little reporting there is on the COP29 conference, it seems that this summit was billed as the climate finance summit, as accessing enough finance to deal with climate change remains the biggest challenge. One news report mentioned that development banks were ready to make available US $120 billion each year until 2030 for poorer countries to tackle climate change and that this was an early boost to the talks. Other reports seemed to suggest that not much progress was being made, but these were all sketchy and poor on details, though in later days, India’s CSE (Centre for Science and Environment) and their publication Down to Earth provided some of the best reporting on the subject. The UNFCCC website is a maze, most reader-unfriendly, and so upon further reading elsewhere, I discovered that meeting all the climate change mitigation, adaptation, clean technology development and transfer needs requires trillions of dollars each year until 2030. The US $120 billion commitment from MDBs is welcome, but is only a drop in the ocean.
Recent conversations on climate change and MDBs suggest an effort is underway to attract private capital into climate change finance, as government grants and loans as well as MDB loans aren’t adequate to meet all the challenges, and in time. This article from World Economic Forum highlights some of the challenges as well as financing options, and cites an article from The Guardian that refers to a study by an organisation I had never heard of, called Oil Change International! Reeks of mischief by the same unprofessional PR agency idiots. Anyway, some of the options being considered sound unrealistic and even silly to me, such as taxing the wealthy including corporations and the fashion industry!
I decided that instead of searching for more detailed media reports on COP29, it might make more sense for me to put down my thoughts on how to attract private capital into what is essentially a public good and affects each individual on this planet. From what reading I managed to do on the state of climate financing on websites that Google served me, but I hadn’t heard of before, here’s what I could see as the current situation:
Now, let me share the few ideas that I have on the issue, even though I must clarify I am not a finance professional. I am an advertising professional who knows her economics, and no, I have nothing to do with animals or veterinary sciences as OECD once clubbed the two together (part of the same PR agency circus trying to make me my younger sister). These ideas are ways to tap into long-term financing for climate change and ought to provide a steady stream of private capital over the next decade at least.
A US dollar denominated global debt fund specifically meant for adaptation
I was wondering if a large global debt fund could not be created for the purposes of climate change adaptation that is managed/coordinated by the UNFCCC. The US dollar denominated long-duration bonds issued by the UNFCCC would be allowed to trade in the secondary markets globally, earning as they trade. Private investors would not get very high returns as in equity markets, but are at least guaranteed a fixed return with low risk, and the capital is being invested in the critical area of climate change adaptation in poorer countries. It is almost equivalent to fundraising for a large infrastructure project, and therefore should attract interest from private players.
The UNFCCC runs several funds for climate change, but none of them are debt funds; they are large corpuses/pools of grants and loans managed by various organisations under UNFCCC. Separately, I also discovered that there are several green bonds issued by private financial institutions as well as governments around the world, and these are further tracked by ETFs, which indicates to me that there is a market for such instruments and sufficient interest in impact investing through green bonds. This is currently the thrust of the private sector effort in climate change financing, and this is what I was referring to when I mentioned earlier that private sector investment is mostly going towards mitigation and clean technology.
Chinese banks are said to be the largest issuers of green bonds and in India too, our government has begun issuing green bonds and the amount has been raised from Rs160 billion to Rs200 billion this year. We just need to make sure that the issue of climate change adaptation is explained clearly and well, so private investors are seized of the importance of it and how much in need poor and LDC economies are of this type of financial assistance.
Involving insurance companies worldwide in climate finance
My second thought to bring in long-term finance into climate change is to tap into the large insurance industry globally. These companies already play a very important role in protecting lives, infrastructure and property from the ravages of climate disasters and their importance is only likely to grow in future as climate-related events become more common. The insurance and re-insurance industry are clearly cut out to rise to the occasion of now helping us finance climate change adaptation on a much more active basis, which is meant to help poor and developing countries.
I am not sure if the insurance industry contributes in any way to the UNFCCC fund-raising activity including the Loss and Damage Fund. But I do think that the kind of financing the insurance industry can provide will be of the long-term sustaining variety and this is just what the UNFCCC needs. Here again, insurance companies can innovate with new products that are specifically designed to meet climate change and perhaps these can also be traded, so that they earn more in the capital markets.
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Carbon tax on industry around the world
Then, I come back to my favourite idea of imposing a carbon tax on industry in each country domestically. I have always thought this is more effective than an emissions trading system, as I have written on my blog before as well.
Such a tax will go towards meeting some of governments’ climate change finance needs, and is more specific than merely taxing the wealthy and the fashion industry, or windfall taxes on fossil fuel companies. Which is not to say that the wealthy should not pay higher taxes or that fossil-fuel companies should not shift to cleaner fuels. It is just that a carbon tax is more strategic and better targeted in solving the problem it seeks to address.
Reforming CBAM into a global carbon tax on traded merchandise
The G20 Leaders’ Summit, having just taken place this month in Rio, I can’t help but bring another of my long-standing ideas into discussion here. Which is to reform and adapt EU’s CBAM into a more sensible and reasonable carbon tax-sharing mechanism on all traded merchandise at least for the world’s most important economies.
Harnessing the power of a brand for UNFCCC
The last of my ideas for raising funding for climate change from the private sector is to do with developing intellectual property specifically for this task and licensing it. If the UNFCCC can create a brand out of its initiative to deal with climate change and then license it to private companies that can partner UNFCCC in promoting the message of climate change around the world, this can be another useful mechanism to raise climate finance.
Imagine the UN being able to work with companies like Disney, McDonalds, Coke, Pepsi and so many others in promoting a brand with a message and raising money from it for a public cause. I had shared an idea in my thoughts on the Rolex brand that the company can innovate to design their Sky Dweller wristwatch to also feature a climate change temperature gauge and climate clock on it – with this kind of innovation, Rolex could well team up with UNFCCC in licensing the brand that I am now suggesting to raise climate change funding.
At the moment, it is only an idea that occurred to me, and I haven’t yet thought it through entirely but it strikes me as one with potential and I shall explore it further.
As we wait for the next COP summit to find agreement on many of the contentious issues, time is clearly running out. The longer the world waits, the more expensive the climate change bill becomes. Finally, COP29 which spilled over to an extra day of hard negotiations, ended with a pledge from developed economies to provide climate-related financing of US$ 300 billion each year to poorer developing economies till 2035. It is still nowhere near enough to meet the challenges ahead, and so it might make sense, therefore, to consider as many ideas on climate finance as possible, look at the fundraising ability of each and quickly put the most promising ones into implementation. Equally important, is to ensure that enough funding goes to adaptation which is what poorer developing countries need on a priority basis.
Meanwhile, I suggest the UNFCCC make its website more reader-friendly, providing all the relevant information upfront instead of making visitors click on links which either say nothing much, or present long documents in dull and tedious officialese. I understand that these official documents are necessary for those dealing or working with them, but they might not be relevant for the rest of the world. Engaging, informative and reader-friendly content is the start of a fruitful conversation on an issue that concerns everyone.
Note: I happened to read a piece in Project Syndicate rather late, but I think it’s worth sharing here for readers who might wish to delve deeper into climate change funding. In this piece by economist, Mariana Mazzucato and Jonathan Glennie, they make the case for greater public funding, especially by development banks, to be made available in order for the private sector to invest more. I am not sure that the one needs to wait for the other and I think that all routes should be explored simultaneously.
In the piece they talk of a GPI model of financing that they have come up with, which you can read more about here.
This article was first published on my blog on November 28, 2024.