This year’s UNFCCC Conference of the Parties (COP23) in Bonn, Germany is progressing with strong calls for countries to hold to the path of the Paris Agreement — a global effort that the Alliance for Financial Inclusion (AFI) is contributing to, with focus on financial inclusion, climate change and green finance.

Now ratified by 169 countries, 75 of whom are countries with AFI members, the Paris Agreement, and indeed COP23, is an unprecedented opportunity for countries around the globe to unite around a common goal: preventing a global temperature increase of more than 2°C by reducing greenhouse gas (GHG) emissions, and building resilience to the impacts of climate change. 

Financial inclusion & climate change

In recognition of the urgency to scale-up climate finance and build momentum for sustainable development, AFI members including COP23 Presidency, Fiji, collectively signed the Sharm El Sheikh Accord on Financial Inclusion, Climate Change and Green Finance in September 2017.

The Accord leverages on AFI’s policy platforms and capacity building tools to strengthen peer learning and knowledge sharing on financial inclusion policies and regulations, which lead to tangible benefits for climate change adaptation and mitigation, key areas of focus at COP23.

At COP23, Prime Minister of Fiji, Frank Bainimarama highlighted the need to advance implementation of the Paris Agreement through a “Grand Coalition” of actors, including governments at every level, civil society, the private sector, ordinary citizens and other stakeholders.

Bridging the gaps in climate finance

The underlying challenge mentioned in many discussions at COP is: Who will foot the bill?

Years of rallying around climate finance by developing countries (termed ‘Non-Annex 1 countries’) has led to a gradual, sustained increase in climate finance funds. However, the climate finance systems needed to support adaptation and mitigation, particularly in vulnerable communities, have not reached sufficient scale, falling short of the estimated US$100 billion per year necessary to deal with the impacts of climate change.

The Adaptation Fund has so far allocated over US$462 million for adaptation projects in developing countries, while the newer Green Climate Fund (GCF) has disbursed approximately US$131.1 million dollars so far.

While public and private sector activities build on the advances in renewable energy and climate change mitigation finance, multilateral development banks tend to dominate grant-making and investing in climate change adaptation. These investments have led to significant gains in tackling climate change globally, however, inclusive climate finance on a national scale is an emerging area which has the potential to scale up access to sustainable financial flows.

Fiji launches green bonds to boost climate resilience

In October, COP23 host nation and a leader in financial inclusion, Fiji announced the launch of a US$50 billion green bond for climate change related projects to boost climate resilience in Fiji. Green bonds are part of the emerging area of inclusive climate finance and are considered an innovative source of investment.

According to the World Bank, green bonds are projected to reach US$134.9 billion in value within this year. Like most island nations and developing countries, Fiji is acutely vulnerable to the impacts of climate change, evident in the damage incurred when the most intense tropical cyclone in the Southern Hemisphere (Winston) passed directly over the island earlier this year. Fiji’s green bond will be used to build resilience to the impacts of climate change as well as supporting projects that contribute to achieving 100% renewable energy in Fiji by 2030.

Access to climate finance: Challenges & lessons learned

Issues relating to improving access to climate finance for adaptation, mitigation and cross-cutting issues have been brought to the fore at COP23.

The NDC (Nationally Determined Contributions) Partnership, a coalition for mobilising support for climate and development goals, hosted an event on “Increasing Access to Finance” focussing on risk, uncertainty, information, returns, and coordination. This Partnership, co-chaired by the Governments of Germany and Morocco, will launch the NDC Support Program at the Conference this week, which aims to develop financing mechanisms and provide technical capacity to developing countries that will enable the implementation of their ‘nationally determined contributions’ to reducing climate change.

Other agendas at COP23 have focussed on addressing barriers to financial access and lessons learned from previous climate agreements, the Kyoto Protocol, for example. Reporting from COP23 on Tuesday, Gareth Phillips, Chief Climate Change and Green Officer in the African Development Bank (AfDB) Environment and Climate Change Division, reflected on the failures and lessons learned from previous climate finance mechanisms such as Carbon Trading Schemes (CTMs), International Emissions Trading (IET), and the Clean Development Mechanism — some of which were intended to reward communities for investing in mitigation.

As a response to weaknesses in current climate finance mechanisms, the AfDB and the Government of Uganda, with the support of the Government of Cote d’Ivoire, are proposing the creation of an ‘Adaptation Benefit Mechanism (ABM)’, which is a project-based mechanism designed to offer a price signal for adaptation to private sector investors. These, and other experiences and lessons learned, present an opportunity for innovations and creative solutions in financial inclusion to be integrated into Paris Agreement workplan.

Learn about AFI’s involvement in climate change.