Established to service the international climate negotiating process, since the signing of the Paris Agreement the UN Climate Change secretariat (UNCCs) is increasingly being called on to support climate action and in particular finance action.
South-African Grant Kirkman heads up relations at the secretariat’s Sustainable Development programme, in support of finance action under the global climate action agenda. The agenda was agreed as part of the Paris Agreement and is guided by two Climate Champions representing the Presidencies of the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (COP and CMA), presently Morocco and Fiji.
“At the same time,” Kirkman says, “the UN underscored that climate action and sustainable development are one unified agenda. Moreover, there was consensus in recognising that the UN needs to do more to deliver results and real impact on the ground, and ‘put the SDGs to work’.
The global response to climate change is integral to achieving sustainable development and, on the ground, there is only one agenda. Our analysis of the 190 NDCs confirms that Governments have already moved in that direction. It is also clear that the implementation of the Paris Agreement and SDGs at the national level requires a greater emphasis on partnerships. The mobilisation of all actors is more important than ever.”
The small team of which Kirkman is part focuses on what are called ‘Non-Party-Stakeholders’ (NPS) in the finance sector – basically, as Kirkman puts it “anyone non-governmental” – but whose efforts coordinate and align closely with national priorities.
These include multilateral, national and regional financial institutions, intermediaries and banks as well as – increasingly – private sector financial institutions. They have been working with partners on a range of initiatives and even instruments that include renewable asset backed (green) bonds and pilots in the fintech space, as well as catalysing carbon finance, on which the programme has considerable institutional knowledge.
The global response to climate change is integral to achieving sustainable development and, on the ground, there is only one agenda.
Grant Kirkman, United Nations Framework Convention on Climate Change secretariat
To understand the opportunities and barriers, Kirkman and the team spent time in 2016 on the road, on a punishing-sounding but clearly illuminating tour of Africa. What they learned confirms themes NDCi. global has been hearing from different sources, but in this instance the evidence-base is impressively broad given the number of countries visited.
The potential investment opportunities in developing economies are enormous,” Kirkman says, “but there’s also a high degree of risk, which is not palatable for traditional investment yet. So there’s a need for public money for barrier reduction to mitigate some of these constraints.
At the moment most of the investment is coming from constrained and expensive local capital markets. There’s also a huge need for early stage capital, as well as help in deal preparation such as feasibility studies and intermediation”. Policy to support investments is also an issue – “Policies in some countries are seen as solid, others are not, so that’s perceived as a serious risk for investors, sometimes locally too.”
But the level of interest is high within countries. “There are plenty of very clever, highly engaged people – business folk, project developers. Investment promotion agencies and business councils are also very active in many places, as is civil society and bilateral funding agencies with a strong presence”.
Building a stronger community of support
To make progress, Kirkman says, “our experience so far is that we work best as a neutral intermediary connecting the dots so that bankable, demonstrable deals attract the attention of others in the market. We do this by engaging with existing public and private financing partners including MDBs, IFIs, regional and national development banks, foundations, donors, national governments and institutional investors, to source capital as well as create credit enhancement or risk mitigation solutions.
We lend convening power to investment solutions on the ground with targeted input and support from UN field-offices and agencies, and we share knowledge and expertise to build a stronger community of support for low carbon and resilient projects and investments. Finally, we measure and assess the impact of the investments we help incubate and support. The UN’s climate funding pages track most of the significant climate finance actions,” he says.
A key and persistent barrier that Kirkman sees is currency risk. “Hedging of currency is a massive issue, and it’s going to become increasingly important.” He mentions products such as Guarantco hedging for infrastructure developments and the use of structured finance* by DFIs to absorb some currency risks, and notes that some banks actually see upside from currency movements. On the whole, though, currency concerns are still going to be “the major barrier to overcome, in further catalysing the flow of capital from mature financial centres into emerging markets”.
The potential investment opportunities in developing economies are enormous but there’s also a high degree of risk, which is not palatable for traditional investment yet.
“This is why it’s also critical to develop local capital markets further,” he goes on. “India is making real progress on this, for example. Banks there are taking physical investments and repackaging them as financial investments which local and international investors can then pick up.”
He is also seeing a lot of progress in regional development banks in Africa issuing sukuk* (Islamic bonds), but notes that although banks are being successful in tapping markets through bonds, the use of proceeds is still often not linked to environment or climate-related projects. “So it’s difficult to say that these result in new low carbon, resilient and SDG-aligned investments,” he says.
Regional Collaboration Centres
The support the UN system provides (of which UNCCs is one part) is already sending important directional signals to financial markets, which have a catalytic role to play, by leveraging UN convening power and bringing in a long-term finance perspective. In this respect the UNCCs’ five Regional Collaboration Centres are key to its outreach efforts. These are based in Uganda, Togo, Bangkok, Panama, Grenada and cover a number of countries in the surrounding regions.
On NDCs, Kirkman’s sees the NDC Partnership, which is in the process of getting established, as potentially a key vehicle to ensure countries receive the technical and financial support to meet specific needs in pursuit of national climate and related SDG goals, as cost effectively as possible.
The good news, Kirkman says, is that many major financial institutions are already launching funds and innovative financial products which are very attractive for the mainstream institutional investors – returns from climate and SDG-aligned investments are increasingly getting noticed.
“These innovations are an effective way to create competition within the market. They spur others on to develop more products in a race to the top.” Many financial institutions are, however, still at “ground zero” in terms of mainstreaming climate and sustainable development thinking into the investment processes, and the secretariat is working with partners and willing institutions to lend support in accelerating this mainstreaming where it can.
This story was published with permission from NDCi.GLOBAL.