Mr. President
HE Arifin Tasrif, Minister for Energy & Mineral Resources of Republic of Indonesia
Excellencies, guests
Money talks, they say. Well, right now, money is whispering when it comes to climate action. Yes, global climate finance flows – public and private, domestic and international – have been growing in volume. They reached USD 632 billion per year for 2019–2020. But we need an increase of at least 590 per cent in annual climate finance to get on track for the goals of the Paris Agreement.
Climate financing for developing countries also fell short of the goal of USD 100 billion per year by 2020. While we are getting closer to the goal, we need to get to the USD 100 billion as soon as possible. Financing for adaptation – which developing nations need desperately given the climate impacts already locked in – is particularly weak.
The picture is just as miserly for nature, which we need to back to end the triple planetary crisis of climate change, nature and biodiversity loss, and pollution and waste. Global investments that degrade nature exceed conservation efforts by USD 600-852 billion annually.
We need to turn this equation on its head. In fact, we need to turn the financial system on its head, shake its pockets and get the money to where it needs to go. Let’s consider the four key areas in which we can shake things up.
One, public investments must get bigger and more efficient.
We all know that public purses opened far wider when COVID-19 descended. Trillions of dollars poured out of these purses to deal with and recover from the pandemic. Funding for the climate crisis must hit similar levels.
Yet today, when the world is in an energy crisis caused by gas supply issues, the response is to secure replacement gas instead of switching to clean sources of energy that are not vulnerable to geo-political shocks. At the same time, governments are spending around half a trillion each year subsidizing fossil fuels.
Switching fossil fuel subsidies to renewable energy and energy efficiency is the way forward. Taking the transformation opportunities offered by global crises is the way forward. A well-designed carbon price to incentivize decarbonization and increase financing is the way forward.
Two, private finance must step up.
The public sector alone cannot finance transformation. Mobilizing the USD 3-6 trillion needed each year to transition to net-zero-emissions and climate-resilient economies by 2050 will need private finance to align with these efforts.
The UNEP Finance Initiative, which is celebrating its 30th anniversary, works with members to develop frameworks and partnerships that allow financial institutions to strategically align financial flows with sustainable, prosperous growth.
The finance initiative does this through three finance sector alliances on net-zero. The Net-Zero Asset Owners Alliance, whose membership spans over 75 institutional asset owners with over USD 11 trillion in assets. The Net Zero Banking Alliance, with 116 banks and USD 70 trillion in assets. And the Net-Zero Insurance Alliance, which has convened over 29 leading global and regional insurers from across the world.
Members of the three alliances follow established positions on phasing out portfolio exposure to coal, oil and gas assets. Members are expected to adopt such positions as their own or explain why they cannot. Basically, they are there to commit, not greenwash.
Three, the public and private sectors must work together on creating an enabling environment.
Close collaboration between policymakers, development banks, real economy and financial institutions would enable financial sectors to invest in segments that they would not be able to invest in otherwise.
For example, the Net-Zero Asset Owners Alliance is spearheading a push for blended finance, which uses public and philanthropic capital to improve the risk/return profiles of investment opportunities for the private sector. Through its September 2022 Call on Policymakers to support Scaling Blended Finance, the alliance provided suggestions on how public capital could be utilized more to ramp-up investments in emerging economies or innovative green technologies.
There are many other approaches that could work. The main barrier to large-scale private capital flows in emerging markets is typically a high level of country risk. For public resources to be effective in mobilizing private capital, they need to include significant de-risking and provision of finance at a facility level, rather than on a project-by-project basis.
Public investments can also go beyond government support of research and development and expand into the manufacturing and deployment of new technology.
Four, trade can and should support the decarbonization of economies.
International trade accounts for over 50 per cent of global GDP, so trade can play a crucial role in decarbonizing key sectors of our economy and building resilience to future shocks. According to the International Resource Panel, one-third of material resources extracted is linked to production for trade. Resource extraction and processing is a major contributor to emissions. So, a circular economy model where materials and commodities are reused and repurposed can slash emissions. Trade policy can promote the circular economy transition through standards in trade-related production and processing, with the support of digital technology on supply chains.
We can also look at reducing barriers to trade in low-carbon technologies, which are more prevalent than barriers to trade in fossil fuels. The rise of Regional Trade Agreements offers new opportunities for countries to cooperate and coordinate trade policies in support of environmentally sound and energy-efficient technologies.
Improving alignment and compatibility between climate finance and Aid for Trade can also help. Most Aid for Trade to least developed economies is targeted at the transportation, agriculture and energy sectors, which are big emitters. At the same time, many of the donors that provide mitigation and adaptation finance are also involved in trade-related assistance. This gives us room to manoeuvre.
We are initiatives in trade. Costa Rica, Fiji, New Zealand, Norway and Switzerland launched the concept of an Agreement on Climate Change, Trade and Sustainability at the WTO. In addition, around 20 WTO members are exploring a coalition of trade ministers on climate.
But greater cooperation on trade will be vital to meeting the Paris climate goals.
So, I said at the beginning, climate finance is still whispering. We need to make it roar. Through public and private means. Through trade. Through the UN system and multilateral development banks. Through every means necessary. This is how we turn around our societies and economies. How we hit net-zero. How we finally get humanity back to living in harmony with nature so that we can all live healthy, equitable and prosperous lives.
Thank you.
