Understanding Climate Finance Ahead of COP29

Build up to COP 29??

We are officially 2 days away from the 29th edition of the annual United Nations Climate Change Conference otherwise known as the Conference of the Parties or COP 29.

This year’s COP is set to take place in Baku, Azerbaijan and has been dubbed the “finance cop”. From 11 - 22 November 2024, representatives from around the world will gather to negotiate the creation of a new finance goal known as the New Collective Quantified Goal (NCQG). South African negotiators and the African Group will be seeking a commitment of USD 1.3 trillion per annum.??

According to Penny Gasela, Chief Director for International Climate Change Relations in South Africa, “A successful COP outcome is one that reasserts the global solidarity to implement commitments and obligations already undertaken”. Climate finance directed towards the African continent will be a key component in achieving that success.?

Climate Finance Negotiations?

Up until now, developed countries claim to have met the goal set in COP15 in 2009 of mobilising USD 100 billion annually in climate finance for developing countries to implement mitigation and adaptation efforts however this has relied on a broad definition of climate finance.

According to the United Nations Framework Convention on Climate Change, “climate finance refers to local, national, or transnational financing - drawn from public, private and alternative sources of financing – that seeks to support mitigation and adaption actions that will address climate change.”

Roughly a quarter of developed countries’ existing climate finance contributions have been made by counting existing foreign aid which was not new or additional climate finance. 70% of commitment was achieved through loans, a portion of which were made at market rate, meaning that developed countries have been able to profit from the interest derived in handing out those loans.??

There is thus a call for clear, enforceable commitments and accountability mechanisms with regards to climate finance flows between developed and developing countries. Meeting these climate finance obligations should take into account that many developing countries already have high debt burdens. Most of the work of negotiating climate finance agreements and the NCQG will have already taken place in the build up to COP (Daily Maverick), and given the urgency of the problem, it is essential that these agreements are implemented as soon as possible.???

The state of Climate Finance in Africa and South Africa

As reported in the Daily Maverick, in 2024 African countries have been losing an average of 2-5% of their GDP and diverting up to 9% of their budgets responding to climate extremes. Each year, there is an increase in the cost of failing to direct finance to adaption and mitigation efforts. The Climate Policy Initiative have released several resources for those wishing to gain a deeper understanding of the Climate Finance Landscape in the African continent with reports which cover the continent broadly as well as country specific reports for South Africa, Nigeria, and Kenya.???

The below section details some key takeaways from the African and South African Climate Finance Landscape reports.??

African Climate Finance Landscape?

• The last few years have witnessed transformative climate initiatives including:??

Africa Carbon Market Initiative??

Africa Green Hydrogen Alliance??

Africa Climate Risk Insurance Facility for Adaptation??

• Africa has seen a 48% increase in climate finance flows from USD 29.5 billion in 2019/20 to USD 43.7 billion in 2021/22, but the funding gap remains stark.??

• To meet Nationally Determined Contributions (NDCs), climate finance flows must increase by at least four times a year until 2030.?

• The case for climate investment in Africa is compelling for several reasons:??

Unlocking vast economic opportunities??

Avoiding severe economic losses??

Minimising catastrophic social and developmental consequences??

• Failure to fulfil climate agreements could cost the continent 20% of its GDP by 2050?

South African Climate Finance Landscape?

• The five sectors at the forefront of climate finance in the country were clean energy, low-carbon transport, smart water, circular economy, and sustainable agriculture.?

• Climate finance in South Africa needs to increase by at least three to fivefold from the current annual average of R131 billion to meet its net zero goal by 2050.?

• Domestic sources accounted for 91% of tracked climate finance, while international sources accounted for 9% of annual investments tracked.??

Almost all of the private finance (98%) was sourced from domestic actors and debt financing compromised 82% of private financial flows.??

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Brooke L.: sits within the ESG team at RisCura and each week she will bring you stories highlighting key issues and themes in the world of Responsible Investment that have caught her attention.

The views expressed are her own and the content in this newsletter is not intended to serve as a recommendation or endorsement of any specific product or company.