Green Climate Fund working paper No.3

Tipping or turning point: Scaling up climate finance in the era of COVID-19

Working papers October 2020 All rights reserved ã Green Climate Fund

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The mention of specific entities, including companies, does not necessarily imply that these have been endorsed or recommended by GCF. Green Climate Fund working paper No.3 Tipping or turning point: Scaling up climate finance in the era of COVID-19

Authors of this Working Paper: Fiona Bayat-Renoux; Heleen de Coninck; Yannick Glemarec; Jean-Charles Hourcade; Kilapar Ramakrishna; Aromar Revi.

This Working Paper is part of a broader forthcoming publicaon on a science-based call to acon for financial decision-makers.

GREEN CLIMATE FUND, OCTOBER 2020

Contents

Executive Summary ...... iv Introduction ...... vi 1. The world has already warmed by 1.1°C exposing the financial system to unprecedented challenges ...... 1 2. Limiting warming to 1.5°C and adapting to climate change bring formidable investment opportunities – but the infrastructure investment gap persists ...... 6 3. Misalignment and mistrust: Risks that undermine a ‘green’ financial system and limits to existing responses ...... 10 4. Implications of COVID-19 on developing countries’ access to finance for climate action ...... 17 5. Maintaining climate ambition in the era of COVID-19 ...... 21 1. Nationally Determined Contributions (NDCs) to foster policy integration ...... 21 2. Develop new valuation mechanisms to accelerate asset re-pricing ...... 22 3. Develop dedicated low carbon climate-resilient financial products ...... 23 4. Deepen blended finance for climate change...... 24 5. Realise the full potential of domestic financial institutions to finance the green transition ...... 26 6. Innovative Financing Instruments based on global solidarity...... 28 6. Conclusion ...... 30

iii Executive Summary risks could impact 93 per cent of industries and undermine the stability of economic The COVID-19 pandemic has brought the and financial systems. world to a tipping point or a turning point in The key conclusion from the IPCC is that the fight against climate change. Decisions limiting global warming to 1.5°C is still taken by leaders today to revive economies narrowly possible. An orderly transition to a will either entrench our dependence on net-zero carbon and resilient future could fossil fuels or put us on a path to achieve create between USD 1.8 to USD 4.5 trillion the Paris Agreement and the Sustainable in green investment opportunities annually Development Goals (SDGs). over the next two decades. For the COVID-19 pandemic to prove a While there has been a steady increase in turning point, climate action and COVID-19 climate finance over the past 10 years – economic stimulus measures must be exceeding the USD half-trillion mark for the mutually supportive. Developing countries first time in 2017 and 2018 – it has been too must be able to access long-term slow to channel financial resources towards afordable finance to develop and low emission, resilient development at the implement green stimulus measures. scale and pace required to achieve the goals Despite their potential to revive economies of the Paris Agreement. As a result, the in an inclusive and sustainable manner, infrastructure investment gap could reach a stimulus measures in G-20 countries to date cumulative value of between USD 14.9 and do not prioritise green, resilient USD 30 trillion by 2040, representing investments. Developing countries’ access between 15.9 per cent and 32 per cent of to climate finance is severely undermined the required infrastructure investments to by the COVID-19-induced economic and foster low emission, climate-resilient financial crises. This could take the world to pathways. a tipping point of no return in the fight The persistent infrastructure investment gap against climate change as GHG emissions is caused by a range of policy and would rebound while the financial capacity regulatory, macro-economic and business, of the international community to finance and technical risks over the project climate action in the context of COVID-19 development cycle that translate into would be severely afected. higher hurdle rates, deterring entrepreneurs Average global temperature is currently and financiers. These risks are magnified for estimated to be 1.1°C above pre-industrial low emission, resilient infrastructure times. Based on existing trends, the world investments, particularly in developing could cross the 1.5°C threshold within the countries. Green investments tend to have next two decades and 2°C threshold early higher upfront capital requirements, longer during the second half of the century. pay-back periods and can have higher According to the Intergovernmental Panel sensitivity to policy changes and technology on Climate Change (IPCC), limiting warming risks than conventional investments. These to 1.5°C compared to 2°C helps prevent additional and perceived risks should be severe and partly irreversible consequences balanced against the lower operational for planet, people, peace, and prosperity. costs of many green investments and the Notably, physical and transition climate lower exposure to climate physical and transition risks. iv However, pricing climate risks is proving a 4. Making blended finance work for daunting challenge for entrepreneurs and nascent markets and technologies financiers alike, who are de facto asked to through better design and bold new estimate the likelihood of various climate mechanisms; scenarios and their implications for physical and transition risks at the firm and project 5. Deepening domestic financial sectors levels. As a result, we are not witnessing a and financial institutions; repricing of assets reflecting climate risks in 6. Exploring innovative financing global financial markets. The top 33 banks instruments to increase developing alone allocated USD 654 billion to fossil fuel countries’ access to climate finance financing in 2019. Similarly, an IMF study without increasing their sovereign debt. found that 2019 equity valuations across countries did not reflect projected Together, these initiatives will help shift incidence of climate physical and transition financial flows towards a low carbon, risks. climate-resilient future, and enable developing countries to catalyse much Over the past two decades, a variety of needed private finance to scale up climate actions have been taken to align finance action in the era of COVID-19. While we with sustainable development. To foster cannot ‘undo’ the tragedy of COVID-19, we climate innovation and entrepreneurship, it can ensure that our response to this tragedy includes using scarce public resources to finances a safer and more sustainable future de-risk first-of-its kind climate investments, for us all. crowd-in private finance and create green markets. To accelerate the repricing of assets and ensure an adequate supply of finance to support climate investments, it also entails climate-related financial disclosure, development of green standards and taxonomies, and carbon pricing.

This working paper outlines six initiatives to deepen and scale up these eforts in the era of COVID-19, namely:

1. Leveraging ongoing NDC enhancement eforts to foster policy integration between climate action, economic recovery, and the SDGs;

2. Developing new valuation methodologies to support asset repricing in global financial markets;

3. Creating dedicated green and climate- resilient financial products in developing countries to access institutional finance;

v Introduction pathways as two-thirds of their infrastructure investments are yet to take At a time when the efects of climate place. change are already putting development COVID-19 has not stopped climate change. outcomes at risk and financing for low After a temporary decline, greenhouse emission, climate-resilient development is gas (GHG) emissions in the atmosphere still vastly inadequate, the COVID-19 are heading back in the direction of pandemic is creating the broadest pre-pandemic levels and the world is set to economic collapse since the Second World see its warmest five years on record.3 War. In response to this unprecedented However, the COVID-19 economic crisis health and economic crisis, G20 countries has brought the world to either a tipping or are undertaking large-scale expansionary a turning point. Economic recovery fiscal and monetary measures. As of the decisions taken today will either entrench beginning of October 2020, the total our dependence on fossil fuels, widen G20 stimulus funding is estimated at inequalities and put achieving the Paris USD 12.1 trillion, roughly divided between Agreement and the Sustainable budgetary measures and liquidity support.1 Development Goals (SDGs) out of reach; or Developing countries on the other hand – create the momentum and scale needed to already the most vulnerable to the impacts shift the economic paradigm towards net of climate change – do not have the same zero-carbon, climate-resilient and inclusive monetary and fiscal space to roll out development for all. ambitious recovery packages. The sharp How can the world collectively ensure that drop in public revenues, massive outflow of the COVID-19 crisis proves a turning point portfolio capital, precipitous fall in foreign to meet the goals of the Paris Agreement direct investment (FDI) and remittances, and and the SDGs? rising debt burdens have added stress to government balance sheets and threaten to First, climate action and COVID-19 recovery wipe out decades of socio-economic gains. measures must be mutually supportive – Poverty may increase for first time globally climate action must help to revive in 30 years by as much as half a billion economies, and economic packages people, or 8 per cent of the total human designed to overcome the COVID-19 crisis population, and income inequality is rising.2 must be ‘green’. Governments do not have Least developed countries (LDCs) and small to compromise economic recovery island developing states (SIDS) will be the objectives with their Paris Agreement most afected. At the same time, developing commitments. Many investments can meet countries have a significant opportunity to this dual objective. For example, investment leapfrog to low carbon, climate-resilient in energy efcient buildings can rapidly

1 Greenness of Stimulus Index, Vivid Economics (2020). ; https://www.vivideconomics.com/casestudy/greenness-for-stimulus-index/ 2 United Nations University World Institute for Development Economics Research (2020). Estimates of the impact of COVID-19 on global poverty https://www.wider.unu.edu/sites/default/files/Publications/Working- paper/PDF/wp2020-43.pdf 3 World Meteorological Organization (2020). United in Science Report. https://public.wmo.int/en/resources/united_in_science vi generate large employment opportunities, Second, developing countries must be able reduce energy poverty, and increase to access adequate long-term, afordable resilience to extreme weather events. finance to develop and implement green Similarly, investments in climate-resilient economic stimulus measures. COVID-19 agriculture and water management will has exacerbated the existing ‘climate preserve livelihoods and foster ecosystem finance paradox’, which creates a persisting restoration while investment in shovel- infrastructure investment gap in developing ready low emission, resilient infrastructure countries. On the one hand, trillions of will protect people, jobs, and assets. dollars of savings are earning negative interest rates in many high-income To date, the G20’s eforts to optimise the countries. On the other hand, there exists medium - and long-term contribution of its between USD 11 to USD 23 trillion in economic response to sustainability and attractive opportunities for climate-smart resilience is uneven and limited. investments in emerging markets between 6 Stimulus measures in Western Europe, now and 2030. South Korea, and Canada include green However, short-termism in financial infrastructure investments in energy and markets and the lack of consideration of transport. The European Union’s recovery climate risk in investment appraisal package is the most environmentally discriminate against climate investments. friendly. Of the €750 billion (USD 830 Furthermore, compared to high emission, billion) recovery package, 37 per cent will climate vulnerable infrastructure, green, be directed towards green initiatives, climate-resilient infrastructure investments including targeted measures to reduce tend to have high upfront capital dependence on fossil fuels, enhance energy requirements, long pay-back periods, a efciency, and invest in preserving and strong sensitivity to policy change, and high restoring natural capital. All recovery loans technology risks. These downsides can and grants to member states will have deter both entrepreneurs and financiers attached ‘do no harm’ environmental when they are not balanced against the 4 safeguards. But overall, the G20 committed lower operational costs and the lower at least USD 208.73 billion supporting fossil physical and transition risks of low fuel energy compared with at least USD emissions and climate-resilient 143.02 billion supporting clean energy since infrastructure. the beginning of the COVID-19 pandemic in early 2020.5 As the attention of Ensuring that every professional financial governments shift from immediate relief decision takes climate change into account eforts to longer-term recovery, it is critical is critical to foster a repricing of assets in that the new set of stimulus measures foster global financial markets to reflect climate a paradigm shift toward a net-zero, risks; address the low emission, resilient resilient future. infrastructure investment gap; and ensure a sustainable recovery from the COVID-19

4 Greenness of Stimulus Index, Vivid Economics (2020); https://www.vivideconomics.com/casestudy/greenness-for-stimulus-index/ 5 https://www.energypolicytracker.org/region/g20/ 6 IPCC (2018)

vii pandemic. This is the overarching private eforts to address the infrastructure finance priority for COP26.7 The objective financing gap; of this working paper is to support policy • assesses the impact of the COVID-19 makers, the financial industry and pandemic on access to finance in international financial institutions in this middle- and low-income countries for efort. Specifically, the working paper: low emission, climate-resilient • highlights the risks posed by climate investments; and change to the finance system based on • identifies a combination of policy, the Intergovernmental Panel on Climate financial and institutional initiatives to Change (IPCC)’s Special Report on support developing countries to Global Warming of 1.5°C and discusses maintain climate ambition in the era of key barriers to the re-pricing of assets in COVID-19. global financial markets;

• reviews the risks related to infrastructure investment and highlights ongoing

7 UNFCCC, 2020 viii Tipping or turning point: Scaling up climate finance in the era of COVID-19

1. The world has financial systems. Financial assets and investments are exposed to physical and already warmed by transition climate risks. Physical risks, which 1.1°C, exposing the stem from the physical impact of climate change, include both acute risks – from an financial system to increase in the frequency and severity of unprecedented extreme weather events (e.g. more intense droughts, greater floods, more severe challenges cyclones, etc.); as well as chronic risks – The climate crisis impacts people and from slow-onset events (e.g. polarward shift ecosystems, exacerbating inequalities and of ecosystems, sea level rise, human disease tensions. The 2015 Paris Agreement provides migration, etc.). Transition risks, which occur a framework for the global response to the due to structural changes arising from the climate crisis aiming to keep average shift to a low carbon, climate-resilient temperature rise this century to well below economy, can involve technological 2°C and pursuing eforts to stay within 1.5°C. innovations (e.g. breakthrough in battery or hydrogen technology), changes in legislation In its Special Report on Global Warming of and regulation (e.g. ban of high emission 1.5°C (SR1.5), the IPCC concluded that products, rapid implementation of a carbon limiting warming to 1.5°C compared to 2°C tax following a catastrophic weather event or helps prevent severe and partly irreversible electoral change), and changes in consumer consequences. Impacts at 2°C of warming behaviour (e.g. a shift in attitudes towards would push hundreds of millions of people the purchase of diesel cars, air travel or into poverty; put over 330 million people at deforestation-based products). risk of food insecurity and 590 million at risk of water insecurity; expose over 350 million Climate risks will have major implications for in mega-cities to heatwaves; and lead to the most sectors of our economies. They impact complete extinction of warm-water corals revenues, cash flows and operating costs, and a sea ice-free Arctic at least once every asset values and financing costs of firms and 8 decade. Furthermore, while in 2019 the financial institutions. The physical efects of world had already warmed by 1.1°C climate risk tend to impact industries with compared to pre-industrial times, the physical assets in risk-prone areas (e.g., real announced contributions made by Parties to estate in coastal or wildfire-prone areas), the Paris Agreement are projected to lead to industries where infrastructure resiliency and a warming of around 3°C if fully business continuity are societal necessities implemented and to even higher (e.g., health care delivery, temperatures if these commitments are only telecommunications, internet, utilities), and partially fulfilled. This would increase the industries dependent on natural capital (e.g., pace of climate impacts and reduce the those that rely on productive land and efectiveness of adaptation eforts. availability of water, such as agriculture, meat, poultry, and dairy). Financial The climate crisis also undermines the institutions, especially insurance companies stability of national and global economic and and smaller regional and local banks, are also

8 Sustainability Accounting Standard Board (2016): Climate Risk-Technical Bulletin

1 GCF WORKING PAPER SERIES NO. 3 vulnerable to claims and loan default losses the Sustainability Accounting Standard from chronic and acute physical risks.9 Board.12 This equates to USD 27.5 trillion, or 93 per cent of equities by market Risks related to the transition to capitalisation in the US alone, and represents low-emission, resilient development a systematic risk to the stability of the pathways tend to have material impacts financial system and security of societies. on producers of energy (fossil fuel Diversification does not eliminate climate companies, renewable energy companies), risks. As a result, investors need to manufacturers and providers of understand and adequately price their energy-consuming products and services, climate-risk exposure. energy- and/or water-intensive industries, and nature-based products and service How well the transition towards climate providers. Stranded capital from fossil fuel stabilisation is managed, in terms of speed assets alone suggests a potential global loss and quality, will strongly afect the of wealth between USD 1 trillion and USD 4 distribution of physical and transition risks trillion.10 Similarly, sales of for the financial system across industries diesel-based cars within the European and over time. Through a self-reinforcing market could shrink from 52 per cent to feedback loop (Figure 1), any rise in global 9 per cent by 2030.11 temperatures can trigger a damaging chain reaction, afecting societal health Overall, physical and transition risks could and security. impact 72 out of 79 industries assessed by

9 Managing climate risk in the US financial system (2020). 10 Mercure, et al, (2018) 11 Frost and Guillaume (2016) 12 The seven industries for which SASB standards include no climate- related topics are: Consumer Finance, Education, Professional Services, Advertising & Marketing, Media Production & Distribution, Tobacco, and Toys & Sporting Goods.

2 Tipping or turning point: Scaling up climate finance in the era of COVID-19

FIGURE 1. FEEDBACK LOOP THAT CAN MAKE CLIMATE CHANGE A THREAT TO FINANCIAL STABILITY13

A clear conclusion from the IPCC Special changes in societal systems that some Report is that limiting warming to 1.5°C and would call disruptive, digitalisation, adapting to the impacts of climate change and other technologies that enable require accelerating the transition across demand-side emissions reductions. At the four systems: energy, land and ecosystems, other end of the spectrum, P4 requires urban and infrastructure, and industry. much higher volumes of finance invested in System transitions are associated with advanced technologies for carbon dioxide financial risk, but so is waiting for climate removal (CDR), like bioenergy with carbon change impacts to kick in. Modelling studies capture and storage. indicate that to limit warming to 1.5°C, Hence acting sooner to enact system global CO2 emissions need to be halved by transitions is vital to limit the physical risks 2030 and reach net-zero by 2050. CO2 also needs to be removed from the atmosphere of climate change. Immediate action can at a significant scale during the second half also contribute to economic recovery of the 21st century. Diferent future from the COVID-19 pandemic and to pathways are still possible within the remit achievement of the SDGs by 2030. of the Paris Agreement and these have very Conversely, delaying the transition will diferent implications for sustainable increase physical risks without realizing the development and the financial system development co-benefits, and result in a (Figure 2). For instance, the P1 pathway disorderly transition, with greater costs and needs finance for aforestation, as well as financial losses.

13 Based on NGFS, 2019.

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According to the IPCC, accelerating system for the conditions of the transition in transitions and limiting global warming to diferent socio-economic contexts. 1.5°C are still narrowly possible if a large set However, dedicated eforts will be needed of enabling conditions is established. As in the era of COVID-19 to ensure that discussed in the following sections, these developing countries can access long term, include carbon pricing and large afordable finance to realise their climate international financial transfers to account ambitions.

FIGURE 2: RISK CHARACTERISTICS OF FOUR ILLUSTRATIVE PATHWAYS PURSUING DIFFERENT STRATEGIES TO LIMIT WARMING TO 1.5°C 14

P1 P2 P3 P4

Storyline Social, business and Focus on sustainability incl. Societal and technological Economic growth and technological innovaons; energy intensity; human development follow globalisaon; greenhouse- lower energy demand by development; economic historical paerns; gas-intensive lifestyles, 2050; higher living convergence; internaonal emissions reducons including high demand for standards (also in the cooperaon; shis towards through changing transportaon fuels and global South); downsized sustainable and healthy producon of energy and livestock products; energy system; rapid consumpon paerns; commodies rather than emissions reducons decarbonisaon of energy low-carbon technology through reducons in mainly through supply; afforestaon the innovaon; well-managed demand. technological means; CCS only CDR opon land systems; limited and BECCS. considered; no CCS. BECCS.

Temperature Warming limited to 1.5°C Warming limited to 1.5°C Warming limited to 1.6°C Warming exceeds 1.5°C outcome (within limit by 20 per cent (0.3°C) 0.1°C accuracy, with assumpon it can be median reversed by 2100 estimate) Risk of Small Small Large Very large (designed to overshoot of first miss the target) 1.5°C

14 As shown in Figure SPM.3b of the IPCC Special Report on Global Warming of 1.5°C (IPCC, 2018). Darker cell colours indicate higher risk. AFOLU = Agriculture, Forests and Other Land Use, BECCS = bioenergy and carbon dioxide capture and storage.

4 Tipping or turning point: Scaling up climate finance in the era of COVID-19

Alignment with Very strong Strong Medium, with potenal Weak, with marked trade- sustainable trade-offs offs development

Physical climate Lowest Low Medium Highest risks to 2050

Physical climate Low Lowest Low High risks after 2050*

Transition risks & Opportunities

Energy demand Very high High Medium Low reduction/mana gement

Energy supply Lowest Medium High Highest Infrastructure investments

Asset stranding Near-term rerement of Near-term rerement of Moderate stranding of Stranding delayed by a fossil-fuel assets fossil-fuel assets fossil-fuel assets decade but then with higher magnitude**

Reliance on CDR Small Medium Large Extreme

Deployment of Medium Medium High Extreme land-based mitigation & bioenergy Discontinuation Failure to achieve demand Full porolio of supply and Failure to address potenal High risk of necessary post- risks and behavioural changes demand opons hedges trade-offs from land-based 2030 climate policies may leave lile me to against failures and migaon, risks policies strongly compeng with ramp up supply-side disconnuaon risks being reversed due to other societal concerns measures like CCS. societal concerns. and hence not being implemented or disconnued.

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2. Limiting warming to Most estimates of the investment opportunity related to climate change 1.5°C and adapting to mitigation, including those in the SR1.5, climate change bring cover energy supply and energy savings. Available studies, however, show that formidable investment including transport and the built opportunities – environment leads to three times higher investment opportunities and would reach but the infrastructure between USD 1.8 to USD 4.5 trillion annually investment gap persists over the next two decades.17 Despite this range of uncertainty, the incremental Achieving net-zero emission by 2050 investments in energy, transportation and requires transitions across four systems. buildings needed to achieve an emission These transitions involve the deployment of pathway compatible with 1.5°C require the a range of technologies and practices redirection of 2.5 per cent of the global within the next few decades, with some of fixed capital formation (GFCF) towards low them still to be developed. Adapting to the emission options.18 consequences of 1.5°C global warming also requires considerable investments in water While this relatively modest figure suggests management, flood protection, new that this goal should be attainable, and agricultural systems, health systems and while estimates show significant increases new architectures. The warmer the planet, in low-emission investments and the greater the adaptation needs, for sustainable investments over the past instance, because of sea level rise or more decade, the infrastructure investment gap frequent heat waves. Specific adaptation could reach a cumulative value of between investments are projected to be in the order USD 14.9 and USD 30 trillion by 2040. This of between USD 140 to USD 300 billion represents between 15.9 per cent and annually by 2030.15 32 per cent of the required infrastructure investments to foster low emission, However, a critical part of enhancing climate-resilient pathways.19 adaptive capacities of societies will come from reducing the infrastructure investment The growth in climate finance (amounting gap in basic goods and services, which to over USD half-trillion for the first time in determine progress made towards the 2017 and 2018)20 is insufcient and growing SDGs. Studies indicate that the total too slowly to channel financial resources investment requirements for SDGs and the towards low emission, sustainable Paris Agreement could be reduced by development at the scale and pace required 40 per cent by a high level of integration of to achieve the goals of the Paris Agreement. climate and SDG policies.16 Climate finance refers to local, national or

15 UNEP (2016). Climate Change Adaptation Finance Gap Report 16 Rozenberg and Fay (2019) 17 Rozenberg and Fay (2019) 18 IPCC (2018) 19 Arezki, R., P. Bolton, S. Peters, F. Samama, J. Stiglitz (2017) 20 USD 612 billion in 2017, USD 546 billion in 2018 (CPI, 2019)

6 Tipping or turning point: Scaling up climate finance in the era of COVID-19 transnational financing—drawn from public, However, climate finance flows from private private and alternative sources of entities hardly exceed half of total financing financing—that seeks to support mitigation (56 per cent) over 2017-18, with the and adaptation actions to address climate remainder coming from public sources.23 change. The UN Framework Convention on Private investments are made directly in Climate Change (UNFCCC), the Kyoto the form of equity or through green bonds Protocol and the Paris Agreement call for whose proceeds are channelled to financial assistance from Parties with more low-carbon projects. In the 10 years since financial resources to those that are less their launch, green bonds approached a endowed and more vulnerable, recognizing total of USD 1 trillion (USD 258 billion in that the contribution of countries to climate 2019). However, despite strong growth, change and their capacity to prevent it and green bond issuance in 2019 still only cope with its consequences vary represented about 5 per cent of total bonds enormously.21 Climate finance is equally issued globally.24 The market for green important for adaptation, as significant bonds also remains largely concentrated in financial resources are needed to adapt to developed and emerging markets, with the the adverse efects and reduce the impacts USA, China and France accounting for of a changing climate. Climate finance 44 per cent of global issuance in 2019, and accelerates the creation of new low-carbon the increase in issuance in 2019 driven technology markets, and as a result of high- largely by Europe.25 Global green bond income countries’ commitment to mobilise issuance also fell by 11 per cent in 2020 due USD 100 billion per year from 2020 to to the COVID-19 pandemic, at USD 118 support the transition in developing nations, billion compared to USD 133 billion over the this is done partly by using public funds to same period of 2019.26 de-risk private investment in early stage markets. Sustainable investments reported by the private sector should be treated with care It is only recently that financial analysts because of the lack of common definitions across the board have begun showing and standards, and the fact that reported increased concern with climate change. amounts also represent investing in This change of attitude is partly due to the financial assets rather than in real assets. increased recognition of adverse climate However, whatever the metric used, 2018 impacts as a source of vulnerability for the marked a stop in an upward trend in low financial system and a growing demand for carbon investment world-wide. Private sustainable investments due to shifts in investments in SDG-related infrastructure in investor behaviour.22 developing countries were lower in 2018 than in 2012.27 In contrast, the top 33 banks alone allocated USD 654 billion to fossil fuel

21 https://unfccc.int/topics/climate-finance/the-big-picture/introduction-to-climate-finance 22 https://hbr.org/2019/05/the-investor-revolution 23 Blended Finance Taskforce (2018) 24 https://www.bbva.com/en/2019-a-record-year-for-bond-issuance/ 25 Climate Bonds Initiative (2019) Annual Report https://www.climatebonds.net/files/reports/2019_annual_highlights-final.pdf 26 https://nordsip.com/2020/07/14/green-bond-issuance-to-recover-in-second-half-of-2020/ 27 Inter-Agency Task Force (2019) Financing for Development Report.

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financing in 2019, more than the double of challenge is exacerbated on the expenditure their commitments to sustainable finance side, with more than a third of public commitments – USD 292.3 billion – in the investment spending lost through same year.28 inefciency.

Pricing climate risks is proving a daunting In terms of public climate-specific finance challenge for entrepreneurs and financiers provided by developed countries to alike, who are de facto asked to estimate developing countries, according to the the likelihood of various climate scenarios Standing Committee on Finance of the and their implications for physical and UNFCCC, this amounted to USD 38 billion transition risks at the firm and project levels. in 2016.30 More recent estimates by the In addition, the time horizon for these OECD signal an increase of public climate changes may be too long even for long- finance from developed to developing term institutional investors. Some recent countries between 2013 and 2017 of developments in global stock markets can 44 per cent; reaching USD 54.5 billion be read as early signs of asset re-pricing, in 2017, with loans making up almost such as the significant underperformance of USD 40 billion compared with grants the oil and gas sector compared to other of USD 12.8 billion.31 sectors. Similarly, auto manufacturers who have been slow on the transition to electric To date 31 contributors have pledged about vehicles are sufering in their relative values. USD 10 billion to replenish the Green However, an IMF study found that 2019 Climate Fund (GCF) over the next four equity valuations across countries did not years. As of September 2020, GCF had reflect any of the commonly discussed approved total funding of USD 6.2 billion for global warming scenarios and associated 144 projects and programmes, with a total projected changes in hazard occurrence or value including co-financing of USD 21.2 incidence of physical risk.29 billion. LDCs, SIDS, and African States accounted for 28 per cent, 13 per cent, and In terms of public finance, while the SDGs 42 per cent of approved projects, are increasingly incorporated into public respectively. budgets, domestic public resource mobilisation is currently insufcient to meet Commitments from multilateral the ambitions of the 2030 Agenda for development banks (MDBs) and national Sustainable Development. According to the development banks (NDBs) have also 2020 UN Inter-Agency Task Force Report grown, with their support almost doubling on Financing for Development, only to public-private partnerships for 40 per cent of developing countries clearly climate-friendly investment between 2013 32 increased tax-to-gross domestic product and 2018. Climate financing by the world’s (GDP) ratios between 2015 and 2018. This largest MDBs in developing countries and emerging economies rose to an all-time

28 Source: https://www.euromoney.com/article/b1j97rjr74vd00/sustainable-finances-biggest-problems-by-the- people-who-know-best?copyrightInfo=true 29 https://blogs.imf.org/2020/05/29/equity-investors-must-pay-more-attention-to-climate-cical-risk 30 Inter-Agency Task Force (2020) Financing for Development Report. 31 OECD (2017). Climate finance provided and mobilized by developed countries in 2013 to 2017. 32 World Bank (2019)

8 Tipping or turning point: Scaling up climate finance in the era of COVID-19 high of USD 61.6 billion in 2019 and at is symptomatic of a systemic problem, COP25 in December 2019, MDBs indicated the gap between the ‘propensity to save’ that the full implementation of the joint and the ‘propensity to invest’ in a business framework for aligning activities with the environment in which short-term goals of the Paris Agreement would be risk-weighted returns dominate implemented by 2023-2024.33 decision-making by public and private financial actors. In the context of the post-subprime crisis these trends do not outweigh the problem of the infrastructure investment gap which

33 Joint Report on MDBs Climate Finance (2019). This includes data from the African Development Bank (AfDB), the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Inter-American Development Bank Group (IDBG), the Islamic Development Bank (IsDB), and the World Bank Group (WBG).

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3. Misalignment and change. These include macroeconomic variables like inflation and exchange rate mistrust: Risks that fluctuations, as well as shifts in consumers’ undermine a ‘green’ demand, access to financing, and liquidity constraints. financial system and limits to existing 3. Technical risks: Are determined by the skill of the operators, managers and related responses to the features of the project, project complexity, construction, and technology. The persistent infrastructure investment gap These risks can also arise from lack of is caused by a number of risks that deter supporting physical infrastructure entrepreneurs and financiers. The OECD (e.g. cranes or roads to unload and clusters these risks into three main transport wind turbines or poor grid categories according to the project infrastructure). development cycle (Table 1):34 Entrepreneurs are particularly exposed to 1. Political and regulatory risks: Arise from development phase risks as they are usually governmental actions, including changes in financed by personal equity and represent a policies or regulations that adversely impact sunk cost. Construction, operation and infrastructure investments. For example, termination phase risks will be taken into complex, inconsistent or opaque licensing consideration in the investment calculus of procedures lead to transaction delays and both entrepreneurs and financiers. Risks costs. Similarly, changes in tarif regulations also vary across the life of the project. Some or of-taking contract renegotiation can investors perceive a higher risk in the first afect the profitability of investments. phases of the project i.e., development and 2. Macroeconomic and business risks: Arise construction phases. from the possibility that the industry and/or economic environment is subject to

34 OECD (2016). Infrastructure Financing Instruments and Incentives.

10 Tipping or turning point: Scaling up climate finance in the era of COVID-19

TABLE 1: MAIN RISKS BY PROJECT DEVELOPMENT PHASE35

These risks translate into higher hurdle rates shorter loan tenors and a higher share of for entrepreneurs and financiers. more costly equity in capital structures, Entrepreneurs will require higher expected afecting the attractiveness of infrastructure returns before investing their time and investment. personal equity in a renewable energy project. Similarly, providers of financing will These risks are magnified for low emission, demand a higher margin and will ofer less resilient infrastructure investment in 36 attractive financing terms to compensate developing countries. High financing cost themselves for these higher risks. In particularly penalise green technologies practice, this translates into higher interest given their cash flow profile: higher upfront rates (debt) and required returns (equity), capital requirements but lower operations and maintenance costs compared to high

35 OECD (2016) 36 UNDP (2012 and 2018); Glemarec, Bayat-Renoux and Waissbein (2016).

11 GCF WORKING PAPER SERIES NO. 3 emission climate vulnerable investments. asset classes, which has created unintended For example, climate-resilient roads will consequences of reducing the desire to typically require higher upfront investments hold loan portfolios beyond 5 - 8 years, but require less annual maintenance. The while infrastructure projects require a longer payback period of low emission, horizon of 15–20 years for the amortisation resilient infrastructure compared to climate of debt. This increased debt and led to vulnerable investments and their high reduced confidence in asset prices, negative sensitivity to policy stability (e.g. renewable interest rates, and a downgrading of private energy and feed-in-tarifs) will be additional companies (50 per cent were rated BBB in sources of concerns for entrepreneurs and 2019 compared with 34 per cent in 2000).37 financiers, particularly in early-stage markets. Technology risks will also be These risks and the legacy of the 2008 perceived as particularly acute for low financial crisis translate into a lack of trust emission, resilient infrastructure using novel between key actors in the financial system - technologies. regulators, who set the ‘rules of the game’; entrepreneurs , who are the first risk-takers These additional and perceived risks should and mobilise part of the financing; be balanced against the lower operational commercial, industrial and investment costs and lower climate physical and banks, which decide the bankability of transition risks of low emission, projects and loan terms; institutional climate-resilient infrastructure. However, investors (pension funds, insurance the absence of universally accepted companies, asset managers, and sovereign valuation methodologies for low emission, funds) who purchase assets; and central resilient infrastructure; the lack of common banks who determine interest rates and can and trusted green standards and labels for also purchase assets. green financial products; the limited track-record of green investments; and the A direct consequence is a limited supply of uneven capacity of institutional investors high quality, transparent, low carbon, and financiers to assess the risk-reward climate-resilient investment opportunities profiles of climate investments result in a despite the unmet demand for low systematic mispricing of low emission, emission, resilient assets. While the market resilient assets. for green and sustainable investments is growing, it still remains small relative to Despite attempts for change, the response investor needs, notably in large public to the 2008 financial crisis further equity and debt markets. For example, while strengthened the focus on short-term green bond issuance reached a record high returns and created structural tension in the of USD 225 billion in 2019, it was insufcient world economy. After 2008, central banks to meet investor demand.38 resorted to significant liquidity injections combined with tighter financial regulations Over the past two decades, a number of (e.g. Basel III). These regulations have actions have been taken to build this circle pushed banks to significantly avoid “risky” of trust among financial actors, either to increase the supply of climate finance

37 CEIC Data stream: https://www.ceicdata.com/en/indicators 38 Chestney (2020)

12 Tipping or turning point: Scaling up climate finance in the era of COVID-19

(including through climate-related financial several large emitters have yet to make a disclosure and green standards and commitment to net zero emissions, taxonomies) or to increase the demand for weakening the strength of these climate finance (including through political political signals. commitments to net-zero, carbon pricing or blended finance to de-risk specific • Blended finance: aims to use public investments). An overview of progress and funds to de-risk and crowd in private shortcomings of these approaches are investment through co-financing noted below: pioneer investments in new markets, technologies and practices. The • Political commitment to low- objective is to use scarce public emission, climate-resilient pathways resources in a catalytic manner to and fragmented regulation: political leverage much larger private financial uncertainty about governments’ and flows to scale up investments in corporate commitment to climate sustainable development, and to do so policies has fuelled the ‘tragedy of the with minimum concessionality or horizon’, whereby the prevailing short- subsidy. The Addis Ababa Action Agenda termism in financial markets causes an (AAAA) puts forward a set of principles unseen build-up of climate risks across for blended finance, and diferent multiple financial actors. This in turn actors, including the OECD and the creates systemic risks to stability of the Development Finance Institutions financial and monetary systems. To Working Group have defined principles counter financial short-termism, for their activities in line with the the Paris Agreement invites all countries AAAA.39 Blended finance mechanisms to develop mid-century, long- are complex to design and can use a term, low-GHG emission wide range of public instruments to development strategies to send a strong increase the risk-reward profile of green political signal to businesses and investment through the ‘three Ts’: financial institutions on the materiality treating risk (e.g., grants for technical of transition risks and opportunities. As assistance to create a conducive policy of COP25 in December 2019, 73 environment to seat and operate an countries, 14 regions, 398 cities, 786 asset); transferring risk (e.g., loan businesses and 16 investors committed guarantees to fully or partially transfer to net zero carbon emissions by 2050 the risk of default to a third party); and through the Climate Ambition Alliance taxing risk (e.g., negative tax such as tax which continues to grow via the “Race breaks or subsidies or positive tax such To Zero” COP26 initiative. In September as carbon tax to increase the 2020, China pledged to being net zero comparative reward of green by 2060. But pathways and investment investments). plans to meet these net-zero commitments and intermediate targets Grants are usually the key instrument for to assess the efectiveness of action policy and capacity development to taken are often missing. Furthermore, establish a conducive investment

39 IATF (2020). Financing for Sustainable Development Report

13 GCF WORKING PAPER SERIES NO. 3 environment and treat risks. A range of investments - less than 1:2 compared to a financial instruments are available to range between 1:3 and 1:15 for traditional transfer risks for pioneer investments to public finance.40 Over the past decade demonstrate the commercial viability of low blended finance has usually taken the form emission, resilient products and services. of relatively safe senior debt rather than Fiscal instruments can correct price signals more risky instruments such as equity or through internalizing external costs of GHG guarantees that could have higher emissions; and compensate entrepreneurs leveraging ratios and better meet the needs for residual risks. The UN ofers an overview of private investors. Blended finance for of selected financing instruments climate investment has also mostly governments can leverage to mobilise benefited high- and middle-income private finance by risk sharing between the countries, largely bypassing LDCs, and has public and private sectors (Figure 3). catalysed private investment mostly in However, the experience of blended finance mature technologies and business models in climate change is mixed to date. Public such as on-grid renewable energy funds have been found to have a low technologies. leverage on private funds for low carbon

FIGURE 3: OVERVIEW OF SELECTED FINANCING INSTRUMENTS TO MOBILISE PRIVATE FINANCE41

40 Blended Finance Taskforce (2018); Lecocq & Ambrosi (2007); Maclean, J., Tan, Tirpak, V., Sonntag-O’Brien, & Usher (2008); J. S. Ward, Fankhauser, Hepburn, & Rajan (2009). 41 Source: UN DESA in IATF (2020)

14 Tipping or turning point: Scaling up climate finance in the era of COVID-19

Carbon pricing: is the most well-known Disclosures (TCFD) established by the policy instrument designed to hold emitters Financial Stability Board (FSB) ofers a responsible for the costs of GHG emissions, framework of disclosure methodologies for and to encourage investment in clean considering climate risks in financial technology and market innovation by investments. Its voluntary nature facilitated incorporating such costs into its endorsement by many government decision-making. In a frictionless world with regulators, companies and investors. It is perfect capital markets and domestic and also requested for members of several international compensatory transfers to international coalitions, including the ofset the adverse impacts of high energy UN-supported Principles for Responsible prices on growth and real income Investment. However, while disclosures are distribution, a uniform global carbon price increasing, a June 2019 TCFD survey found and the removal of fossil fuels subsidies that the majority of companies do not would minimise the social costs of the disclose sufcient information on the climate transition by spreading the marginal potential financial impact of climate-related costs of emission reduction equally across issues.43 A recent report by the Climate all sources. However, the scale-up and Disclosures Standards Board also found that geographic expansion of carbon prices have adoption of TCFD continues to be slow, and been limited by the need to finance that 78 per cent of Europe’s largest country-specific fiscal and social policies to companies are falling short of reporting hedge against the regressive impacts on environmental and climate-related risks welfare, production costs, and higher despite EU guidelines.44 The Inter-Agency energy costs. After 25 years of eforts to Task Force on Financing for Development, price carbon, only 15 per cent of global which includes over 60 UN entities and emissions were covered by carbon pricing international entities, recommends the in 2016 and three-quarters of them were adoption of global mandatory financial below USD 10 per tonne of CO2 – a level disclosures on climate-related financial incapable to support a drastic decoupling risks.45 Further improvements are also between emissions and growth.42 The required with regards to the quality, situation will most likely worsen in the comparability and coherence of disclosures depressive post-COVID-19 context. to improve understanding and adoption. There are currently five other leading Climate-related financial disclosures: voluntary disclosure frameworks, which enable investors to make informed capital have only recently begun to work together allocation decisions and help businesses towards a joint vision: the Carbon manage climate-related risks and Disclosure Project (CDP), the Climate opportunities more efectively. The Disclosure Standards Board (CDSB), the Taskforce on Climate-related Financial Global Reporting Initiative (GRI), the

42 World Bank (2016) 43 TCFD (2019). Status Report. https://www.fsb-tcfd.org/publications/tcfd-2019-status-report/ 44 Climate Disclosures Standards Board (2020). Falling Short? Why environmental and climate-related disclosures under the EU Non-Financial Reporting Directive must improve. https://www.cdsb.net/falling- short; https://www.eco-business.com/press-releases/78-of-europes-largest-companies-falling-short-of- adequately-reporting-environmental-and-climate-related-risks-despite-eu-guidelines/ 45 Inter-Agency Task Force (2020) Financing for Development Report.

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International Integrated Reporting Council green taxonomy guidance for emerging (IIRC) and the Sustainability Accounting markets developed by the World Bank. Standards Board (SASB). However, diferences in green standards Green standards and taxonomies: identify create confusion and risks of ‘green- the activities or investments that deliver on washing’ for low emission investment. environmental objectives. Such taxonomies The situation is compounded by the lack can drive capital more efciently toward of accepted valuation, classification priority environmentally sustainable and certification methodologies for projects by helping banks and other climate-resilient infrastructure investments. financial institutions originate and structure The main challenges to the development of green banking products, and by helping these methodologies include uncertainties investors identify opportunities that comply related to various transition pathways to a with sustainability criteria for impact net-zero future, the lack of engineering investments. The Network for Greening the protocols for construction design, and the Financial System (NGFS) – an association of lack of a single method of valuation, for 55 central banks and supervisors – has instance, designating "green" for GHG recommended the establishment of a clear emissions reductions (as opposed to the taxonomy around green, non-green, brown inclusion of adaptation activities). There is and non-brown products. A number of no consensus about the nature of these eforts have been made to do this, including new climate-resilient assets and how it can the EU taxonomy for sustainable activities, be securitised. Consequently, green bonds the green bonds principles by International are a reality while resilient bonds remain a Capital Market Association, green bond theoretical option. standards climate benchmarks, and national

16 Tipping or turning point: Scaling up climate finance in the era of COVID-19

4. Implications of forecasts a recession of 5.2 per cent of world GDP in 2020, with a forecasted COVID-19 on contraction of 2.5 per cent in emerging and developing countries’ developing economies. For comparison, following the 2008 financial crisis, world access to finance for GDP contracted by 0.1 per cent and output climate action grew by 2.8 per cent in emerging and developing economies.46 Today, developing countries face a huge infrastructure investment gap, estimated to The current plunge in economic activity will reach a cumulative value of up to further reduce developing countries’ USD 30 trillion by 2040. The preceding already limited domestic public resources section discussed the risks limiting by significantly reducing tax and non-tax developing countries’ access to finance to revenues. Some estimates suggest that tax close this gap for low emission climate- revenues could contract even more than resilient infrastructure. The impacts of the economic activity. Trade could decline by economic crisis and financial instability 13 to 32 per cent and international tourist caused by COVID-19 are likely to exacerbate arrivals could fall by 60 to 80 per cent in 47 the climate finance paradox as yields fall in 2020. Plummeting commodity prices will high income countries due to expansionary disproportionately afect low income monetary and fiscal policies, and perceptions countries that tend to rely more strongly on of investment risk rise in developing natural resource revenues than other countries. Notably, COVID-19 further income groups. Taken together, fiscal constrains developing countries’ access to balances in developing countries are finance for climate investment because of: expected to turn sharply negative to -9.1 (i) falling domestic public revenue and and -5.7 per cent of GDP in middle-income 48 downgrades in sovereign credit ratings; and low-income countries respectively. (ii) declining private external finance; and (iii) For sub-Saharan Africa, estimates suggest liquidity and solvency crises afecting private that government revenue could deteriorate firms, notably small and medium by 12 to 16 per cent compared to a 49 enterprises (SMEs). non-COVID-19 baseline scenario.

(i) Fall in domestic public revenue and At the same time, the COVID-19 shock downgrades in sovereign credit ratings necessitates large public spending on health, social protection and economic The COVID-19 pandemic is causing a sharp relief, as well as on longer-term post-crisis deterioration in macroeconomic conditions, recovery. The simultaneous divergence in reducing fiscal space in developing available financing and an increase in countries for climate investments on the spending needs amplifies the so-called one hand, while increasing the cost of such investments on the other. The World Bank

46 World Bank (2020). Global Economic Prospects. 47 WTO (2020). Trade set to plunge as COVID-19 pandemic upends global economy. UN World Tourism Organization (2020) International tourist numbers could fall 60-80 per cent in 2020. 48 UN/DESA Policy Brief #72: COVID-19 and sovereign debt. 49 World Bank (2020). Africa’s Pulse, No 21.

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‘scissor efect’ of sustainable development compared to 2019 and portfolio outflows finance identified by the OECD.50 have taken place at unprecedented scale and speed.54 In March 2020 alone, investors The ‘scissor efect’ means that public debt withdrew over USD 80 billion from in developing countries is likely to increase emerging markets – the largest capital further and sizeably. While the G20 has outflow in history. While debt flows to suspended ofcial bilateral debt payments emerging markets recovered in April and from the poorest countries – freeing up May 2020, outflows of equity have approximately USD 5 billion for 42 continued.55 low-income countries in 2020 - poor macroeconomic conditions, including Overall portfolio and investment flows are currency devaluations and increased not expected to recover quickly as the perceived country risk, are likely to lead to COVID-19 pandemic is still ongoing. This downgrades in developing countries’ could result in a second wave of outflows, sovereign credit ratings, increasing the with the Institute of International Finance interest rate spread and cost of public (IIF) expecting portfolio and other borrowing.51 In 2018, this spread was 1.3 investment flows to drop by 80 per cent per cent for a five-year project and 2.5 and 123 per cent respectively compared to per cent for a ten-year project in BBB rated 2019.56 Foreign direct investment (FDI) has countries and it rose to 6 per cent and 9 also slowed down, with an estimated 35 per cent respectively in a B rated country. At per cent drop to developing countries in the extreme low end of the 2020,57 particularly in terms of equity. creditworthiness ranking, more than 60 Notably, FDI greenfield investment, which is countries were rated below BBB and – more important in developing economies before the COVID-19 crisis – had access to than mergers and acquisitions, declined capital only at spreads higher than 18 significantly over the first two months of per cent for projects longer than two 2020.58 This efect is likely to have years.52 worsened with the economic lockdowns.59

(ii) Decline in private external finance The impact of falling equity will most likely Private finance is expected to plunge by be compounded by a lower equity to debt USD 700 billion in 2020 compared to leveraging ratios for infrastructure in 2019 levels in ODA-eligible countries.53 developing countries in the coming years. Remittances to developing countries are Infrastructure projects often have higher projected to drop by 20 per cent in 2020 levels of leverage than non-infrastructure

50 OECD (2018). Global outlook on financing for sustainable development 2019. 51 The interest rate spread is the difference between the interest rate of a bond issued by the US government and the interest rate of loans to a given country to which the specific risk-premium of a project must be added. 52 Buhr et al (2018) 53 OECD (June 2020). The impact of the coronavirus (COVID-19) crisis on development finance. 54 World Bank (2020). Migration and Development Brief 32 – COVID-19 Crisis through a migration lens. 55 IIF (2020). IIF Capital Flows Tracker – April 2020 and June 2020. 56 IIF (2020), Capital Flows Report – Sudden Stop in Emerging Markets. 57 World Bank (2020). Migration and Development Brief 32 – COVID-19 Crisis through a migration lens. 58 Greenfield investments refer to investments where the parent company creates a new operation in a foreign country from the ground up, and may include construction of new production facilities and distribution hubs. 59 OECD (2020). The impact of the coronavirus (COVID-19) crisis on development finance.

18 Tipping or turning point: Scaling up climate finance in the era of COVID-19 investments, given lower cash flow developing countries - more likely to be volatility.60 Debt instruments have afected.64 COVID-19 brings a huge risk that historically comprised 70 to 90 per cent otherwise solvent firms, particularly SMEs, of the total capitalisation of infrastructure could go bankrupt while containment projects.61 In high income countries, there measures are in force. are some examples where private debt finances 100 per cent of infrastructure To date, evidence of the impact of the projects. The increased risk perception COVID-19 crisis on SMEs from business could lead financiers to require higher surveys indicates severe disruptions and equity investment as first losses to mitigate concerns among small businesses. The lending risks in a deteriorating outcome of 41 worldwide SME surveys on macro-economic environment. the impact of COVID-19 shows that more than half of SMEs face severe losses in (iii) Solvency and liquidity crisis revenues. One third of SMEs fear to be out for SMEs of business without further support within SMEs are the backbone of developing one month, and up to 50 per cent within countries’ economies - accounting for over three months. Similarly, according to a 60 per cent of GDP and over 70 per cent of survey among SMEs in 132 countries by the total employment in low-income countries International Trade Centre, two-thirds of when taken together with the informal micro and small firms report that the crisis sector.62 COVID-19 and the economic strongly afected their business operations, lockdowns have put firms into mass and one-fifth indicate the risk of shutting financial distress by reducing demand for down permanently within three months.65 products and services, disrupting supply Based on several surveys in various chains and tightening the availability of countries, a McKinsey study found that credit. Given the limited resources of SMEs, between 25 per cent and 36 per cent of and existing obstacles in accessing capital, small businesses could close down the period over which SMEs can survive permanently from the disruption in the first 66 shocks is more restricted than for larger four months of the pandemic. A recent firms. Fifty per cent of small businesses in study by the London School of Economics the United States are operating with fewer found that in the Gambia, Greece, than 15 days in bufer cash and even healthy Mongolia, Myanmar, Nicaragua and Zambia, SMEs have less than two-month cash four out of every five firms fall to insolvency reserves.63 Data from past crises have also due to COVID-19.67 shown that corporate insolvency tend to SMEs play a critical role to scale up climate follow such shocks, with young, small, and action in developing countries. They drive domestic market-oriented firms - typical in

60 Beeferman and Wain (2012) 61 OEDC (2016) 62 https://bassiounigroup.com/smes-driving-growth-in-developing-countries/ 63 Federal Reserve Bank of New York, 2020 64 http://pubdocs.worldbank.org/en/912121588018942884/COVID-19-Outbreak-Implications-on-Corporate- and-Individual-Insolvency.pdf 65 ITC, (2020) 66 McKinsey, (2020) 67 https://blogs.lse.ac.uk/businessreview/2020/09/08/firms-in-emerging-markets-fall-to-COVID-19/

19 GCF WORKING PAPER SERIES NO. 3 decentralised renewable energy reverse years of eforts to support climate investments and provide the bulk of climate action and strengthen capacities in adaptation services to communities. developing countries. Unaddressed, the liquidity crisis will free fall into a solvency crisis for SMEs and could

20 Tipping or turning point: Scaling up climate finance in the era of COVID-19

5. Maintaining climate private investment in nascent markets, mobilising institutional investors, and ambition in the era of deepening domestic financial sectors and COVID-19 capital markets. Building on ongoing eforts from GCF and While COVID-19 will further reduce its partners, this section sets out six policy, developing countries’ already limited access financial and institutional initiatives that can to finance for low carbon, climate-resilient help catalyse finance for climate action in investment, it will not stop climate change. developing countries in the era of Supporting developing countries to COVID-19. maintain climate ambition in the context of COVID-19 is more important than ever. This 1. Nationally Determined will require continued eforts related to Contributions (NDCs) to carbon pricing, disclosure of climate- related financial risks and the adoption of foster policy integration common green standards and taxonomies. Recovery from the COVID-19 economic However, it will also require dedicated crisis coincides with a pivotal time in the action to increase the supply of climate- fight against climate change. 2020 is the related investment opportunities and year in which countries are raising their stimulate the demand for green finance by climate ambitions by submitting new or entrepreneurs and financiers. updated Nationally Determined Contributions (NDCs), a key step towards GCF is the world’s largest dedicated climate creating momentum for the 26th UN fund supporting developing countries to Climate Change Conference (COP26) and take urgent mitigation and adaptation realising the Paris Agreement goals. This action. With over 150 partners including process provides an opportunity to leverage government ministries, national and NDCs to foster policy integration between international commercial and development climate action, economic stimulus banks, UN agencies and civil society measures and the SDGs. organisations, GCF co-finances high-impact, transformative climate Policy integration could almost halve initiatives. Through its country-driven investment requirements in energy, approach and range of financing transportation, water supply and sanitation, instruments (including grants, concessional flood protection and irrigation to meet the debt, guarantees, equity, and results-based SDGs and the goals of the Paris Agreement payments), GCF supports upstream policy in low- and middle-income countries; from engagement and project pipeline USD 2.7 trillion per year under current development, helping to create climate fragmented policies against USD 1.5 trillion compatible markets and technologies in per year with policy coordination over the developing countries. A key task of the Fund next 15 years.68 An illustration of integrated is to shift financial flows in line with low policies fostering sustainable development, emission, climate-resilient pathways by employment and low emission climate- leveraging blended finance to crowd in resilient pathways are urban policies

68 Rozenberg & Fay (2019)

21 GCF WORKING PAPER SERIES NO. 3 avoiding forced mobility and associated at approximately USD 258 million. In GHG emissions, lowering the economic response to country requests, rapid support costs of trafc congestion, and reducing air is being provided through GCF’s Readiness pollution and its health impacts. Programme to green their COVID-19 recovery measures and incorporate such To support developing countries’ eforts to measures into their NDCs, as well as to integrate national and sub-national policies, design innovative mechanisms to finance GCF has become the largest provider of such measures. technical assistance and financial expertise to policy makers and practitioners in 2. Develop new valuation developing countries to craft green, mechanisms to accelerate climate-resilient, integrated and inclusive asset re-pricing economic stimulus measures and incorporate them into their updated NDCs. Continued progress towards the disclosure of climate-related risks to inform capital Policy integration to design ambitious allocation decision making is required to climate investments with high socio- direct financial flows away from high economic co-benefits will only be carbon, unsustainable investments. In successful if such NDC priorities can attract addition to the adoption of common the right mix of finance. NDCs are typically standards and taxonomies for designed as policy signals for national climate-related investments to promote climate priorities, rather than portfolios of market development and attract capital bankable investment projects. Often, flows, agreed project assessment methods priorities expressed in NDCs are too such as quantification and common pricing numerous and/or too abstract to of avoided emissions and valuation of meaningfully guide investment grade climate-resilient assets are required. Such project development at the national and mechanisms will enable investment sub-national levels. decision-making to balance of risks associated with higher upfront costs of low A key challenge for policy makers is to emission, resilient infrastructure with their translate NDCs into investment plans that lower operation and maintenance costs and can align, combine, and sequence multiple lower climate physical and transition risks. sources of international and national This could lead to labelling investments as funding from the public and private sectors. low emission, climate-resilient assets, This will ensure that the right set of highlighting their sustainable development interventions are prioritised and financed benefits, including improved health, food through the right set of instruments that security and job creation, all of which are leverage scarce public resources to catalyse critical to the COVID-19 response. The larger flows of private finance. emergence of financial products across GCF supports developing countries’ eforts asset classes backed by certified projects to enhance and finance NDC ambitions by would increase liquidity and further identifying, designing, and implementing reinforce the efcacy of climate disclosure transformational climate interventions. As and taxonomy approaches. of 30 September 2020, GCF has approved To develop valuation methodologies and 376 projects under its Readiness labelling of low emission climate-resilient Programme, covering 136 countries, valued infrastructure in developing countries, GCF

22 Tipping or turning point: Scaling up climate finance in the era of COVID-19 is collaborating with two global coalitions. investment. A sustainable infrastructure Under the Coalition for Climate Resilient label, underpinned by standards and robust Investments (CCRI), GCF is engaged in three reporting requirements, will allow work streams, which are piloting institutional investors to identify sustainable methodologies for resilient infrastructure assets to finance in developing countries structuring and financing. With the and incentivise high environmental, social Jamaican government, CCRI is developing and resilience standards at the pre- an assessment tool to enable investment construction phase. prioritisation based on exposure of selected infrastructure networks to physical climate 3. Develop dedicated low carbon risks; the economic and social value at risk climate-resilient financial resulting from such exposure; and the products potential of capacity of nature-based Increasing the supply of climate-related solutions (NBS) to at least partly replace investment opportunities depends on hard infrastructure measures. This tool will transforming low emission and be the first of its kind - integrating climate climate-resilient investment opportunities risk analytics in programmatic infrastructure in developing countries into credible decision-making and enhancing cost- financial products across asset classes to benefit analyses at macro-economic and match the risk profile of products familiar asset levels. Such analysis should in turn to institutional investors. At the support and incentivise the development of macroeconomic level, transforming illiquid resilient infrastructure project pipelines and infrastructure assets into liquid financial a more efcient allocation of public and instruments is needed at a pace high private capital towards such projects. The enough to compensate for divestment from CRRI will also analyse cash flows of selected the fossil fuel industry, which prior to the projects to understand the quantitative COVID-19 crisis, was estimated at changes that climate risks bring to project 32 per cent of carbon intensive assets.69 budgets and codify the results. This will allow an evidence-based benchmark for New financial products designed to foster discussion on standardisation. Finally, this low emission, climate-resilient pathways work will make it possible to structure the have emerged over the past years, such as first financial instruments that realistically green or climate-resilient bonds. However, embrace resilience to climate change in the in developing countries, notably LDCs and infrastructure project pipeline, which in turn SIDS, the market for green bonds remains in will enable pipeline development, financing its infancy. Shallow capital markets; the high tools and securitisation options. cost of issuance due to developing countries’ credit rating; the issue of GCF is also part of the coalition, “Finance to minimum size; and the lack of appropriate Accelerate the Sustainable Transition – institutional arrangements for green bond Infrastructure” (FAST Infra), which aims to management are key barriers to scaling develop sustainable infrastructure into a green bonds in developing countries. liquid asset class by creating a label and developing platforms for targeted

69 Mercure (2018)

23 GCF WORKING PAPER SERIES NO. 3

Eforts are being made on multiple fronts to Growth in the renewable energy sector has address these challenges. International also given rise to a new form of securitised financial institutions have been supporting investment opportunity – solar asset- developing countries’ eforts to issue green backed securities. Solar ABS are securities local currency bonds, which help to deepen that are collateralised by consumer local capital markets. For example, GCF is receivables originated by solar energy supporting Jamaica to set up the companies. Each solar securitisation is Caribbean’s first regional green bond comprised of loans, leases or power exchange through its Readiness and purchase agreements (PPAs) used to Preparatory Support Programme. As part finance photovoltaic (PV) systems. The of this programme, Jamaica’s Ministry of periodic payments from these consumers Economic Growth and Job Creation is for their PV systems are the cash flows used developing a regulatory framework for to repay solar ABS. While still an emerging green bonds, raising awareness in the sector, solar ABS issuance grew to over marketplace among potential issuers and USD 2 billion in 2018, with seven active investors, and ultimately will issue a green issuers.71 bond on the exchange. Such eforts must be replicated across developing countries in Solar ABS are paving the way for further order to achieve the required scale to financial innovations. For example, the attract deep pockets of institutional capital. revenue streams from purchasing agreements with industrial and agricultural Innovation in securitisation of green assets users are used to repay a variety of debt and could further help to deepen capital credit enhancement mechanisms, including markets and increase the size for green municipal issued green bonds for water investible deals in developing countries. reuse projects. GCF is working with its Loans for small-scale, low carbon projects, partners to develop such financing which on their own are too small to gain structures, share risk and provide access to the bond market, can be co-financing to catalyse private aggregated and securitised into larger pools investment for such projects. to access institutional investor capital. This process also gives banks an opportunity to 4. Deepen blended finance for refinance existing loan portfolios and climate change recycle capital to create a fresh portfolio of Blended finance structures are potentially green loans. While asset-backed securities powerful tools to catalyse private finance by (ABS) have been under scrutiny since the using scarce public resources to de-risk low financial crisis, green securitisation has emission, climate-resilient investment been growing – with estimates that over opportunities and address certain country USD 25 billion of green bonds issued in risks. Blended finance has proven relatively 2019 were asset-backed securities, up from efective to de-risk pioneer renewable 70 USD 1.9 billion in 2015. energy investments in high- and middle-income countries and create

70 https://www.climatebonds.net/2017/04/green-securitisation-part-climate-finance-suite-can-eu-lead-way 71 https://www.institutionalinvestor.com/article/b1h4mybwwjy5p7/Solar-ABS-A-Growing-Sector-Offered- Sunny-Side-Up

24 Tipping or turning point: Scaling up climate finance in the era of COVID-19 green energy markets. However, as noted development phase risks particularly afect in section 3, its track record is uneven for entrepreneurs and are a major barrier to early-stage technologies and markets. increasing low-emissions, resilient deal Blended climate finance mechanisms must flows. GCF supports ‘Climate Investor One’ also be deepened to better work for LDCs (CIO)73, a blended finance facility that can and SIDS, achieve higher leveraging ratios provide finance throughout the entire and de-risk a broader range of climate infrastructure investment cycle, including priorities such as climate-resilient pre-funding to cover development costs infrastructure and nature-based for renewable energy investments through climate solutions. equity financing. GCF provided USD 100 million in grant finance to this In order to address the current initiative, which leverages USD 721 million in shortcomings of blended finance structures, additional equity and grant finance. policy makers, as well as development and climate finance institutions need to better Multi-country sovereign-backed guarantee understand how to combine and deploy the funds could also be powerful blended range of diferent “3 T” instruments to treat, financing mechanisms to achieve higher transfer and tax risk in line with the leveraging ratios. Guarantees are versatile Principles for blended finance agreed to by instruments that can address a wide range Member States in the AAAA. The IATF puts of investment risks, achieve leverage ratios forward a six-pronged approach, which up to 1:15 in some contexts, and lower the highlights the importance of being country- costs of green bond issuance for developing and impact- driven; comparing the cost of countries. Sovereign guarantees, where blended finance structures to other (AAA-AA) countries join forces, could financing mechanisms; analysing the cost drastically increase the leverage efect of of complementary investments needed; public funds in climate-oriented providing capacity building support; and development assistance and would impact reporting on impact.72 public budgets only in the event of project default. Multi-sovereign guarantees GCF can support developing countries to mechanisms using standardised and do this. Its Preparatory Support Facility (PSF) transparent project selection procedures provides countries with financial and might, in addition, provide enough technical assistance to translate priority credibility to the projects to accelerate their NDC concepts into bankable project transformation into a new class of physical funding proposals. PSF can also support assets. Such assets could then be developing countries in identifying an incorporated in the balance sheets of the optimal mix of policy instruments and entire chain of financial and non-financial blended financing structures to create actors to be mobilised and ultimately green markets. recognised by central banks.

GCF projects are also piloting new forms of GCF is championing a multi-country blended finance to align public and private sovereign climate guarantee fund to de-risk sector investments with NDCs. For example,

72 IATF (2020). Financing for Sustainable Development Report 73 https://www.greenclimate.fund/project/fp099

25 GCF WORKING PAPER SERIES NO. 3 some of the large transformative climate to finance. The EARF will provide much initiatives that must take place within the needed liquidity to of-grid energy next few years to remain under the 1.5°C companies that would otherwise have to threshold. These sovereign-backed reduce their workforces or shut of the guarantees will be supplemented by greater systems of customers who are temporarily investment in readiness programmes, unable to pay. Consequently, in the context technical assistance, and project of COVID-19, the EARF aims to avoid almost preparation facilities to help translate 1.33 tonnes of CO2, conserve approximately national climate plans to bankable projects. 20,700 jobs and enable electricity access to almost 3 million households in countries GCF is also engaged in the development of that are among the least developed in terms pioneer equity funds to catalyse private of electricity access. The EARF was investment in ecosystems conservation, submitted by Acumen – a global not-for- including land and coral reef funds. Land profit organisation - to GCF, with a degradation is a key barrier to sustainable proposed investment from GCF of USD 30 development in LDCs, notably in the Sahel million in equity. Region. Similarly, SIDS are particularly vulnerable to the destruction of coral reefs 5. Realise the full potential of and they are disproportionally dependent domestic financial on their ecosystem goods and services for institutions to finance the their survival. These funds aim to make green transition blended finance work for the most vulnerable countries by bringing together Aligning finance with sustainable broad coalitions of partners and a variety of development and addressing the public and private financing instruments, infrastructure financing gap will require including grants, guarantees, concessional firms to access patient, long-term and loans and equity to de-risk investment committed finance. Private financiers have portfolios. Experience gained from these failed to provide adequate financing in funds could foster new business models nascent markets – a situation exacerbated and encourage private investments in by tougher financial regulations introduced conservation projects in vulnerable in response to the 2008 financial crisis and countries. likely to be worsened by the insolvency risks arising from the COVID-19 pandemic. As a direct response to the COVID-19 crisis, Complementary to MDBs, NDBs have GCF is also supporting emergency liquidity traditionally played a key role as financiers instruments to maintain the solvency of of low emission investments; mobilisers of those SMEs that are critical for climate external public and private finance; action. For example, the Energy Access intermediaries that blend climate and public Relief Facility (“EARF”) is a USD 100 million development finance; policy influencers fund supporting energy access SMEs from that help create an enabling policy 9 countries in Africa to remain solvent environment to attract private investment; during the COVID-19 crisis. Following the and pipeline developers that identify outbreak of the COVID-19 pandemic, 308 bankable projects and are early investors to energy access SMEs sufered from severe prove commercial viability. NDBs account liquidity constraints due to slowed sales for investments of about USD 2 trillion a growth, falling revenues and scarce access year, about 10 per cent of total investment

26 Tipping or turning point: Scaling up climate finance in the era of COVID-19 worldwide, and doubling their investment 2020, for example, GCF approved a project capacity or leverage efect would be by the Western African Development Bank enough to bridge the infrastructure (BOAD) in Senegal with a total value of investment gap. USD 235 million to electrify over 1000 villages including health centres, benefiting However, there are several pre-requisites almost 400,000 people and avoiding for some NDBs to realise their full potential. 1.1 million tonnes of emissions. Electricity is First, they need to be given a clear “green” a pre-condition for reviving economies and mandate by policy makers and invest in ofering 24-hour health services during the their overall governance to become first tier pandemic is critical to reduce human financial institutions. Second, NDBs require sufering and protect both patients and the skills, tools, and track record to assess medical staf. the specific risks associated with investments in new climate technologies GCF is further contributing to strengthening and business models in a given policy the capacity of NDBs and regional environment, and to develop the most development banks through the appropriate financial structures. Most NDBs International Development Finance Club have limited capacity in these areas, which (IDFC) Climate Facility. The IDFC is a group undermines their ability to identify and build of 26 public development banks, committed a pipeline of bankable climate projects. to aligning their activities with the Paris Third, they require sufcient capitalisation Agreement. Their combined climate to be able to operate at the required scale. investments exceed USD 200 billion per Given the higher risk adjusted rate of return year. The Climate Facility aims to support usually expected from climate investments, members to further integrate climate NDBs need a large capital base to catalyse change into their mandates, develop private and public investors. This includes innovative financial products, mainstream co-financing from international climate climate finance into operations, and finance to help them take on early promote knowledge sharing. Through the investment risk, which is particularly Climate Facility, GCF will strengthen the important for small NDBs operating in capacity of 13 IDFC members (that are also countries with shallow capital markets and GCF direct access entities74) to access GCF limited domestic public resources. Finally, resources. This will support public NDBs need to be able to access development banks to become key actors international and local capital markets, for climate action at regional and country notably to overcome public resource level. IDFC and GCF will announce this joint constraints. initiative during the Finance in Common Summit in November 2020. As of September 2020, 39 NDBs accredited to implement GCF-financed projects, are Domestic commercial banks also have a key actively working on transformative climate role to play to align finance with the Paris initiatives with strong development Agreement. Total banking sector assets in co-benefits. At its Board meeting in August emerging markets are estimated at

74 Sub-national, national or regional organizations that need to be nominated by developing country National Designated Authorities (NDAs). NDAs are appointed to act as focal points to GCF on behalf of their countries.

27 GCF WORKING PAPER SERIES NO. 3

USD 50 trillion.75 In addition to being a accredited portfolio consists of 26 finance provider, the banking sector acts as commercial banks and equity investors. an intermediator and deploys green financial products to corporates and 6. Innovative Financing households. Financial institutions account Instruments based on global for 57 per cent of green bond issuances. solidarity According to IFC, total banking assets All the above initiatives will require invested in low-carbon and climate-resilient international public support to be deployed activities will have to grow from 7 per cent at scale and on time. However, ofcial to 30 per cent by 2030 in emerging development assistance (ODA) has markets, an increase from USD 21.9 trillion continued its downward trend, declining by 76 to USD 44.5 trillion. However, commercial 4.3 per cent in 2018,78 while budget banks face many challenges in developing pressures in 2020 on members of the commercially viable and competitive Development Assistance Committee (DAC) projects, including assessing the credit risk creates greater risks for further drops in of new industries and markets and the ODA. The OECD estimates that if DAC mismatch between the long-term capital members were to keep the same ODA to required in climate projects and the shorter gross national income (GNI) ratios as in repayment of their own debt. These 2019, total ODA could drop by USD 11 to challenges reduce banks’ incentives to build 14 billion.79 Despite pressure on national green compatible portfolios. budgets, DAC members have undertaken to GCF is supporting project development protect ODA budgets. credit facilities to commercial banks to help International support from multilateral them pilot new green investment and institutions is also stepping up to provide financial products and gradually countercyclical support to developing decarbonise their operations. For example, countries. The IMF announced over GCF is supporting the Development Bank of USD 100 billion in emergency lending. Southern Africa to create the Climate The World Bank Group will lend about Finance Facility, a dedicated green finance USD 150 billion over the coming year.80 operating unit. The lending facility consists As part of its support to climate-resilient of credit enhancements including first loss recovery from the COVID-19 pandemic, or subordinate debt and tenor extensions to GCF and its partners have endeavoured to catalyse private sector climate investments, approve approximately USD 1 billion in primarily in water and renewable energy. funding at each Board meeting for high This Facility is a first-of-its kind application climate impact projects with strong based on the green bank model, adapted development co-benefits, notably in terms 77 from emerging market conditions. GCF of employment creation.81 All financial

75 Bank for International Settlements (2019). 76 Amundi and IFC (2018). 77 Ibid. 78 IATF (2020). 79 OECD (2020). The impact of the coronavirus (COVID-19) crisis on development finance. 80 OECD (2020). The impact of the coronavirus (COVID-19) crisis on development finance. 81 The GCF Board meets three times a year.

28 Tipping or turning point: Scaling up climate finance in the era of COVID-19 contributors to GCF have so far been the Paris Agreement. GCF works with its honouring their pledges to the Fund. accredited entity partners and other key stakeholders on first-of-its-kind projects Exploring innovative finance structures will that aim to generate high-quality carbon also be required to enable developing ofset credits to support transition pathways countries to foster a green, resilient voluntarily, underpinned by robust recovery without increasing their sovereign protocols and standards for ensuring debt burden. One such innovative financing environmental and legal integrity. Key areas mechanism is “debt swaps for climate”, of support within this integrated carbon where there is a partial cancellation of debt value-chain approach include the by the creditor government, transformation strengthening of regulatory frameworks at of the remaining debt into local currency both national, jurisdictional and market and directing the remaining debt towards levels, enhancing pricing visibility in the investment in climate action. Such market and catalysing longer-term oftake “debt-for-climate swaps” can provide debt for carbon units, while assuring compliance relief solutions for developing countries with UNFCCC requirements in the case for coupled with simultaneous financial REDD+. support of their climate-related action. Technical assistance is required to design these instruments as well as to ensure a high-quality pipeline of bankable climate investments that can be capitalised in the form of credible assets. Several SIDS have indicated to GCF their intention to request technical support to explore debt-for- climate swaps and other innovative financing instruments.

Another type of innovative financing mechanism involves market-based structures for scaling up private finance for NBS and ecosystem preservation and restoration, including under the REDD+ framework.82 This involves development and strengthening of markets for both voluntary and compliance-based carbon ofsets, which ofer a potentially cost efcient, impactful and highly scalable modality for meeting ambitious climate mitigation and adaptation targets set under

82 Reducing emissions from deforestation and forest degradation and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries (REDD+) was first negotiated under the UNFCCC in 2005, with the objective of mitigating climate change through reducing net emissions of greenhouse gases through enhanced forest management in developing countries. Most of the key REDD+ decisions were completed by 2013, with the final pieces of the rulebook finished in 2015.

29 GCF WORKING PAPER SERIES NO. 3

6. Conclusion financing needs. At the same time, harnessing the potential of blended finance According to the IPCC, limiting global through better design, bold new warming to 1.5°C and avoiding the mechanisms (including sovereign-backed catastrophic impacts of climate change is guarantee funds and equity funds for still narrowly possible. However, the nature-based solutions) and replication, will response to the COVID-19 pandemic could crowd-in private investment and create take us to a tipping point of no return in our green markets in developing countries. fight against climate change. Despite their Exploring innovative financing instruments potential to revive economies in an will increase developing countries’ access inclusive and sustainable manner, stimulus to climate finance without increasing their measures in G-20 countries to date do not sovereign debt burden. prioritise green, resilient investments. At the In addition, building on ongoing work same time, COVID-19 will potentially widen related to carbon pricing, climate-risk inequalities as developing countries do not disclosures and green standards, new have the same fiscal and monetary capacity valuation methodologies will support asset to roll out ambitious recovery packages, repricing in global financial markets and and their access to climate finance will be increase the supply of available finance for severely undermined by the current low emission, climate-resilient pathways. economic and financial crisis. LDCs and Creating dedicated green and SIDS are likely to be the most afected. climate-resilient financial products in Today more than ever, political leadership developing countries will create the and global solidarity are needed to course vehicles to attract and absorb this increased correct and ensure that our collective supply, particularly from the deep pockets response to COVID-19 proves to be a of institutional investors. turning point rather than a point of no Finally, deepening national financial sectors return to meet the goals of the Paris and strengthening institutions across these Agreement and the SDGs. initiatives will help address key barriers to The six policy, institutional and financial climate finance supply and demand by initiatives outlined in this paper aim to promoting green financial products, support policy makers, financial decision increasing the pipeline of bankable climate makers, and international institutions in this projects, and taking on early investment risk efort. Together, these initiatives will help to create a track record for green and align financial flows with a net-zero and resilient opportunities. resilient future and enable developing The health and economic costs of countries to catalyse much needed private COVID-19 on human lives and livelihoods finance to scale up climate action in the era are devastating, and a stark reminder of the of COVID-19. costs to come if swift action at scale is not Leveraging ongoing NDC enhancements taken to address climate change. While we eforts to foster policy integration between cannot “undo” the tragedy of COVID-19, we climate action, economic recovery and the can ensure that our response to this tragedy SDGs will create conducive investment finances a safer and more sustainable future environments and dramatically reduce pathway for us all.

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Working papers