Holes in IMF’s climate finance plan

Subject : Environment

Section: climate change

In News: IMF’s latest estimate on climate investments notes need to almost double private share in total funding.

Key Points:

IMF’s estimate that the share of private financing in climate investments would have to rise from 40 per cent currently to 76-88 per cent by 2030.
IMF’s stance on climate funding ends up absolving the developed nations’ historical responsibility.
IMF, in its Global Financial Stability report (GFSR) of October 2023 estimates the global financing needs for mitigation needed to achieve net-zero emissions by 2050, using data from the International Energy Agency (IEA) and the International Renewal Energy Agency (IRENA).
There have been several recent instances that show the breakdown of multilateralism and the lack of international commitment from countries towards climate funding needs:
- The 2023 pledging Conference for the second replenishment of the Green Climate Fund, the largest climate-dedicated multilateral funding source, generated only $9.3 billion of commitments from 24 countries compared to $10.3 billion in 2014 .
- The fourth meeting of the Loss and Damage (L&D) Transitional Committee) failed to arrive at a consensus.
- The promised (meagre) amount of $100 billion a year of climate finance from the developed to the less developed by 2020 is yet to be achieved, even in nominal terms.
- UN’s Green Climate Fund makes the multilateral component of the $100 billion and contributes only 10 per cent, . And even that small sum cannot be mobilised in time.

What has led to this situation?

While developed countries need to finance much of the effort at reining in carbon emissions and global warming, failures on this are justified on the grounds that there is only so much that rich country governments can do, given the fiscal constraints they face.
So, the ‘global’ (rather than rich country) failure is attributed to an inability to persuade private capital to invest in projects that mitigate carbon emissions and help countries adapt to the impacts of ongoing climate change.
This tries to absolves the developed countries of their historical responsibility, despite their disproportionate share of cumulative carbon emissions.

Green Climate Fund

The Green Climate Fund is a fund established within the framework of the United Nations Framework Convention on Climate Change as an operating entity of the Financial Mechanism to assist developing countries in adaptation and mitigation practices to counter climate change.

Loss and Damage (L&D) Transitional Committee

It is responsible for arriving at recommendations on how to address L&D and for deciding on the form of a special fund for the purpose approved at the COP27 climate summit

Sustainable investment funds (SIF)

Sustainable funds are funds that use environmental, social, and corporate governance (ESG) criteria to evaluate investments or assess their societal impact. They may pursue a sustainability-related theme or explicitly aim to create measurable social impact.

IMF’s climate finance estimates in the Global Financial Stability report (GFSR)

The report estimates global financing needs for mitigation needed to achieve net-zero emissions by 2050, using data from the International Energy Agency (IEA) and the International Renewal Energy Agency (IRENA).
That ranges from $4.5 trillion to $5 trillion a year (adjusted for inflation and in 2020 US dollars).
The IMF estimates that around 60-70 per cent of that needs to be directed to the energy sector. This excludes the large expenditures required for Adaptation and dealing with Loss and Damage.
The IMF uses IEA data to estimate the financing for mitigation required in the Emerging Markets and Developing Economies (EMDEs) at $2 trillion a year, or around 40-45 per cent of the total.
In this context IMF estimates that the share of private financing in climate investments would have to rise from 40 per cent currently to 76-88 per cent by 2030.
This is envisaged to be financed by sustainable investment funds (SIF).