Climate and Nature Finance: Time for Action

This guest blog was written for the GEFI Insights Series by Richard Folland, Carbon Tracker Initiative, and John Willis, Planet Tracker.

2024 is meant to be the year for international climate finance. It was widely acknowledged that COP28 in Dubai and the Global Stocktake did nowhere near enough on finance – and in particular on the needs of emerging and developing economies (EMDE) – to manage the challenges of climate change mitigation and adaptation, and of the energy transition.

This year’s international negotiations about biodiversity and nature will also highlight finance. A priority for the COP16 on the Convention on Biological Diversity (CBD), taking place in Colombia in late October, will be monitoring progress on the Global Biodiversity Framework (GBF),ⁱ agreed at the previous CBD COP in Montreal and exploring how public and private finance can be mobilised to deliver on the GBF.ⁱⁱ

One of the positive developments in Dubai (begun at COP26 in Glasgow, with the declaration on forests and land use) was a coming together of climate and nature agendas.

For example, there was both a Nature, Land Use & Oceans Day as well as one dedicated to Food, Agriculture and Water at COP28.ⁱⁱⁱ This closer co-ordination supports the views of the climate scientists, who recognised in their last UN assessment report (Sixth Assessment Report [AR6] in 2023^iv) the interdependence between the impacts of climate change and the state of biodiversity. The authors commented on “the interdependence of climate, ecosystems and biodiversity, and human societies’”.^{v, vi}

These international declarations are important. However, as the climate and nature crises become more acute, policymakers and decision-makers will increasingly be judged on their ability to deliver. Against this background, can 2024 generate a step-change in how international public and private finance address the twin crises?

There are some grounds for optimism. UNFCCC party discussions in Dubai produced one significant development on finance: that a New Collective Quantified Goal (NCQG) is necessary – to set a new climate finance goal with the provision of an overall framework for existing and new sources of revenue. To drive forward the process, COP29 this November in Baku, was agreed as the time when governments should report back on their finance plans, to contribute to the overall collective goal.

It’s clearly early days for how the NCQG will play out in practice. But it does represent a step-change in ambition – going beyond the previous climate finance floor of USD 100 billion per annum (where we should acknowledge that Global North governments failed) – on financial support for the Paris goals. And it has the potential to do more than that:

• providing a framework for new and innovative sources of revenue, for example, from expanded carbon taxes;
• aligning with the UNFCCC’s core objective of substantially more ambitious new national emissions reduction targets (the NDCs) within the Paris “ratchet cycle” concluding at COP30 in Brazil in 18 months’ time by incorporating the model of country finance platforms which emerged from the recent World Bank/IMF Spring Meetings in Washington DC;
• it also chimes with the burgeoning climate and development reform agenda being driven by Global South leaders such as President William Ruto of Kenya and PM Mia Mottley of Barbados, prioritising the climate finance policies of the World Bank and the Multilateral Development Banks (MDBs).

For nature and biodiversity finance, the most positive development has been the inclusion of financial responsibilities, targets and policy alignment in the GBF, adopted in December 2022.

Firstly, target 14 of the framework references the need to integrate biodiversity-related fiscal and financial flows into policies, regulations, planning and processes.^vii Secondly, financial institutions, along with transnational companies, are required to monitor, assess and disclose on biodiversity impacts and dependencies (target 15^viii). Some recent environmental regulations have seen the exclusion of financial institutions; not this time. Thirdly, there is a push to reduce harmful incentives, including subsidies, which are damaging to biodiversity.

Target 18 aims for a reduction of at least USD 500 billion per year by 2030; these incentives are due to be identified next year.^ix Finally, target 19 calls for the mobilisation of USD 200 billion annually for biodiversity by 2030.

In the nearer term, international financial resources from developed countries are slated to reach USD 20 billion annually by next year and USD 30 billion by 2030.^x

New and innovative sources of finance will be necessary to tackle the crisis in nature. One area where policymakers, in our view, should be working harder – and making common cause on climate and nature finance – is subsidies.

The scale of public money devoted to subsidies for oil, gas and coal remains (for all the rhetoric about reducing them at G7 and other international meetings over the last decade), a staggering USD 7 trillion, according to latest IMF figures. Alongside this, a 2022 study by The B Team and Business For Nature estimated that at least USD 520 billion per annum was allocated to subsidise agriculture alone, plus other environmentally harmful subsidies in sectors such as forestry (USD 155 billion) and fisheries (USD 50 billion).^xi The Paulson Institute valued subsidies harmful to biodiversity at between USD 274 and 542 billion, in 2019, while positive flows into biodiversity conservation were estimated to be USD 124 to 143 billion.^xii

The UN has the platform to move things forward on subsidies. The CBD later this year is expected to tackle existing subsidies which impact on nature. COP28 in Dubai included language on “phasing out inefficient fossil fuel subsidies” in the GST text, and we would like to see NCQG submissions take the opportunity to pick this language up.

Other ways in which climate and nature decision-makers might work together is carbon markets. There is long-established scepticism about the voluntary carbon market, given the lack of international common standards and its association with offsets. Despite this, there would seem to be a push for biodiversity credits which can provide nature-based solutions to emissions reductions; and the CBD in Colombia may make progress with relevant innovative financing instruments.

Finally and importantly, the UN climate and biodiversity processes can be mutually supportive for national policies and plans. In a recent high-profile speech in London entitled “Two Years To Save The World”, UNFCCC Executive Secretary Simon Stiell set out what’s at stake – above all, that a step-change in new and ambitious NDCs is essential. This autumn at COP16, governments are expected to submit their own national plans (National Biodiversity Strategy and Action Plans – NBSAPs – the equivalent to climate’s Nationally Determined Contributions – NDCs). To date, seven countries and the EU have submitted NBSAPs.^xiii

Our new multi-polar world is in many ways becoming more dangerous, as conflicts around the world are sadly showing. But there is a more positive sign of the times: the leadership from a new generation of leaders in the South such as Ruto in Kenya and Mottley in Barbados, who have been instrumental in promoting a common agenda of climate and development, and driving an overhaul of the IFIs and MDBs that are more in tune with the global challenges of the 21^st century. Luiz Lula da Silva, President of Brazil, will also play a central role, as Brazil chairs the G20 this year and COP30 in 2025.

In short, this must be the year for transformative change on international climate and nature finance, which can repair some trust between the North and EMDEs after past failures. As we describe, some of the stars may be aligning. The outcomes of COP16 and COP29 will be the litmus test; and, as ever, it will ultimately be political will that counts.