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Climate finance ‘not fit for purpose’, says Al Jaber

climate finance Al Jaber Cop28 Reuters/Christoph Soeder/dpa
Multilateral development banks are not supplying enough money to lower risk and attract private capital into climate finance initiatives, Al Jaber said
  • $3.5trn a year of investment needed to achieve net zero by 2050
  • Only $1trn currently being invested every year
  • Donor countries and multilateral development banks not doing enough

Sultan Al Jaber, who is due to preside over the Cop28 conference later this year, has said climate finance in its current form “is not fit for purpose.”

He called for the financial architecture’s “comprehensive transformation” instead of “piecemeal reform”, adding that special focus is needed to support “climate-positive development” across the global south.

“Climate finance is nowhere near available, accessible or affordable enough,” Al Jaber told the Conference of the Heads of Government of the Caribbean Community in Trinidad and Tobago.

He said multilateral development banks are not supplying sufficient concessional funds to lower risk and attract more private capital. 

According to the Energy Transitions Commission (ETC), a think tank which includes energy leaders from around the world, $3.5 trillion a year of capital investment will be needed on average between now and 2050 to build a net zero global economy, up from $1 trillion per annum today.

Of this, 70 percent is required for low-carbon power generation, transmission and distribution, which underpins decarbonisation in almost all sectors of the economy.

Investment in middle and low-income countries, meanwhile, needs to quadruple by the end of this decade, the think-tank has estimated.

Multilateral development banks (MDBs) like the World Bank, the European Bank for Reconstruction and Development and the African Development Bank, are expected to play a central role in arranging the funds, given their ability to mobilise cheap finance from capital markets at scale.

The Cop28 presidency is already working with the International Monetary Fund, the World Bank and Glasgow Financial Alliance for Net Zero to unlock capital markets, standardise voluntary carbon markets, and incentivise the allocation of private capital.

To help the world’s most vulnerable withstand the impact of climate change, Al Jaber said donors need to double finance by 2025.

He emphasised the urgency for donor countries to honour their commitments to channel $100 billion a year to less wealthy nations this year.

In 2021, MDBs provided approximately $51 billion to low and middle-income countries.

Ashley Taylor, managing director of the Energy Industry Group at Alvarez & Marsal, a consulting firm, said that these institutions need to increase the transparency of their allocations, reduce transaction costs and issue more innovative instruments such as green and sustainability-linked bonds.

“There’s a need for the MDBs to reform their operations and business models if they’re going to fulfil their mandates,” Taylor told AGBI.

Hannah Audino, an associate at the ETC, said that the multilateral institutions are “uniquely placed to take a leading role in funding the transition in the developing world”.

“We do think there needs to be a big emphasis on mobilising both domestic savings and private finance in these countries supported by a significant increase in MDB capital,” she said.

In November 2022, the UAE and US launched the Partnership for Accelerating Clean Energy, which will mobilise $100 billion and deploy 100 new gigawatts of clean energy by 2035.

“International financial architecture needs to address several aspects to improve climate finance,” Sandra Villars, senior adviser for management consultancy Oliver Wyman, said.

“Despite receiving a lot of attention recently, the shortfall in financing commitments that have been made to developing countries is a particular issue.”