Judging by the announcements at Tuesday’s United Nations Climate Summit in New York City, it seems that governments of many developed countries are finally ready to help developing countries mitigate and adapt to climate change – even backing it up with money.
While that may help efforts to broker a legally binding agreement in Paris in 2015, UN Secretary-General Ban Ki-moon stressed that no amount of public financing will be able to turn the tide of climate change. That is why private financial institutions have been invited to participate in this round of climate negotiations, and they, too, are pledging financial commitments.
At the 16th conference of the parties (COP16) in Mexico in 2010, world leaders agreed to mobilize $100 billion (U.S.) per year by 2020 for the Green Climate Fund (GCF), the central financing mechanism that will help developing countries deal with climate change.
An initial investment of $10 billion would be enough to get the GCF going, said Park Geun-hye, President of the Republic of Korea. But until today, there was barely any money in the fund.
French President Francois Hollande and German Chancellor Angela Merkel changed that when they each committed $1 billion over the next four years to the GCF. The Republic of Korea also committed $100 million today, while Mexico committed $10 million, even though it is considered a moderate emitter of greenhouse gases.
Public financing is not enough
In the afternoon, Ban Ki-moon turned his attention to the private sector, pointing out that government spending would be ineffective unless complemented by thoughtful action by investors.
Jim Yong Kim, president of the World Bank, noted the potential benefits of investing in carbon neutral assets and said investors are beginning to realize the risks that climate change poses to their investments.
Mats Andersson, chief executive officer of AP4, a Swedish pension fund, said his company would not only disclose its carbon assets, but fully decarbonize its $20 billion portfolio within the next four years, while bringing together a coalition of financial institutions that are committed to doing the same.
Angelien Kemna, chief executive officer of APG Asset Management in the Netherlands, one of the biggest pension funds in the world, said her fund has already invested billions of dollars in clean energy and has signed a global-investor statement calling for carbon pricing and the end of fossil fuel subsidies.
Even so, climate finance flows to date show that most money stays within countries because the perceived investment risks discourage overseas investment, said Kim. With that in mind, the World Bank is “working to ensure that resources flow to where they are needed,” he said.
Kemna emphasized the final responsibility lies with heads of state to ensure that their regulatory frameworks are reliable and predictable in order to reduce risk and facilitate investment.