Your Excellencies, Ladies and Gentlemen, Good afternoon.

At the onset, I would like to thank the organizers for the opportunity to address this prestigious forum.

Today my remarks will focus on the importance and opportunities to scale up climate innovation and investment to address the climate crisis.

Here is my message in a nutshell:

• Climate change is accelerating, its impacts are materializing faster than expected and are unevenly experienced across the world.
• However, we have a new window of opportunity as ambitious country commitments to net zero emission targets have put the Paris Agreement’s goals within reach.
• Translating these commitments into action will require accelerating the deployment of existing climate technologies and the emergence of new climate solutions.
• Translating net zero political commitments into action also requires a dramatic increase in climate investment.
• This will in turn require policy interventions to remove barriers to capital flows to climate-friendly options and align finance with sustainable development.
• These policy interventions should optimize synergies between policies aiming at strengthening price and risk signals and sectoral policies.
• GCF programming supports such integrated market transformation efforts in developing countries.

Let us discuss each of these points in further details.

Climate change is accelerating, its impacts are materializing faster than expected and are unevenly experienced across the world.

The Paris Agreement was adopted by 197 countries in 2015 with the aim of mitigating the impacts of climate change and increasing countries’ ability to adapt to them. A key goal was to drastically reduce GHG emissions to limit the increase of global average temperatures since pre-industrial levels to well below 2°C, while pursuing efforts to stay within 1.5°C.

We are not on track to achieve the Paris Agreement goals. Global GHG emissions dropped because of the global Covid-19 pandemic last year, but the decline was not nearly enough to halt the build-up of greenhouse gases in the atmosphere. Levels of carbon dioxide in the air averaged 419 parts per million in May 2021. Those readings are about half a percent higher than the previous high of 417 parts per million, set in May 2020. I was born at 317 ppm and started my career when our goal was to limit the build-up of GHG in the atmosphere to 350 ppm.

We have already reached a warming of 1.2 degrees Celsius above pre- industrial levels. WMO estimates that there is about 40% chance of annual average global temperature temporarily reaching 1.5°C above pre-industrial level in at least one of the next 5 years. Based on existing GHG emission trends, we could cross the 2.0 °C threshold at the very beginning of the second half of the century. The full implementation of all the individual pledges made under the 2015 Paris Agreement would result in an increase of temperatures somewhere between 2.9 and 3.4 degrees Celsius.

Not only is climate change accelerating but its impacts are also materializing faster than expected. Twenty years ago, for example, threats to the survival of unique ecosystems were not expected to materialize before a mean global temperature increase of 4 to 6 °C. Today, it is believed that a 2°C increase in mean global temperatures could wipe out coral reefs and endanger the security and economic livelihoods of hundreds of millions of people. The projected 2.9 °C to 3.4°C of warming could trigger very large, abrupt, or irreversible changes in the climate system with cascading impacts on nature and humans.

The impacts of climate change are also unevenly experienced across geographies and communities. The net impact of warmer climates on people, ecosystems and the economy is not only function of temperature increases, but also of the capacity to prevent damage and adapt to the changing circumstances. Poorer countries, where access to information, mobility, infrastructure, and state support is more limited, are typically the most exposed to climate change. In the years to come, we might witness a dramatic reversal of socio- economic gains achieved in low-income countries over the past few decades, with all its implications on climate justice as well as political and financial stability.

However, there are also some positive signs. To echo the words of Mr. Kim Seok Jong, President of The Kyunghyang Shinmum this morning, it is late but not too late. Notably, the recent global political momentum towards net zero emission targets gives us a new window of opportunity to avoid catastrophic climate change. To stabilise the global mean temperature, net global CO2 emissions must decline to zero by 2050. Over the past 2 years, 131 countries responsible for 73% of global emissions have adopted or are considering net zero targets. These net-zero targets have put the Paris Agreement’s goals within reach.

The carbon neutrality pledges are part of a global galvanisation of efforts to limit warming, mobilise private finance to drive the net-zero transition, and help vulnerable countries cope with climate impacts. This convergence of effort is apparent in the US President’s Leaders’ Summit on Climate in April and, just last month, with the P4G Seoul Summit. These events have helped coalesce climate action leadership and build global momentum in the leadup to the pivotal COP26 in Glasgow at the end of the year.

A key challenge is to translate these political commitments into detailed emission reduction plans. The transformation needed is analogous to the first industrial revolution. However, while the first industrial revolution was driven by technology, the green revolution required today is driven by an existential threat to humanity.

Achieving this green revolution on time to avoid catastrophic climate change will require dramatically accelerating the widespread adoption of existing climate technologies and the development of new technological solutions.

While there are pathways to scale up existing technologies and to develop new technologies by 2050, this does not mean that they will happen automatically or that we can take this revolution for granted.

The innovation path from the idea to a scalable technology that works — through experiments, research grant applications, investment pitches, piloting and refining, regulatory approval, finance at scale, manufacturing agreements, supply chains and normative shift to displace incumbents — is long and uncertain. It can take decades before an innovation reaches markets.

History is littered with examples of techno-optimist goals that could not be achieved. When key air pollution control legislations were passed in OECD countries in the 1960s/70s, for example, they were expected to incentivize the development of green technologies and to solve air quality problems within a decade. Half a century later, local air pollution linked to fossil fuels still accounts for one in five of all deaths, and new global air pollution concerns have arisen with ozone depletion and climate change.

Transition from a socio-economic and technological system to another usually occurs through three overlapping stages: emergence of a new technology; diffusion through pioneer applications at scale; and widespread adoption through a reconfiguration of the socio-economic and technological system.

A 2019 Report from Brookings assessed the progress of the low carbon transition in 10 of the highest-emitting sectors of the global economy, which together account for about 80% of global GHG emissions in 2019. These are the power, agriculture and land-use, cars, trucks, shipping, aviation, buildings, steel, cement, and plastics sectors. It found that required technologies and business models to support this transition had reached the diffusion stage in only three sectors: buildings, cars, and power. In all the remaining sectors, the transition had hardly begun and required technologies and business models were still at the emerge stage.

To avoid catastrophic climate change, innovation must empower and benefit all. Notably, it must leverage climate friendly investment opportunities in developing countries. To reduce GHG emissions and adapt to climate change in an inclusive and cost-effective manner, developing countries will need the capacity to develop home-grown solutions to meet their unique market and socio-economic conditions. They will also need to access and calibrate to local requirements innovations whose technical feasibility and commercial competitiveness have already been proven in other countries.

Overall, barriers to technology innovation in developing countries are more challenging than in developed countries, and this is particularly acute for climate technology innovation. In mature start-up ecosystems, incubators, and accelerators are a critical element in supporting the emergence of new technologies and, thus, could play a key role in diffusing new low-carbon and climate-resilient technologies.

Today, there is still a comparably smaller number of climate-focused incubators and accelerators operating in general, and in developing countries in particular. There are estimated to be around 2000 technology incubators and there were more than 150 accelerators world-wide. However, less than 70 are estimated to be climate technology incubators and accelerators in 2018. Just 25 of these are in developing countries.

Access to early-stage finance is also a major impediment for innovators in developing countries. In mature start-up ecosystems in OECD countries, climate innovators and entrepreneurs meet their funding needs at the ideation and development stages with their own personal assets, investments from family and friends, angel investors and/or start-up seed grants from public programmes.

In emerging and frontier markets, most entrepreneurs face a much more difficult situation when launching a start-up as personal assets and assets of family and friends are usually very limited and start-up promotion programmes funded by governments are scarce. There are few early-stage investors or angel investors, and those who operate in developing countries tend to shy away from climate technologies due to their high upfront capital requirements; dependence on local manufacturing, supply chains, infrastructure, technological know-how to scale up; as well as longer payback period compared to conventional technologies.

The lack of vibrant start-up ecosystems affects the capacity of innovators in developing countries to convert innovative ideas into new products or processes, and to bridge gaps between academia and industry. This leads to unrealized opportunities for transferring and deploying climate technologies.

Translating net zero political commitments into action also requires a dramatic increase in climate investment.

Even if new climate technological solutions materialize on time, achieving their widespread adoption to foster a rapid transition to a net-zero emission, climate-resilient economy will require significantly more investment, investment in a different set of assets, and investment that addresses the humanitarian imperative of social inclusion and poverty alleviation.

Let us take as an illustration the power sector, one of the three highest-emitting sectors where required technologies and business models to support the net zero transition has reached the diffusion stage. Today, two thirds of the world’s populations live in countries where wind and solar power offer the cheapest new electrical generating capacity. Over the past decade, the levelized costs of solar and offshore wind has dropped by 83% and 62% respectively. Despite these dramatic reduction in costs, investment in renewable energy technologies is still falling short from the required level to fully decarbonize the power sector by 2050. IEA estimates that annual clean-energy investment would have to exceed $4 trillion by 2030, which is three times its average over the past 5 years.

What is impeding investment in climate friendly technologies, products, and services?

With an estimated $14 trillion of negative-yielding debt in OECD countries and low-carbon and climate-resilient investment opportunities that could yield a direct economic gain of US$ 26 trillion through to 2030, capital in search of higher yields should flow to climate friendly projects, particularly in developing countries where the bulk of investment in low emission climate resilient infrastructure is to take place in the coming decades.

But in a manner reminiscent to the classic Lucas’ paradox, this is not yet happening. There are barriers to this flow of capital to low emission, climate resilient investments: political and regulatory barriers; macroeconomic barriers; and technical barriers. For example, an investor will hesitate to invest in a renewable energy project if it takes several years to obtain a sitting license or if fossil fuels are heavily subsidized in the country. These barriers translate into higher investment risks. Entrepreneurs will therefore expect higher returns before investing their time and personal resources in a climate- friendly project.

Similarly, finance providers will demand a higher margin and offer less attractive terms to protect themselves from these higher risks. The additional financing costs are even higher in less developed countries in which long-term projects such as low emission, climate resilient infrastructure projects would not reach investment grade.

We need supportive policies to overcome these barriers and align finance with sustainable development. Bloomberg New Energy Finance found that, on average, countries with strong policies to support clean energy attract seven times as much clean-energy investment as emerging markets without such policies.

There are two main policy intervention approaches to incentivize the changes needed: market fixing and market shaping.

Market fixing relies on price and risk signals to create a demand for low-carbon low-climate-risk goods and services and shift financial flows towards climate-friendly investments. To achieve these objectives, it calls on scaling up carbon pricing and promoting climate risk disclosure and taxonomies.

There is a widely shared consensus in economics that, in a frictionless world with perfect capital markets and without uncertainty, carbon prices would be sufficient to secure the attractiveness of low carbon options for capital markets. In the real world, however, the carbon price signal is swamped by the noise of other signals, such as oil prices, interest rates, and currencies exchange rates in addition to business uncertainty. The capacity to set carbon prices at a higher level to cover these noises is uncertain.

While market-fixing approaches address information barriers for financiers, a second approach addressing a range of other barriers gradually emerged over the past 30 years to direct private investments towards low-emission climate-resilient development pathways.

Market shaping intervenes at the level of sector policies and endeavours to create a demand for, and directly de-risk the supply of, climate-friendly investments to crowd-in private finance. Thousands of environmental policies and instruments to shape markets are currently in use to foster climate-friendly investments globally. They are divided into five main categories: information; regulation; economic; institutional; and financial instruments.

The first four categories of environmental policy instruments aim to create a conducive business context for low carbon investments by reducing investment risk. In contrast, financial instruments tackle individual projects’ risks by transferring part of them to public actors. They blend public and private resources, often to encourage market- creating projects that will establish a proof of concept or commercial track record for new climate solutions. The structuring approach of financial de-risking instruments is usually referred to as ‘blended finance’.

A common limit of these instruments lies in the fact that the higher their cost on the public purse, the tighter the public funding constraints, and the lower the political credibility of their maintenance over time. Furthermore, the use of blended public and private finance to de-risk market creating investments has proven effective for mature technologies in mature markets, such as renewable energy technologies in medium-high income countries, but not for early- stage technologies in early-stage markets. It has also usually taken the form of relatively safe senior debt rather than more risky instruments such as equity or guarantees to take on early-stage or ‘pioneer’ risk or achieve higher leveraging ratio, such as equity, risk-sharing facilities, or guarantees.

However, experience shows that the market fixing and market shaping approaches are mutually supportive and should be deployed in tandem. The combination of the two approaches into integrated green market transformation efforts helps overcome the constraints inherent to each approach. In essence, it embeds pricing and risk signals into broader sectoral policy packages. It holds the promise to increase the overall efficiency and effectiveness of public policies and finance to accelerate the transition to net-zero climate-resilient economies.

Let me now turn to telling you a little bit about the role of the Green Climate Fund in supporting such an integrated market transformation approach.

First, a word about GCF. It is the world’s largest dedicated climate fund. We currently manage a portfolio that is worth over USD 30 billion including co-financing, and we were responsible for two thirds of all multilateral climate finance provided in 2020. We work across four broad areas of intervention: the built environment; energy and industries; human security, livelihoods, and wellbeing; and land-use, forests and ecosystems.

Across all these areas, we are taking an integrated, four-pronged approach to accelerate and scale up transformative climate innovation and investment.

We provide support to integrated policy and planning. We facilitate the emergence of new climate solutions. We de-risk market creating projects to diffuse new climate solutions. And finally, we align domestic financial systems with sustainable development to accelerate the widespread adoption of proven new climate solutions.

Turning to the first prong, supporting transformational planning and programming, GCF promotes integrated strategies, planning, and policymaking to maximise the co-benefits between mitigation, adaptation, and sustainable development. Integrated policy and planning could reduce the total infrastructure investment required to avoid catastrophic climate change by 40%. Furthermore, it is critical to optimize synergies between pricing and risk signals and sectoral policies.

The COVID-19 pandemic has given an additional urgency to policy and planning integration. The pandemic has pushed the global economy into its deepest recession since the Second World War. The pandemic has been particularly devastating for developing countries. It has led to an increase in the number of people facing food insecurity from 135 million in 2010 to 272 million now, as well as to a large increase in unemployment, and to 500 million additional people falling below the poverty line.

To stimulate the economy and mitigate the impact of Covid-19, governments are undertaking large-scale expansionary fiscal measures. Depending on their green contents, these stimulus measures can either entrench our dependence on fossil fuels or accelerate our transition to net zero emissions by 2050. However, the UN Environment Programme estimates that so far only 18% of recovery spending and only 2.5% of total spending will enhance sustainability in the 50 largest economies.

Equally concerning, developed countries have spent 17 times a greater amount on a per capital basis in stimulus measures than developing countries. One of the key reasons for this disparity is the difference in the cost of additional debt. For most high-income countries, the cost of additional debt is close to 0% per annum. For developing countries, with low credit ratings, interest rates are significantly higher, stretching fiscal budgets.

Under its first prong, GCF is leveraging its grant resources to assist developing countries in designing green, climate resilient economic stimulus measures and in exploring innovative financing instruments to finance them without increasing their debt burden. For example, GCF will support Saint Lucia’s efforts, one of the SIDS hardest hit by climate change, in translating its Nationally Determined Contribution under the Paris Agreement into a detailed investment plan exploring financial innovations like resilience bonds and climate debt swaps to supplement public resources, and to finance these efforts without raising its debt.

Under its second prong, facilitating the emergence of new climate solutions, GCF pilots new technologies, business models, financing instruments and practices to establish a proof of concept.

Recognizing the limitations of the traditional incubators and accelerators model developed for digital start-ups in high income countries for climate technologies in developing countries, GCF acts as a market incubator. It supports technology need assessments and strengthens entrepreneurial and innovation ecosystem. GCF also provides early finance to ground-truth products and services.

Through a new generation of projects, it will also explore new models to develop the capacity of local incubators and accelerators: this could range from encouraging well-functioning existing incubators and accelerators to expand into climate technology markets to the creation of multi-country incubators and accelerators.

For example, GCF is exploring with the Korean Development Bank and the Global Green Growth Initiative a program to overcome the numerous barriers that local startups are facing during the “valley of death” phase in Asia – the gap between initial seed-funding and longer-term, more conventional financing. It will pilot an incubator+ and accelerator+ approach to provide seed capital and incubation services for local green technopreneurs selected through competitive process. In addition to traditional incubator and accelerator services, it will also promote international joint ventures between local start- ups and global technology companies to facilitate technology transfer and responsiveness to the unique requirements of each country. In addition, it will include a USD 100 million fund to provide early-stage equity capital for technology transfer and business acceleration, and technical assistance (TA) for development of local ecosystems for sustainable growth of climate technopreneurship.

In line with a market shaping approach, our third prong is to use scarce public resources to de-risk market creating projects and crowd-in private finance to deploy new climate solutions at scale. GCF is one of top five providers of blended finance. A key objective of the Fund is to make blended finance work for early-stage technologies and in early- stage markets. We are experimenting with new forms of blended finance, using more innovative instruments such as equity and guarantees, and not only the more traditional form of relatively safe, senior debt.

For example, the GCF-supported Sub-national Climate Fund Global is a first-of-its kind public-private equity fund investing in new climate solutions at the sub-national at scale. Almost half of the 42 participating countries are LDCs and SIDS, the most vulnerable countries to climate change, which are most often overlooked by private equity finance because of perceived higher risks or lower long- term market opportunities. To unblock private investment at the sub- national level, including in SIDS and LDCs, this new Fund will leverage $150 million in first-loss equity from the GCF to mobilize $600 million of less risky senior private equity. A multiple of this amount is expected to be catalysed in entrepreneur equity and debt finance.

And finally, leveraging both market fixing and shaping instruments, we are working to develop the capacity of domestic financial institutions to support the widespread adoption of new climate solutions - sharing knowledge of commercially successful innovations and enhancing the climate risk assessment and climate financing expertise of financial institutions.

In line with a market fixing approach, support can include developing the capacity of domestic financial institutions to adopt new asset valuation methodologies to better assess, for example, the benefits of low emission climate resilient infrastructure projects and transform them into a new class of assets. It improves risk signals by enabling investors to balance off risks associated with higher upfront costs of climate-resilient infrastructure with their lower Operational and Maintenance costs and lower climate physical and transition risks. GCF can also support the emergence of climate markets such as carbon offsets to strengthen price signals.

Furthermore, GCF directly enhances the capacity of domestic financial institutions to shift their portfolio from conventional to green instruments and access green finance. For example, there are almost 260 Public Development Banks in developing countries, representing $5 trillion in assets. These National and Regional Development Banks have the capacity of extending more than $400 billion in climate finance per year. Doubling their investment capacity or leverage effect would be enough to bridge the infrastructure investment gap. However, only 58 National Development Banks (NDBs) in developing countries are accessing international capital markets to capitalise their operations. Issuing green bonds could be a game changer for NDBs and international efforts to scale up climate action. GCF supports the efforts of many NDBs to acquire the skills and tools to design and issue green bonds.

Distinguished participants, let me conclude by emphasizing once gain the importance of policy interventions to scale up climate technologies, innovation, and investment to avoid catastrophic climate change.

Contrary to an influential report from the early 80s that claimed that climate change was uncertain but that innovation to address it was certain, climate change is certain, but innovation is not. This calls for new models to support climate technology ventures and accelerate climate innovation, particularly in developing countries.

Similarly, financial actors might not immediately anticipate the consequences of climate change as it is initially affecting zones that represent a limited share of the market economy and capital flows. Should the financial system continue to rely on outdated asset valuation models, it might not readjust on time to new information, failing to finance the green industrial revolution and endangering its own entire stability.

The policy interventions needed to accelerate innovation and increase the economic viability and bankability of climate-friendly options must maximise the complementarity of market-fixing and market-shaping approaches. GCF is committed to continuing its support to integrated green market transformation initiatives in developing countries.