Financing climate ambition in the context of COVID-19

  • Event
    Petersberg Climate Dialogue
  • Publication date 29 Apr 2020

Thank you very much, Barbara. It’s an honour and a pleasure to be joining Patrick and Alzbeta in this conversation. [Other panelists include Patrick Dlamini, CEO of the Development Bank of Southern Africa, and Alzbeta Klein, Director and Global Head of Climate Business, International Finance Corporation (IFC)]

At the onset I would like to thank the governments of Germany and the UK for co-hosting this important event on the financing ambitions in the context of COVID-19. This is very much in keeping with the long- standing commitment of these two countries to raise climate ambition. The governments of Germany and UK both doubled their initial contributions to the GCF last year and greatly contributed to its successful replenishment.

Turning to the topic of this discussion, saying that the world is at a turning point or at a crossroad is a tired cliché. But I cannot think of a better expression to describe the situation we face today. Worldwide millions of jobs have been lost to the COVID-19 crisis, and many more are to be lost without public support. As global and national political and financial leaders consider options to revive economies, we are truly at a turning point. We could either have a very rare opportunity for a global course correction and accelerate efforts toward low-emission, climate resilient development, or face the risk of further entrenching our dependence on fossil fuels and increase our vulnerability to a future crisis, because we will have invested in the jobs and infrastructure of yesterday. The decisions that we will be taking in the coming months will have consequences for all the generations to come. And these consequences will be particularly important for the most vulnerable communities and developing countries, because they are the communities which are today the most affected by COVID-19 and they are the communities that are today already -- and for sure tomorrow will be -- the most affected by the climate crisis.

The historically low oil prices represent a major temptation to try to revive economies along the same blueprint that we used in 2008. Unfortunately, it’s a very carbon intensive blueprint. In 2009 there was a decline in global carbon dioxide emissions of about 400 million tons, but in 2010 we ended up with a major increase of 1.7 billion tons. That is something that we could face again today. History could repeat itself if our economic stimulus measures focus on bailing out oil companies in the name of energy security or bailing out airline companies in order to protect national champions or investing in shovel- ready highways.

On the other hand, the historically low oil prices also provide an historic opportunity to phase out fossil fuels, as mentioned by Kristalina [Kristalina Georgieva, Managing Director of the IMF], and recycle this money, reinvest these public resources in projects that generate employment on a short-term basis and foster low-emission, climate-resilient resilient development on a longer-term basis. There are countless projects that basically can achieve this dual objective – jobs today and low-emission, climate-resilient development tomorrow. For example, as already mentioned by several speakers, investment in energy- efficient buildings, or investment in storage and transmission and distribution. This kind of investment could catalyze massive amounts of private investment. We could also speak about investment in climate-resilient agriculture, in water management and sanitation, as already mentioned by other speakers. This would preserve livelihoods and would restore ecosystem activities that are critical to address both COVID-19 and the climate crisis.

Unfortunately, these types of investment are very unlikely to see the light of day on their own merits. Because most of this investment in energy efficiency or infrastructure, such as transmission and distribution, or climate-resilient initiatives, face a range of policy and financial barriers. And public resources will be required to remove these policy and financial barriers, de-risk these investments and make them bankable. The Green Climate Fund is one of the instruments that has been created to help in converting extremely worthwhile initiatives for sustainable development and climate management into bankable projects, making sure that they get financed by de-risking them.

We are a partnership institution. Today, we work with a network of 95 partner institutions, such as, for example, the Development Bank of Southern Africa, represented by Patrick, or such as IFC, represented by Alzbeta. We work with 95 accredited entities that include some of the largest commercial banks in the world, some of the largest multilateral development banks, public national development banks, private equity funds, and also United Nations agencies and civil society organizations working at the frontline of climate efforts. Being a partnership institution, working with such a range of talent, enables us to create unprecedented coalitions. For example, we have some projects with a private investment fund and a civil society organization in our book [pipeline] right now for our next board meeting.

We are also capital agnostic. We are financed in grant and we can convert this grant into any kind of grant and non-grant instruments -- including guarantee fund, equity investment, concessional debts -- in order to meet the unique requirements of each project to make them bankable and come with a risk- reward profile that will catalyze private finance. And so, with our partners, we are trying to leverage these comparative advantages to make a difference in terms of promoting green resilient recovery based on solidarity. We are currently exploring three main types of initiatives.

Provide financial support to governments to craft the range of green stimulus measures.

Work with our partners on new types of financial structuring to capitalize these projects.

We have been speaking about a stimulus of [USD] 10-15 trillion dollars, which is great for developed countries, but most developing countries right now do not have the financial resources to be considering such kinds of stimulus. Most of them are already suffering from major debt stress levels. And so, with our partners, we are thinking about new types of financial structuring. For example, how can we better leverage guarantees, how can we better leverage equities, such as loss equities, in order to use -- in a fully catalytic manner -- public money.

With our partners and the countries that we serve, we are looking at what kinds of priority initiatives we can immediately push for at our next board meetings to make sure that they are financed in the coming months, not in the coming years, because time is of the essence.

Over the next few months, we will be discussing with all our partners concrete proposals. And the big thing, Patrick [CEO of DBSA, also on the panel], I would be remiss not to mention that one of the key events will be the first summit of the public development banks that will take place in November.

Thank you very much.