COP29 sign in Baku. Photo by UNclimatechange via Flickr
Today, November 14, is Finance Day at COP29. We caught up with Leslie Labruto, EDF’s Managing Director for Sustainable Finance, about what she’s watching for at COP29, the United Nations’ climate change talks in Baku, Azerbaijan. Follow Leslie on LinkedIn.
Q: You’re in Baku for COP29. What key issues are on your radar?
A: The spotlight here this year is on scaling up climate finance for developing countries, and a need for redoubled global cooperation to achieve our shared climate goals. My team and I, along with the rest of the +Business team at EDF, are laser focused on working with the private sector to ensure climate and nature wins. A major focus at COP will be the establishment of a climate finance goal, called the New Collective Quantified Goal (NCQG), which will replace the $100 billion annual commitment that high-income countries pledged to deliver under the Paris Agreement. The NCQG could reach at least $1 trillion a year—a figure that better aligns with the financial gap that needs to be closed to address the climate crisis.
Developing countries need these funds to tackle climate change, transition to clean energy, and adapt to the impacts of climate change, and it’s crucial that the finance be provided in a way that’s just, equitable, and effective. Let’s not forget that those ‘wins’ in developing countries are good for everyone everywhere, since climate impacts are felt globally. Successful climate finance means more forests still standing, a larger climate workforce, more resilient food systems, more methane abated, and greater global renewable energy capacity. Because climate-related investments are needed to meet global goals and address inequitable impacts from past emissions, low-income borrowers should have access to concessional finance. The NCQG will not only scale up ambition but also support countries as they prepare to submit their updated climate commitments in 2025.
Q: You’ve emphasized both the quantity and quality of climate finance. What do you mean by “quality”?
A: While the amount of climate finance is essential, its effectiveness — its quality — is equally important. When we talk about quality, we mean ensuring that climate finance is structured to be concessional, accessible, and impactful. In the private sector, finance is tracked with metrics like profits and losses that communicate shareholder value. In climate finance, however, there is less accountability in terms of impact metrics.
Climate finance should leverage public and private investment to make rapid progress toward net zero emissions and benefit local communities. To make sure financing achieves this, we need a system that is accountable for being easy to access, impactful in tackling climate-related challenges, and affordable for borrowers.
Q: What are some of the quality concerns with climate finance?
A: Three main quality issues affect climate finance today:
- Low levels of concessional finance: Many developing nations receive climate finance via non-concessional loans, at interest rates priced by the market. Basically, these countries aren’t getting “a better deal” than if they went to Wall Street. Between 2013 and 2022, only 41% of loans from multilateral climate funds and 23% from multilateral development banks (MDBs) were concessional. High interest rates raise countries’ debt repayments and increase fiscal stress in countries that are often already economically fragile.
- Barriers to access: Many developing countries encounter obstacles when accessing climate finance due to complex requirements and bureaucratic hurdles combined with limited local capacity. Consequently, a significant portion of funds don’t reach the local communities that need them most. For example, a 2021 study found that only 46% of international climate adaptation funding allocated to least developed countries was aimed at empowering local actors.
- Lack of impact measurement: The impact of climate finance — its actual effectiveness in addressing climate challenges — is often not well monitored. Unlike finance for purely private activities, climate finance suffers from an evaluation gap. We lack reliable data on how well this finance supports mitigation, adaptation, and resilience.
More effectively blending concessional support with commercial non-concessional capital, streamlining procedures to access climate finance, and strengthening monitoring and evaluation systems are action steps we can take to ensure that climate finance delivers real results.
Q: Are there any lessons we can learn from other financing systems to get quality “right”?
A: Yes, let’s look at carbon pricing. Interestingly, good carbon pricing makes it unnecessary to directly manage private finance flows from a public policy or oversight perspective. Why? Because incentives for climate impact are baked into the price, and equity is addressed at the system level through standards, for example for community input or control. A high-quality carbon credit standard can promote equity and reduce greenhouse gases in the atmosphere; this high quality usually is reflected in the price of credits issued.
Now, those lessons don’t automatically transfer to the challenge of assessing the quality of concessional finance from governments or multilateral development banks or even philanthropy unless that finance is explicitly linked to high-quality carbon credits. We need key metrics for climate impact (e.g. emissions reductions or contributions to long-term transition), for increased community resilience to climate change, for community wellbeing (e.g. just transition), for governance and for equity. And we need process metrics to assess concessionality and ease of access to funding.
Q: What would a successful outcome for the climate finance negotiations at COP29 look like?
A: In a new report, Quality Matters: Strengthening Climate Finance to Drive Climate Action, which EDF published just before COP29, we outlined three pillars for high-quality climate finance:
- Concessionality: Ensuring finance is affordable and sustainable for developing countries by prioritizing concessional funding.
- Accessibility: Simplifying bureaucratic processes, enhancing data and analytics, and strengthening disaster response financing to empower countries to access needed funds.
- Impact: Enhancing coordination, improving project design, and strengthening monitoring and evaluation to ensure that finance delivers tangible results and supports a transition to a low-carbon, climate-resilient future.
At COP29, a strong outcome would be one where negotiators incorporate language into the NCQG that emphasizes quality measures, including a focus on concessional finance, improved access, and impact metrics, with better coordination among climate funds. This approach will help create a robust framework for climate finance that’s both effective and equitable, accelerating progress toward a livable and low-carbon world.