Private finance for NDC implementation: how to mobilise it on the ground

July 10, 2018

While many countries are drafting strategies and plans for the implementation of their nationally determined contributions (NDCs), an important element is often missing – the financing strategy. Private sector finance will be needed to achieve NDC goals – but what is the best way to actually mobilise it on the ground? Cluster members and experts from developing and developed countries discussed possible options in a workshop organised by the NDC Support Cluster.

 

From 13 to 15 June, the Financing thematic working group of the NDC Support Cluster hosted a workshop in Cape Town, South Africa, to discuss ways to mobilise private finance for NDC implementation. Using an innovative workshop format, working group members and selected experts from developing and developed countries identified challenges that prevent private financial flows from supporting NDC implementation and exchanged views on how to address these. They then developed a series of NDC implementation approaches to overcoming the key challenges.

Three topics dominated the discussions on barriers and solutions: mobilising private finance in the energy sector, fostering private sector financing of adaptation and climate-proofing private investments, which included examining the role of climate risks.

Ways to mobilise private sector finance in the energy sector

Private actors in the energy sector often face economic challenges such as limited financial viability, high transaction costs and high investment risks for energy sector projects. Setting up local funds, conducting feasibility studies, utilising the green bond market and developing risk-sharing mechanisms such as insurance schemes can help mitigate these challenges. A further problem is the lack of capacities and knowledge about promising project design options, funding sources and strategies to minimise risks. This can be addressed by launching knowledge-sharing platforms and special support units for enterprises, which could, for example, be operated by banks. While it is governments that draft NDC implementation roadmaps, it is crucial to ensure that businesses also commit to NDC implementation.

Creating attractive private financing options for adaptation measures

Government officials often lack understanding of their own role in mobilising adaptation finance and fail to communicate adequately with the private sector. To overcome this, they could try to identify viable business opportunities in the area of adaptation, launch public funding facilities that help design adaptation projects and translate the NDCs into concrete bankable projects. Financial instruments like on-lending schemes or concessional financing from local banks can be used to de-risk investments. Finally, a key element in fostering private sector engagement with adaptation is speaking the ‘business language’, which means focusing on risks and opportunities which are of importance to private actors.

Climate-proofing private investments and the role of climate risks

Many businesses are unaware of climate risks and do not consider them in their corporate risk management schemes. The role of the public sector may therefore be to inform companies about the types of risks they are facing in their respective sector and to provide tools to address them. Furthermore, the public sector should initiate and incentivise the disclosure of climate risks, low-carbon business strategies and the emission potential of projects and products. Reward schemes or criteria for public procurement processes favouring climate-smart goods and services can serve as good incentives for private actors.

NDC implementation approaches and next steps

Based on the identification of key challenges and solutions, participants drafted NDC implementation approaches for mobilising private finance. Examples include:

  • Programme on mini-grid market development to establish relationships between first-time project developers and finance providers
  • Process to establish a convening space in order to facilitate the process of identifying adaptation-related investment opportunities for the private sector
  • Approach aimed at raising ambition for private sector implementation of NDCs through transition risk round tables that include all relevant actors.

More information on the workshop can be found in a blog article published by SSN. Workshop results, including further details about the NDC implementation approaches developed, can be found below this article.

The workshop was jointly organised by the NDC Support Cluster project Mobilization of Private Investments for the Implementation of INDCs and LEDS (MPI) (led by SSN) and the Support Project for the Implementation of the Paris Agreement (SPA) (led by GIZ).

 

The workshop was the second in a series of four events conducted within four thematic work streams of the NDC Support Cluster – governance, sector approaches, financing and transparency – between April and June 2018. Integrated results from the workshops will be published in a joint policy paper containing a set of recommendations on NDC implementation. More information on the workshop series can be found here.

 

For more information please refer to the concept notes and insights down below.

 

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