Discussions on climate finance and carbon credit have gained significant attention from decision-makers, global leaders, and ordinary citizens. But to get climate finance requires organisations and citizens to adopt sustainable habits, such as using green energy.
The positive impact of it is already evidenced in many developing countries. Funds for investments in renewable energy projects can, in turn, foster the development of sustainable futures in Africa.
Industries spanning solar, wind, and hydroelectric power have successfully reduced dependence on fossil fuels, significantly reducing greenhouse gas emissions.
Concurrently, climate finance has played an instrumental role in supporting reforestation and afforestation programmes, addressing the adverse effects of deforestation, and underscoring the complex impact of climate finance on environmental sustainability.
The latest research from McKinsey 'Solving the Climate Finance Equation for Developing Countries’ illuminates a critical nexus between achieving the Paris Agreement objectives and limiting global warming: the imperative for developing countries in Africa, Asia, and Latin America to embrace a low-carbon development trajectory.
Beyond its ecological significance, this transition bears the potential to catalyse green growth and innovative economic prospects across these regions.
Central to the study is the assertion that developing countries must assume a significant role in solving the global net-zero equation. Despite the historical dominance of developed countries in contributing to emissions, the research contends that developing countries could soon emerge as major emitters without decisive climate action.
For instance, Africa currently contributes almost 10 percent of global greenhouse gas emissions, exceeding Europe, with projections indicating significant population and gross domestic product growth in the coming decades.
A fundamental insight emerging from the research is the staggering financial commitment required to limit temperature increases to 1.5 degrees Celsius by the century’s end, an estimated additional $2 trillion.
This financial outlay encompasses investments necessary for restoring natural capital and biodiversity, transforming energy systems, and scaling sustainable agriculture to address the escalating vulnerability to climate change.
Moreover, an additional $3 trillion annual injection into broader infrastructure and human capital is deemed essential for assisting developing nations in realising their development objectives.
However, accessing climate finance presents formidable challenges for developing countries, ranging from restricted entry into international financial markets and issues of creditworthiness to high transaction costs, limited institutional capacity, constrained access to concessional finance, and inadequate project readiness.
Resolving these challenges is not merely procedural but critical for fostering sustainable development and mitigating the profound impacts of climate change in these nations.
Developed countries and international organisations can deploy various supportive measures in response to these challenges. Foremost among them is the provision of technical assistance—a crucial intervention aimed at helping developing countries enhance their institutional capacity and project readiness.
This involves addressing critical deficiencies and ensuring the effective utilisation of climate finance. Complementing this, concessional finance at below-market interest rates is a potent tool to significantly enhance accessibility and affordability for developing countries, fostering a more conducive environment for sustainable development initiatives.
The other vital imperative challenge also emerging is access to international financial markets.
Achieving this could involve providing guarantees or other financial instruments to augment the creditworthiness of developing countries, enabling them to secure funds from global financial markets. Simultaneously, streamlining administrative processes for accessing climate finance is an essential measure.
Simplicity can substantially reduce transaction costs, making it more straightforward for developing nations to secure the necessary funding.
It also calls for a framework that can be used to address the North-South global economic injustice and inequality.
Therefore, there is a need for capacity-building initiatives aimed at enhancing financial management and project implementation capabilities, which are crucial components of the strategy to empower developing countries—and promoting knowledge sharing and best practices among developing nations as a powerful tool, which can be used to enable them to learn from successful climate finance initiatives, thereby improving their access to funding.
The writer is Kenya’s Ambassador to Belgium, Mission to the European Union, Organization of African Caribbean and Pacific States and World Customs Organization.
The article is written at a personal level.
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