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Climate financing is still staring at a huge hole but early investors in the space can reap higher returns, according to a senior official at Boston Consulting Group (BCG), which was the exclusive consulting partner for COP27 in Sharm El-Sheikh in November 2022.
Hubertus Meinecke, Managing Director and Senior Partner; Global Leader, Climate and Sustainability Practice at BCG shared his thoughts with Zawya Projects on the key takeaways from COP27 and the road to COP28, which will be hosted in the UAE in 2023.
Excerpts from the interview:
What are the low-hanging options to bridge the funding gap and what progress can we expect in COP28 to narrow this huge gap?
The financing need for attending to global adaptation and resilience is now taking centre-stage, yet still faces a widening funding gap whereby only approximately 10 percent of the required $410billion - $560billion was funded in 2020. In response, the US announced at COP27 that the Energy Transition Accelerator (ETA) will fund a just transition in developing countries by offering carbon avoidance offsets to corporations. The African Carbon Markets Initiative (ACMI) was also launched with the ambition to produce 300 million credits, $6 billion in revenue, and 30 million jobs by 2030.
Furthermore, COP27 saw the LEAF Coalition announcing the issuance of the first-ever jurisdictional REDD+2 credits, with supply commitments from Brazil, Costa Rica, Nepal, and Ecuador. We can expect that COP28 in 2023 will determine how far such projects will bear fruitful results and action.
What will it take to scale private sector funding for climate projects? Was there any progress on this front?
Private sector collaboration across the value chain – from production to consumption – is essential to increase yield sustainably, maintain the agricultural frontier, limit the increase in emissions due to land conversion and unlock the potential of food systems as a source of sequestration and a nature-based solution.
We expect early investors can reap higher returns in $3 -10 trillion cumulative investments by 2050. As such, effective adherence will require the private sector to position for success in net-zero execution and disclosure by
Enhancing climate data and governance capabilities (e.g., via BCGs CO2 AI);
Ensuring appropriate leadership, skills, and human resources, and enablement capabilities;
Anticipating expense associated with growing climate disclosure cost;
Advocating and shaping green policies and regulations;
Prepare for an evolving regulatory landscape;
Assess regulatory impacts on suppliers and engage suppliers today to reduce climate and nature-related risks.
Where do you see the biggest opportunities for businesses on the road to net zero?
Leading banks and investors are building capabilities around energy transition financing, but also in newer areas such as blended financing to capture first mover advantage. Grey to green investment themes will become even more critical as consensus grows about the imperative to finance real economy decarbonisation.
Businesses can begin partnering with growing pools of concessional finance to pursue high-impact opportunities as their physical assets, core operations and supply chain are at risk with a high potential cost of inaction. Climate risk assessment and adaptation planning are increasingly critical.
What are some of the promising climate technologies of the future? Has climate tech received enough policy and funding support to advance research and innovation?
There is a lot to cover here, and most of them are ambitious projects. However, technology is evolving much faster than what was originally anticipated. Today, Artificial Intelligence (AI) as a tool is uniquely positioned to help manage rising climate issues. Due to its capacity to gather, complete, and interpret large, complex datasets on emissions, climate impact, and more, it can be used to support all stakeholders in taking a more informed and data-driven approach to combating carbon emissions and building a greener society. It can also be employed to reweight global climate efforts toward the most at-risk regions.
While there are still numerous roadblocks to implementation, we are excited to work with AI for the Planet to help new solutions push past those roadblocks and achieve their potential at scale.
There are several headwinds right now - inflation, concentrated supply chains, currency depreciation, shortage of critical minerals. Do you think these factors could derail the implementation of energy transition projects…especially in African countries?
To secure African countries from adverse climate impacts, discussions at COP27 urged for a strong call to address the food security crisis and drive transformation in parallel to create resilience and relief from current challenges.
However, commitments (especially funds) are still far below need and there was a missed opportunity for major corporate players and nations to commit to substantial transformation, and key topics like diet shifts and food waste were inadequately addressed. As technology and costs continue to improve, companies today can look to partner and build consortia along the value chain as a risk-sharing mechanism to ease entry into the space.
We are seeing calls against fossil fuel infrastructure building in Africa. Do you think the immediate focus on natural gas could push back the climate agenda? How do you see this push-pull panning out in climate negotiations?
The Glasgow text on phase-down coal remained unchanged and was not extended to other fossil fuels. Yet COP27 showcased higher scrutiny of private capital support for fossil fuels, with expectations to finance a just transition in the developing world. It also marked a shift towards implementation and accountability as South Africa published its Just Energy Implementation Plan endorsed by international partners.
As the High-Level Expert Group on sustainable finance (HLEG) issued 10 recommendations for non-state actors, some key takeaways include: eliminating deforestation by 2025; African Business Leaders Forum elevating business leadership in the Global South; and dedicating a day for agriculture raised expectations of a systemic approach to food systems.
(Reporting by Sowmya Sundar; Editing by Anoop Menon)
