Climate Finance and Private Sector

The potential of the private sector to boost adaptation and mitigation actions is being revealed. According to the "Global Landscape of Climate Finance 2019" corporations are the largest source of private climate investment. Their contribution is estimated at just over a fifth of climate finance in the period 2017/2018. Banks played a leading role in promoting sustainable investments, particularly in renewable energy, which attracted 93% of the financing.

The rapid growth in investments reflects the maturity and lower perception of risk in the renewable energy markets and a stronger willingness by investors to finance projects in their early stages.

In addition, average annual household climate-related spending increased, driven by investments including electric vehicles and solar panels. China and the United States remain the largest markets for electric vehicles, followed by Norway, France, Germany, and the United Kingdom. It is important to note that the growth in the share of electric cars can be attributed largely to increased public awareness and explicit knowledge of the benefits of vehicles, with the help of the government's subsidy programs in many countries. In the case of photovoltaic systems, net metering regulations to encourage rooftop installations and government support programs to promote off-grid solar energy have been a major driver.

However, how to link public policies with the private investment? The Project "Tracking Private Climate Finance” commissioned by the United Nations Development Program (UNDP) provides guidance to developing countries to design and improve reporting and planning systems for public and private investments in mitigation. The goal is to enable countries to create reliable mechanisms and capacities to monitor, report, and verify (MRV) mitigation efforts and effectively target climate resources.

Aspects to be considered include (a) the clear definition of sector strategies and objectives at the country level in relation to climate change goals, and (b) the effectiveness of public policy instruments that are relevant for mobilizing private sector capital. In particular, guidelines, incentives, and information should be provided to influence the behavior of market actors. This is where "information policies", as knowledge platforms, support and promote informed decision-making by the private sector.

This is how different resources must be used in a more transformative way. This will require unprecedented collaboration between governments, regulators, development banks, and private investors to align all financing with a pathway toward low-carbon and climate-resilient development in order to identify the business models that can best enable private investment at scale and to apply common frameworks to define climate-aligned and SDG-compatible investment.

From strategies4climate we know, that barriers like uncertain or unknown value-add, lack of technical and internal capacity in organizations block the possibilities to invest in adaptation and mitigation. That is why it is imperative today to better understand the condition of success of technical assistance programs in order to overcome the knowledge gap and address barriers in business models and in the ability to formulate projects that might be eligible for funding.