Mobilise private sector to overcome climate finance challenge

Multilateral Development Banks such as Asian Infrastructure Investment Bank have a key role to play in creating the right conditions for greater private climate financing

By Muzaffar Rizvi

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People walk past a COP28 logo ahead of the United Nations climate summit in Dubai on November 28, 2023. The UN chief urged world leaders to take decisive action to tackle ever-worsening climate change when they gather at the COP28 summit in Dubai. — AFP
People walk past a COP28 logo ahead of the United Nations climate summit in Dubai on November 28, 2023. The UN chief urged world leaders to take decisive action to tackle ever-worsening climate change when they gather at the COP28 summit in Dubai. — AFP

Published: Wed 6 Dec 2023, 4:28 PM

Multilateral Development Banks (MDBs) can play key role in mobilising private sector to address climate finance challenge that will help reduce carbon emissions in line with the targets set by global leaders, says a senior official.

Konstantin Limitovskiy, Vice-President, Investment Operations (Region 2), Asian Infrastructure Investment Bank (AIIB), said AIIB recently released climate action plan highlights four key actions to resolve climate finance challenge.

He said significant financial resources and investments are needed to reduce emissions, accelerate adaptation to build resilience and preserve natural ecosystems.

“The AIIB and the COP28 Presidency are collaborating to mobilise much-needed climate investment capital and accelerate clean energy investments to address critical resource gaps in Asia and beyond,” imitovskiy told Khaleej Times during an interview.

Under the partnership, he said AIIB and the COP28 Presidency will co-develop innovative financial structures to scale up private and institutional capital mobilisation. Among them is the initiation of a new blended finance structure as part of shared efforts to drive capital into green initiatives.

Excerpts from the interview:

Climate Finance is a major concern in the fight against environmental issues. How can AIIB help resolve this challenge?

To achieve the necessary scale of climate finance, the focus must be on mobilising private sector resources. Multilateral Development Banks, or MDBs, including AIIB, have a key role to play in creating the right conditions for greater private climate financing, including increasing financeable opportunities, promoting carbon pricing, developing supportive policies and regulatory environments, utilising risk absorption capacity and developing innovative financing instruments.

Our recently released climate action plan highlights four key actions to resolve this challenge: scaling up AIIB’s own climate financing; enabling and mobilising greater direct private sector financing of mitigation, adaptation and nature solutions; mobilising large-scale private capital by promoting and developing viable climate markets; and creating partnerships with financiers and institutions to scale climate finance.

Why must MDBs triple their total cumulative climate finance within the next five years to prevent average global temperatures from reaching two degrees?

The impacts of climate change are already widespread and rapidly intensifying, while the window of opportunity to prevent the worst impacts of global warming is fast closing. Significant financial resources and investments are needed to reduce emissions, accelerate adaptation to build resilience and preserve natural ecosystems.

“To achieve this, we must first address a significant financing gap; a minimum of $4.3 trillion annually by 2030 is needed to keep to the objective of limiting global warming to 1.5°C; however, figures from the Climate Policy Initiative show that global climate financing reached only an average of $653 billion in 2019-2020.

Underinvestment in climate mitigation and adaptation measures – while high emission options continue to be financed – lessens the chances of meeting the objectives of the Paris Agreement. A lack of adequate financing also leaves many developing countries without the resources to transition to a low-carbon economy and adapt to the impacts of climate change.

Why has AIIB issued a new Climate Action Plan – a pathway to accelerated climate investment, enabling the bank to meet its climate financing targets (50% of its portfolio by 2025)?

The AIIB recently released its first Climate Action Plan (CAP) for the period to 2030. It is AIIB’s direct response to the global call for action. It articulates how, as a client-demand-driven financier, AIIB translates its climate ambition into key actions to meet the needs of its Members.

Konstantin Limitovskiy, Vice-President, Investment Operations (Region 2), Asian Infrastructure Investment Bank.
Konstantin Limitovskiy, Vice-President, Investment Operations (Region 2), Asian Infrastructure Investment Bank.

“The Climate Action Plan consolidates AIIB’s climate commitments as set out in its key strategies and policies, clarifies climate financing principles, and outlines key actions to guide AIIB’s investments in support of its Members. These principles include being responsive to client needs, being impactful through holistic sustainable solutions, strengthening co-financing partnerships, and promoting innovation.

The CAP is aligned with AIIB’s mission to finance i4t and includes a strong forward-looking focus to ensure AIIB financing is sustainable, holistic, promotes innovation and is flexible to meet changing needs.

Please share AIIB’s newly announced partnership with the UAE COP28 Presidency, established to mobilise the much-needed climate investment capital and accelerate clean energy investments to address critical resource gaps in Asia and beyond. This will include the co-development of innovative financial structure to scale up private and institutional capital.

The AIIB and the COP28 Presidency are collaborating to mobilise much-needed climate investment capital and accelerate clean energy investments to address critical resource gaps in Asia and beyond.

Under the partnership, AIIB and the COP28 Presidency will co-develop innovative financial structures to scale up private and institutional capital mobilisation. Among them is the initiation of a new blended finance structure as part of shared efforts to drive capital into green initiatives.

Both the COP28 Presidency and the AIIB will continue to jointly advocate for improvements in the multilateral development finance architecture and stronger institutional collaboration through operational support and knowledge exchange. Such collaboration reflects a strong commitment to maximize development impact, build greater momentum and achieve more through combined resources, expertise and influence.”

How MDBs must coordinate, co-operate, and work together for adaptive climate technologies and financing solutions where they are needed most?

Addressing the global climate challenge requires a coordinated approach to maximise the impact of their individual strengths. Better and more coordinated action by MDBs is a key tenet of the MDB reform agenda, which AIIB fully supports. Partnering with stakeholders to better serve client needs is central to AIIB’s mandate and operational model.

Particularly at a country and sector level, MDB financing is more effective when coordinated. Co-financing agreements, country climate platforms and Just Energy Transition Partnerships (JETPs) are examples of initiatives that AIIB will continue to closely support. It will also seek to leverage the experience and expertise of peer MDBs to ensure its own financing plays an effective role.

People walk during the United Nations Climate Change Conference (COP28) in Dubai, United Arab Emirates, on December 1, 2023. AIIB and the COP28 Presidency will co-develop innovative financial structures to scale up private and institutional capital mobilisation.  — Reuters
People walk during the United Nations Climate Change Conference (COP28) in Dubai, United Arab Emirates, on December 1, 2023. AIIB and the COP28 Presidency will co-develop innovative financial structures to scale up private and institutional capital mobilisation. — Reuters

We believe in simplifying and streamlining co-financing across MDBs, so it is easier for clients to work with multiple organizations interchangeably. We also believe in setting-up joint mechanisms for sharing best practices related to standards, financial innovation, and capital adequacy frameworks. Such mechanisms should be also institutionalised and have high level representation.

At the institutional level, AIIB supports the idea of setting up an institutionalized, regular joint MDB heads forum to discuss joint progress and pending actions. Such discussions should focus on areas where MDBs should play a more active role — with climate at the forefront.

There is an urgent need for international financial institutional reform, and the increasingly vital role MDBs must play to increase capital for climate action in emerging economies. What do you say?

The private sector has a critical role to play in addressing the significant shortfall in climate financing as well as a pivotal role in the global effort to decarbonise our industries. Facing challenges from recent global crises and public debt distress, AIIB emphasizes creating partnerships with financiers and institutions to scale climate finance.

Aligning with the MDB reform agenda, we have actively broadened our collaborations with international, regional and national partners, including institutional investors and sovereign wealth funds. AIIB actively pursues collaborative efforts with other MDBs and stakeholders to amplify the impact of climate change initiatives. As the largest co-financier with the World Bank and ADB, AIIB embraces co-financing opportunities, fostering close partnerships with institutions like the European Bank for Reconstruction and Development and European Investment Bank.

We are working toward streamlining co-financing processes by recognizing key operational policies and standards, as demonstrated by the co-financing framework signed with ADB. Examples of innovative financing arrangements, such as operationalizing risk-sharing with the World Bank, showcase AIIB’s commitment to pioneering solutions.

What do you say about Loss and Damage Fund? Do you think it will help developing nations to reduce carbon emissions?

Along with our MDB peers, we look forward to building on and supporting loss and damage efforts but as an infrastructure investment bank our focus is on stepping up adaptation and resilience in infrastructure which is critical to preventing loss and damage.

At AIIB, we are exploring options to offer Climate Resilient Debt Clauses (CRDCs) in our financing to provide some fiscal space to countries when climate disasters hit. We also have an emergency crisis response facility to support countries post-disaster and are also working on policy-based financing for climate.

— muzaffarrizvi@khaleejtimes.com


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