Financing for climate change initiatives and a just transition just got harder with the return of Donald Trump to the White House, but development banks meeting in South Africa resolved to step up efforts to help close the funding gap.
The role of public development banks (PDBs) in ensuring momentum behind efforts to stem global warming, while also ensuring a just transition, is more important than ever: that was the overriding message to come out of the Finance in Common Summit (FICS) in Cape Town, the annual meeting of a global network of PDBs.
The expected withdrawal of the US from international climate change talks under president Donald Trump, his decision to suspend US international aid and the paring back of aid budgets and public spending across other rich nations provided a difficult backdrop for the 26-28 February meeting.
Delegates were keen to stress that the energy transition was still unstoppable, but that PDBs had an important part to play in making the case for and enabling both public and private sector investment in pursuit of climate and development goals, ahead of the COP30 climate change talks in Brazil later this year.
“We really need to up our game in terms of our narrative, because what we hear out there in terms of counter-narrative is really not serving us well,” Mafalda Duarte, executive director of the Green Climate Fund said at the event.
Duarte said the climate community needed to do more to show that climate change measures were supportive of economic and social development, rather than working against it.
Audrey Rojkoff, regional director for Southern Africa at Agence Française de Développement (AFD) and the summit’s secretary-general, emphasised the link between climate investment and social and economic development.
“Investing in human capital is certainly a prerequisite for sustainable growth, just like any infrastructure project,” she told delegates.
She noted that a €400m public policy loan made by AFD to support the just transition dimensions of a wider financial package in support for South Africa’s energy transition away from coal was the largest policy-based financing in AFD’s history.
“More importantly, this amount has been qualified as climate finance and this is really interesting, because it shows how we are progressing from climate finance to transition finance. It’s more and more difficult to draw a line between what is climate finance and what is development finance,” she said.
Avoiding past mistakes
Ambroise Fayolle, vice president at the European Investment Bank responsible for climate finance, said policymakers needed to focus on avoiding past mistakes when handling the social impacts of the energy transition.
“There will be no energy transition if it is not just, and that means we need to find ways to finance projects that will allow the energy transition to be just inside Europe,” he said
Fayolle focused on the need to avoid repeating the mass unemployment and social disruption caused by the closure of coal mines across Europe over recent decades, due to the lack of investment in jobs and infrastructure in affected areas. To that end, the European Union’s Just Transition Mechanism – a mix of grants, loans and investment mobilisation launched in 2020 – is ploughing billions of euros into urban regeneration, renewable energy and other infrastructure.
Crispian Olver, deputy chair of South Africa’s Presidential Climate Commission, said that at a time when there were significant headwinds for investors and many companies were rowing back on their diversity, equity and inclusion initiatives in response to similar moves by the US government, it was important to restate the business case for the just transition.
He said labour market productivity would ultimately depend on social support mechanisms put in place to help people adapt to the changing economic opportunities triggered by the energy transition.
“If you’re wanting an effective workforce for the future, you need to be investing in them. So, there are strong economic spin offs from it, and very importantly, it’s integral to the political economy of the transition in each of our countries. Basically, governments are going to get thrown out of office, and transition policies are going to be overturned if we’re not taking everyone along with us. So, the very sustainability of this transition rests on it being just,” he said.
Speakers also acknowledged that development institutions had under-delivered in terms of channelling finance effectively towards climate change mitigation and adaptation.
At the COP29 climate summit in Baku, there was disappointment that countries only agreed to provide $300bn (€288bn) a year in grants and low-interest loans from public institutions to the developing world by 2035 to combat climate impacts and speed the energy transition. That was well below the $1.3trn a year widely agreed to be required, even if it did represent an increase from the pre-existing $100bn target.
Luiz Gabriel Todt de Azevedo, chief strategy of the Inter-American Development Bank’s IDB Invest arm said he shared the frustration, but that the focus should be on directing the funds that are available more efficiently than has been the case so far.
“I think our goal for COP30 should not necessarily focus on getting a higher amount, but being able to clearly define how we’re going to deliver on what we’ve got. If we can do that, then I think it’s going to be a much easier case to make to donors, policymakers and governments that we can achieve $1.3trn,” he said.
New initiatives
The event also provided a platform to launch various new initiatives in support of climate change measures and the just transition.
These included the launch by South Africa-based impact investment manager Summit Africa of its Private Equity Fund II, with a $20m investment from British International Investment. The fund will invest in small-to-mid market companies in the financial services and infotech sectors in South Africa and the Southern African region to promote financial and digital inclusion, create jobs and improve diversity.
Summit plans to raise another R400m-500m (€20m-26m) from local and international institutional investors, before it starts deploying capital. The target fund size is R2.5bn.
Meanwhile, AFD and the Global Energy Alliance for People and Planet (GEAPP) said they would work together to mobilize up to $5m of technical assistance to support local financial institutions in accelerating clean energy access in Africa. This will start with a $1.3m pilot of technical assistance grants from GEAPP, backed by lines of credit from AFD.
The organisations said the initiative was a response to growing support for Mission 300, the World Bank and African Development Bank’s plan to deliver affordable and sustainable electricity to 300 million people in Africa by 2030.
