Aligning Finance For A Climate-Resilient Future: Insights From SB60

Introduction

Climate finance is critical to delivering the three core objectives of the Paris Agreement. However, the high cost and slow delivery have hampered climate action in developing countries, particularly the most vulnerable ones.

For example, African countries’ Nationally Determined Contributions (NDCs)1 are estimated to cost USD 2,8 trillion between 2020 and  2030, yet the total annual climate finance flows for Africa in 2020 was only USD30 billion, representing a mere 10% of annual needs (CPI, 2022). Globally, USD 9 trillion is needed through 2030, increasing to USD 10 trillion annually from 2031 to 2050. These costs are estimates due to methodological limitations and are expected to increase without significant emission reductions.The distribution of climate finance has also been unequal, with the majority of growth occurring in specific regions – China, the United States of America, Europe, Brazil, Japan and India (CPI, 2023). Less than 3% of climate finance reaches the Least Developed Countries, and the ten most vulnerable countries receive less than 2% (CPI, 2023). This disparity severely hampers climate resilience efforts in the most vulnerable regions.

 

Interpreting Article 2.1(c) of the Paris Agreement

Article 2.1(c) of the Paris Agreement seeks to align finance flows with a pathway towards low greenhouse gas emissions and climate-resilient development. However, its precise meaning and scope have been subject to various interpretations. Platforms such as the Sharm el-Sheikh dialogue, launched at the fourth Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA 4), aim to enhance understanding of the scope of Article 2.1(c) and its complementarity with Article 9 of the Paris Agreement.

To date, there have been key areas of divergence between Parties on the scope of Article 2.1(c), which includes the definition of climate finance, whether it encompasses international and/ or domestic financial flows, public and private, its links to other Articles of the Paris Agreement, and the roles and responsibilities of different Parties (developed and developing). The recent Sharm el-Sheikh dialogue at the 60th Session of the UNFCCC Subsidiary Bodies (SB60) focused on how finance flows could be made consistent with adaptation and climate-resilient development and explored linkages to sustainable development.

 

Integrating Key Principles

In the dialogue, there was general agreement that climate resilience has been overlooked in relation to Article 2.1(c). Moreover, these discussions cannot be separated from sustainable development, poverty eradication and the reform of the international finance architecture. Principles such as equity, climate justice, common but differentiated responsibilities and capabilities (CBDR-RC) need to be integrated into the implementation of the Article.

 

Addressing the Adaptation Gap

Adaptation finance has severely lagged behind mitigation finance, with the adaptation gap estimated to be between USD 194 billion and USD 366 billion (UNEP, 2023). In some sectors, non-climate-resilient finance still dominates; for example, for every USD1 spent on climate-resilient infrastructure, USD87 is spent on non-climate-resilient infrastructure (CPI, 2023). Without increased investments channelled towards building resilience, vulnerable countries will increasingly face losses and damage that are increasingly harder to recover from.

The role of the private sector in financing adaptation and climate resilience was also explored during the SB60. Whilst there are opportunities for private sector involvement, caution remains on relying on the private sector to deliver outcomes in an equitable manner. Further, as financial returns are the primary incentive for the private sector, employing risk-based approaches excludes highly vulnerable countries from accessing much-needed finance, exacerbating vulnerability. Thus, public climate finance must be central to achieving the Article.

 

Impact on Developing Countries

Most climate finance has been provided as market-rate loans. If the trend continues, this will likely impact the country’s ability to meet other priorities due to servicing debts. Currently, countries spend up to 65% of their GDP on debt obligations. In Africa, debt service payments have increased from USD 17 billion in 2010 to USD 74 billion in 2024 (AfDB, 2024). This rise is partly due to the shift from concessional finance to expensive short-term commercial loans (AfDB, 2024), risk perceptions and negative credit ratings that increase the cost of capital. For example, in 2021, the cost of capital for energy projects was seven times higher in Africa than in Europe or North America despite higher average returns in Africa (OECD, 2023). Without reforming the international finance architecture, developing countries will fall further behind.

 

The Way Forward

Article 2.1(c) is crucial to achieving the long-term objectives of the Paris Agreement. Its operationalisation will significantly shape countries’ development pathways. For African countries, planning for this transition is essential, given the high transitional risks and the need for clear parameters to guide financial actors towards investments that support climate-resilient development priorities. Convening African stakeholders to explore how Article 2.1(c) can be operationalised in a way that supports diverse climate-resilient development pathways is critical, as the three remaining workshops through the Sharm el-Sheikh Dialogues will shape negotiations of Article 2.1(c).

 

Call To Action

To ensure the effectiveness of Article 2.1(c) of the Paris Agreement, all stakeholders must prioritise making finance flows consistent with adaptation and climate resilience while integrating sustainable development. This requires a holistic approach that includes poverty eradication and international finance architecture reform.

• Chart a climate-resilient development pathway: Both state and non-state actors need to define a pathway that establishes clear resilience parameters for all sectors, providing clear signals to financial actors, considers known climate risks and leaves flexibility for uncertainty.
• Align Financial Decisions with Climate Resilience: Stakeholders, including governments, financial institutions, and the private sector, must align their financial decisions with pathways that promote climate resilience. This means investing in projects and initiatives that not only reduce GHG emissions but also enhance the ability of communities to withstand and adapt to the impacts of climate change.
• Integrate Sustainable Development: Climate finance should be integrated with broader sustainable development goals. This includes addressing poverty eradication, improving healthcare and education, and promoting inclusive and equitable economic growth. Such integration ensures that climate action contributes to overall human and economic development, particularly in the most vulnerable regions.
• Reform International Finance Architecture: Enhance access to finance for developing countries by increasing grant and concessional finance and reducing the cost of capital for climate-resilient investments. By addressing these structural issues, we can direct financial resources to where they are most needed.

 

Prioritising these actions will enable the alignment of financial flows with a low-emission and climate-resilient development pathway, ensuring a resilient future for both people and the planet.

 

Authored by Simbisai Zhanje and Samson Mbewe