Southern regions of the world to evaluate fair transition plans

Southern regions of the world to evaluate fair transition plans

Realigning Finance for a Just Transition: Bridging the Funding Gap in Emerging Markets

The international community is making strides towards a net-zero economy, but emerging markets face significant challenges in scaling up investments required for a just transition. The European Bank for Reconstruction and Development and the World Bank have introduced dedicated programs for the just transition, but these need to be expanded to all Multilateral Development Banks (MDBs) to address the critical funding gaps.

The funding shortfall is due to weak collaboration among stakeholders, ineffective financing structures, and a lack of clear supportive policies, all of which deter private investment and obstruct scaling impactful climate projects. To overcome these barriers, initiatives like the UK’s Bankers for Net Zero (B4NZ) are leading workstreams that leverage financial services leadership and global alliances to innovate financing in emerging markets.

Strengthening bilateral collaboration and aligning strategic priorities, such as through dialogues between UK and UAE stakeholders, are critical steps to mobilize greater climate finance flows. Risk perceptions about investing in these markets can be tackled by deploying financial instruments like first-loss guarantees, clarifying contracting guidelines, and implementing consistent regulations. These reduce investor uncertainty and help open the door to private capital needed for large-scale net-zero projects.

For a just transition, strategies must prioritize social inclusion and local economic development to ensure no communities are left behind. This includes creating green job opportunities, fostering technology transfer, and aligning investments with national policies that promote socio-economic benefits. India's policies supporting solar energy and infrastructure growth serve as an example of this approach.

Mobilizing institutional investors through initiatives like the Net Zero Asset Managers, which hold trillions in assets and commit to net-zero pathways with transparent accountability frameworks, is vital to channel substantial private finance towards these goals. As the world shifts towards a net-zero economy, increased flows of both international public and private sector finance to developing countries will be essential to address fundamental social imperatives through a just transition.

In Africa, the potential to become a 'renewables superpower' could make it one of the greatest beneficiaries of this shift. However, reaching net zero as soon as possible will reduce the growing burden of damage from climate change impacts, which falls hardest on developing countries. Accelerating investments in climate action and nature restoration are seen as drivers of economic recovery, job creation, and innovation.

The EU has established a Just Transition Mechanism to mobilize €150bn by 2027 to support regions most affected by its Green Deal program. South Africa's President Cyril Ramaphosa has committed to contributing to reducing global emissions and ensuring that those who are most vulnerable in society do not get left behind during the transition.

Increased flows of both international public and private sector finance to developing countries will be essential to address fundamental social imperatives through a just transition. This means tapping into domestic pools of capital, not least in the banking sector, as well as securing international flows of climate finance far larger than the $100bn per year commitment in the Paris agreement.

Governor Yi Gang of the People's Bank of China observed that China will move from carbon peak to net zero in about 30 years, and its financial institutions should begin their green transition right away. Extra funding from multilateral development banks will be vital to support in-country just transition plans.

A just transition is an important part of the strategy for achieving net zero across the global south, ensuring the interests of workers and communities are placed centre stage. Central banks in emerging markets will need to incorporate an explicit focus on the just transition, potentially connecting their commitment to financial inclusion with their response to the climate crisis. Immense health benefits will be achieved as urban air pollution is reduced or eliminated, saving millions of lives across the global south.

President Joe Biden in the US has made clear that the solutions to the climate crisis offer opportunities to create well-paying union jobs and deliver an equitable, clean energy future. As the world heads towards COP26 summit in November, the focus is on realigning the global financial system to ensure that the benefits and opportunities of a just transition are shared widely.

1. The funding gap in emerging markets for a just transition needs to be addressed by expanding dedicated programs to all Multilateral Development Banks (MDBs).
2. Ineffective financing structures and a lack of clear supportive policies deter private investment in climate projects, creating critical funding gaps.
3. The UK’s Bankers for Net Zero (B4NZ) is leading workstreams to innovate financing in emerging markets, leveraging financial services leadership and global alliances.
4. Strengthening bilateral collaboration and aligning strategic priorities can help mobilize greater climate finance flows.
5. Financial instruments like first-loss guarantees and clarifying contracting guidelines can reduce investor uncertainty and open the door to private capital.
6. Strategies for a just transition must prioritize social inclusion and local economic development to ensure no communities are left behind.
7. India's policies supporting solar energy and infrastructure growth serve as an example of prioritizing socio-economic benefits.
8. Mobilizing institutional investors is vital to channel substantial private finance towards the just transition goals.
9. Africa could become a 'renewables superpower', but accelerating investments is necessary to reduce the growing burden of climate change impacts.
10. The EU aims to mobilize €150bn by 2027 through its Just Transition Mechanism to support regions most affected by its Green Deal program.
11. Increased international and domestic finance flows are essential to address fundamental social imperatives through a just transition in developing countries.
12. China will move towards net zero in about 30 years, and its financial institutions should begin their green transition right away, with additional funding from multilateral development banks.
13. A just transition is crucial for achieving net zero across the global south, ensuring the interests of workers and communities are given priority.
14. As the world heads towards COP26, the focus is on realigning the global financial system to ensure that the benefits and opportunities of a just transition are shared widely.

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