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First climate finance dialogue kicks off negotiations towards new goal in 2025

With the present target for climate finance under the process of the UN Framework Convention for Climate Change (UNFCCC) sunsetting in 2025, the process of setting a new target for climate finance is now underway. SEI’s Katherine Brown participated in the first technical dialogue that took place in Cape Town, South Africa, and answers questions about how it went, what it aims to achieve, and what the challenges are. 
Katherine Browne, Andrea Lindblom / Published on 4 May 2022
Group of participants in first technical dialogue on new quantified goal for climate finance post-2025

A wide range of party and non-party stakeholders gathered in South Africa for the the first technical dialogue on a new quantified goal for climate finance post-2025. Photo: UN Climate Change / Flickr

In what kind of atmosphere did this first of 12 technical dialogues take place?

In a very informal atmosphere. Where formal negotiations follow very set procedures about who may intervene and when, this first dialogue was very different. A few people on a panel or maybe connecting via video conference would give keynote speeches to set the scene, then we would go into informal breakout groups that mixed representatives from parties and non-party stakeholders. While someone would moderate the breakout groups, the conversation in them was quite free-flowing. I heard lots of direct and earnest conversations and remarks I had never heard articulated in formal negotiations.

breakout groups during the first technical dialogue on the new quantified goal for climate finance post-2025 in South Africa

The beautiful setting facilitated an informal atmosphere at this technical dialogue. Photo: Katherine Browne / SEI

The actual physical setting contributed to that atmosphere. The meeting took place in these beautiful botanical gardens at the foot of Table Mountain in Cape Town, South Africa and we actually had these breakout sessions outside in the gardens in the shade under the trees. It seemed that helped people feel more at ease in expressing things they wouldn’t express in a more formal setting. But the question is whether this kind of informal format will continue going forward and whether it will actually contribute to facilitating breakthroughs on what is a very contentious topic.

Climate finance under the UNFCCC

At the UN climate change conference (COP) in Copenhagen in 2009, wealthy nations pledged they would mobilize $100 billion per year by 2020 so that developing countries could choose climate-friendly low-carbon pathways and adapt to the impacts of climate change. The goal was formally recognized at the following COP in Cancún in 2010.

At COP21 in Paris, parties under the UN Framework Convention on Climate Change (UNFCCC) extended the goal through 2025. A so-called Delivery Plan put together in 2021 at the behest of the COP26 Presidency stated a “more than $20 billion annual increase would be required to meet the $100 billion goal in 2020.”

One of the reasons this is a contentious topic is that developed countries have so far failed to mobilize the $100 billion goal of the current target. What are some of the difficulties associated with that $100 billion target that the stakeholders in this process are seeking to avoid and establishing a new target?

My impression is that the main difficulty with the $100 billion target has been that it wasn’t grounded in any sort of methodology.

Another difficulty has been that the target didn’t specify who was responsible for what. It was just one high level number that a group of parties agreed to meet collectively, but they didn’t divvy up between them who was going to be responsible for what.

In addition, the goal was deliberately phrased in the very vague terms of “mobilizing climate finance”. It has not been clear what role there is for public finance and what role there is for private finance actors who make their decisions based on criteria that are very different from the ones of public actors.

I think that there was an expectation among developed country parties that were responsible for mobilizing this finance that private finance would support in meeting great parts of this target and that has not happened. As we move into the process of setting a new target, many countries say that we need to be more specific and sophisticated about who is doing what and especially what role there is for private finance versus public finance.

What are the challenges in the process of setting the new target?

I think the first and most obvious one is the number itself. Even though the $100 billion goal was not met, there’s a recognition that the next goal needs to be a higher number. In fact, it’s a requirement that it starts at the floor of $100 billion.

But the question remains how much higher. We see certain recipient countries pushing for as much as $1 trillion or even $2 trillion. That’s a huge increase on a goal that was already not met and funders are saying they don’t have the public finance to meet the $100 billion goal.

Aside from the number itself, there are points of contention around accessing that finance.  Many recipient countries, including the most vulnerable ones like small island developing states and least developed countries, have received less than their fair share. That’s because they have found it very difficult to access the funds that are there because institutions like the Green Climate Fund have very strict requirements on how recipients can use the money, so the dialogue saw some discussion about how you can enable access.

With needs and demands for climate finance going into the trillions, it’s obvious the private sector has to come in. What are some of the challenges related to that?

I think the question is how to speak to those actors and incentivize them to engage. It’s important in that regard to recognize and acknowledge the differences between, say, multilateral development banks and private investment firms or corporations that are making major investments in infrastructure.

It’s also important to recognize the difference between financing climate mitigation and climate adaptation. It’s not at all clear what role private finance can and will play in adaptation because they’re simply less likely to make money off of adaptation finance. We also discussed at the dialogue how to incentivize private actors to invest in low-income countries that are traditionally seen as risky investment environments because they may be less politically stable or with regard to their financial sectors. But many low-income countries are also more vulnerable to the impacts of climate change and representatives from these countries express that they can’t wait for us to figure out a way to nudge private finance into this space.

house in the Bahamas that was destroyed by Hurricane Dorian in 2019

Infrastructure in Caribbean countries like the Bahamas present a high risk for insurers because the countries are exposed to frequent and severe hurricanes, like Hurricane Dorian in 2019. Photo: Brandi Mueller / Getty

One example is the role of private insurance, where representatives from Caribbean countries say that there’s no way around the fact that their countries are very exposed to frequent hurricanes and that that makes their infrastructure an extremely high insurance risk any insurer will seek to avoid taking.

After this first dialogue, how is the process moving forward?

That remains quite unclear at this point in time. This was the first of four dialogues this year and it was largely an effort to try to take inputs from many different stakeholders to discuss who needs to be involved and how the conversation can be organized. The two co-chairs appointed by the UNFCCC to lead the process will now propose a way to use the remaining dialogues this year to move the process forward and parties will have to decide whether they agree to the proposal. The next dialogue takes place at the subsidiary bodies meeting in June 2022, also known as the Bonn Climate Change Conference.

What is it that you are most excited about personally going forward in this process?

It is very exciting to see that there are all these open questions about how finance can work to enable climate mitigation and adaptation and be in a position as a researcher at SEI where I have the space to think about and try to find answers to these questions. What role can we play in coming up with methodologies for grounding this climate finance goal and something a bit more concrete like the temperature targets articulated in the Paris Agreement? What specific structures and modalities can we think of that can enable more equitable and effective climate finance, and in particular adaptation finance?

I see these dialogues as an amazing opportunity for research organizations like SEI to really contribute to making the next climate finance target more sophisticated and ultimately more effective in meeting the goals of the Paris Agreement and that is very exciting.

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Katherine Browne
Katherine Browne

Research Fellow

SEI Headquarters

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