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Tuesday, March 28, 2023
Claudia Ortiz is UNDP Technical Advisor on Climate Change Adaptation
Throughout my ten years working in international development and climate policy, I’ve mostly heard colleagues talk about the private sector as if it was this intangible, multifaceted medusa with its own business lingo that is impossible for us policy experts to tackle: “the ‘private sector’ needs a return on investment in order to act on climate” or “the ‘private sector’ does not have the right incentives, but we need ‘private’ capital to solve this crisis”
First, we need to untangle who we are talking about when we refer to “the private sector”. Are we talking about multinational corporations, wealthy investors, banks, entrepreneurs?
Secondly, unless we approach these actors with the problem, invite them to the discussion table, and hear them out, we will certainly never know the best way to get their interests aligned with climate solutions.
On the other hand, UN organisation and multilateral climate and environment funds interact almost entirely with public institutions and governments. So, when it comes to raising the bar on contributions to the Paris Agreement, climate change adaptation, and accessing climate finance, it seems the ball falls into the governments’ court.
We hear the usual refrain: “Governments need to mainstream climate risk into development policies” or “Governments need to act” or “Heads of State need to meet to raise ambition on NDCs [ Nationally Determined Contributions that countries made to the Paris Agreement]”
But will Government officials shaking hands and signing project proposals magically solve the climate crisis?
Here’s an idea: create a robust business case – whether it is by showing returns on investments or economic losses due to inaction – for profit-seeking actors to financially back up an NDC or National Adaptation Plan (NAP) and activate most of the domestic heavy-lifting that is needed to make these plans a reality.
In Latin America, we see an urgent need for public-private collaboration regarding action on climate change. As far as climate justice goes, the region is on par with most African and Asian peers: their contribution to global warming is less than that of USA and Europe.
However, the mega-biodiverse region remains highly vulnerable to climate change, economic growth is fuelling more carbon emissions, and the need for climate-resilient development is vital.
Despite a growing economy, according to the International Monetary Fund (IMF), Latin America is growing at a slower rate than previously anticipated and well below growth rates of other regions, largely due to tightening of global financial conditions and lower commodity prices.
Low investment in human capital and entrepreneurship means economic inequality and a vulnerable middle class continues to be an issue in the region, a region that is already over-dependent on natural resources.
This socio-economic situation is further exacerbated by climate change related catastrophic events, changes in rainfall patterns and in temperatures. It is projected that a temperature rise of 2.5°C could have a negative impact on the Latin American GDP of 1.5 to 5 percent.
To make matters worse, grant and donor funding from multilateral climate and environmental finance sources are on a downward trajectory in the region, partly due to its “middle income” status; meaning governments are expected to use non-grant instruments to mitigate emissions or adapt to climate change.
The bleak reality is that we can no longer rely on grant-funded projects to cut down emissions or urgently adapt to the already devastating effects of the climate crisis.
But, remember the “private sector”? What is the contribution of wealthy investors, small entrepreneurs, and banks to this puzzle? Should they care? Is the region ready?
The good news in Latin America is that opportunities for private capital investment, which has significantly grown in recent years (for example, venture capital investment jumped from US $500M in 2016 to US $2 Billion in 2018 in the region) is at an all-time high.
There is also a growing sense of business opportunity amongst regional, national and private banks, investors, and entrepreneurs who understand the implications of climate risks in their value chains, operations, and portfolios.
Impact investors are financing reforestation initiatives in Mexico and climate-resilient productive landscapes in Honduras. Banks are developing innovative and flexible financial instruments to support small producers in rural Costa Rica protect their water resources through ecosystem-based adaptation.
Honey and cocoa cooperatives in Guatemala have established climate-resilient value chains by understanding the outstanding risks of climate change to their businesses. UNDP has served as a connector for these partnerships and supported on-the-ground projects which are the vehicles for these fascinating initiatives.
Taking advantage of the NDC and NAP processes, policy makers are approaching businesses, corporations and investors to see how they can contribute to finance the implementation of such plans.
Such is the case of Uruguay, Ecuador and Chile, where UNDP and its partners – including Global Environment Facility (GEF) and Green Climate Fund (GCF) — have been instrumental.
With the Latin America and Caribbean Climate Week (concluding August 23), including the Regional NDC Dialogues organised by UNDP in partnership with UNFCCC, we have another opportunity to welcome the private sector to the discussion table.
Regional and national banks, NGOs, think-tanks and consulting firms will all convene in Salvador de Bahia, Brazil, along with government representatives from across the region, to find ways of working together to fight climate change.
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