What Do The United States and Syria Have in Common?
Nothing anymore…as of November 7th, the United States is the only nation in the world not committed to the Paris climate agreement. Recent announcements from Syria and Nicaragua to officially join the climate pact make this world power the last one standing.
With COP23 officially in session, representatives from around the world are convening in Bonn, Germany for the next round of United Nations climate discussions. The mood surrounding this year’s meetings is tense—changing political tides in the world’s largest economy have shifted significant public funding away from key climate-related initiatives, including deep and devastating cuts to the United States Environmental Protection Agency (EPA). Despite heightened national commitments from around the world—including the Paris agreement—aggregate public sector investment in global climate finance since 2012 has barely kept pace with inflation[i]. Developed nations, facing increasing nationalist pressure to invest their budgets towards short-term, domestic priorities will confront significant hurdles as they seek to make progress against their $100 billion annual climate financing commitments through 2020 and beyond[ii].
Achieving global climate resilience, therefore, requires a coordinated effort across the public, private, and philanthropic sectors to mobilize sufficient capital. At The Rockefeller Foundation, we seek to bridge the gap in climate finance by using grants and program-related investments (debt, equity, and guarantees with an impact-first mandate) to enable, accelerate, and harness billions of dollars in private capital towards climate mitigation and adaptation solutions.
Since the Paris agreement was originally forged, the conversation around climate change has changed rapidly. Renewables have become more economical, driving new solar and wind generation capacity to record highs[iii]. Game-changing policy initiatives from China and India have the potential to drive widespread adoption of electronic vehicles and massive improvement in the price and performance of batteries. The clean energy transition appears inevitable, as both organic and policy-driven incentives combine to address some of the most persistent climate challenges to date.
The Rockefeller Foundation is leveraging blended financing mechanisms by making program-related investments to de-risk investment structures and reduce market inefficiencies.
But will this transition happen quickly enough? Recent analysis suggests a $600 billion annual financing gap to achieve the Paris climate goals[iv]. Even with 99 percent of the world’s countries committed to the Paris agreement, the public sector alone cannot fulfill the spending requirements to meet the agreement’s objectives. The private sector—particularly institutional investors—must play a more active role. And philanthropic investors can and must use their uniquely flexible risk capital to bring substantially more private capital to the table.
The Rockefeller Foundation has helped structure a wide range of innovative financing mechanisms to reduce carbon emissions and build climate resilience on a global scale. For example, in 2015, the Foundation supported the Land Degradation Neutrality Fund, which is designed to blend capital from institutional investors, development finance institutions (DFIs), foundations, impact investors, and private donors to provide the financial and technical resources to invest in large-scale rehabilitation projects. Through this blended capital approach, the Foundation aims to rehabilitate at least 12 million hectares of degraded land per year—effectively driving towards a degradation-neutral world.
The Rockefeller Foundation is leveraging similar blended financing mechanisms by making program-related investments to de-risk investment structures and reduce market inefficiencies. For example, the Foundation is currently evaluating an investment in a blended financing vehicle to fund the full cycle of renewable energy projects in markets where financial structuring presents incredible challenges. This facility has the potential to streamline the project financing process, while de-risking and unlocking up to $1 billion of untapped institutional capital—creating enormous implications for hard-to-finance, high-impact renewables projects in low- and middle-income countries.
While climate mitigation strategies play a crucial role, climate adaptation only receives about 5 percent of total climate funding, largely from governments and other public sector actors[v]. Given this gap, adaptation finance remains a central tenet of the Foundation’s innovative finance strategy. This year, the Foundation is supporting the scaling of environmental impact bonds to enable governments to use pay-for-success mechanisms in municipal bond issuances to fund environmental outcomes by sharing performance risks with private investors. More broadly, this project has potential to scale pay-for-success within the municipal bond market to attract billions of dollars towards greening city infrastructure, particularly in areas that disproportionally impact poor and otherwise vulnerable populations.
As we again reevaluate the world’s climate strategy, we must look toward a broader range of financing solutions to supplement limited and inconsistent public funding. The Rockefeller Foundation is focused on mobilizing large-scale private investment to fill the gaping hole in climate finance. As the window to create a low-carbon and climate-resilient world slowly shuts, mobilizing alternative forms of climate capital as quickly and efficiently as possible is becoming more important than ever before.
[i] Climate Policy Initiative, 2017
[ii] UNFCCC, 2017
[iii] EIA, 2017
[iv] Ceres, 2017; Climate Policy Initiative, 2017
[v] Climate Policy Initiative, 2017