How COP29 Summit in Azerbaijan accelerated trek to green financing

The recently concluded COP29 in Azerbaijan left many with mixed feelings. While the $300 billion per annum figure pledged by developed countries appears reasonable prima facie, it falls significantly short of the $1 trillion needed to address the climate crisis. India alone needs funding of around $160 billion a year to meet its climate commitments made at COP26 in 2021.

 

Aggravating the situation, the developed nations are projected to increase emissions by 0.5 per cent from 2020 to 2030, contradicting the Paris Agreement goals. Their emissions reductions have fallen short by 3.5 billion tonnes CO2 annually.

 

COP29 also paved the way for a government-to-government carbon market. This will help countries to trade emission reductions and discount them from their national climate plans, as per Article 6 of the Paris Agreement. India was set to operationalise its carbon trading market by FY27, but now faces delays in defining the terms, structure, and compliance measures due to the non-finalisation of rules under Article 6.

 

As 2024 continues to be the hottest year on record and mercury hits above the 1.5-degree Celsius threshold mark for the 15th month in a 16-month period, the necessity for firm action at a global level to mitigate climate risks has never been more urgent.

 

India faces severe risks if global warming breaches the 2-degree Celsius mark. It is estimated that climate disasters could cost us $1.4 trillion by 2050 and potential GDP losses to the extent of 3 per cent to 10 per cent by 2100. To meet its Nationally Determined Contributions, we require an estimated $2.5 trillion by 2030. Additionally, adaptation costs are expected to rise to $206 billion annually by 2030.

 

Other developing countries also face the dual challenge of addressing climate change while avoiding a debt trap. There are 44 countries that have interest payments higher than health spending and 18 countries spending lower on their education budgets than interest payments.

 

The funding gap remains a significant roadblock; without adequate funding, developing nations cannot meet their climate goals. The Loss and Damage Fund that COP29 operationalised with $10 billion falls short against the targeted $580 billion by 2030 to address the climate change impact for vulnerable regions.

 

India has called for a $1.3 trillion climate finance package, with at least $600 billion in grants or equivalent resources to ensure equitable access for developing nations. The New Collective Quantitative Goals must prioritise financial specifics, including a minimum of $600 billion in grants annually, transparency and detailed tracking mechanisms for fund allocation, and simplified procedures for resource mobilisation by developing countries.

 

As the world’s third-largest greenhouse gas emitter, India requires over $10 trillion to achieve its net zero emissions target by 2070. Policies incentivising the solutions for the climate change juggernaut is the need of the hour. The Reserve Bank of India has already set up a dedicated group and released frameworks for green deposits and climate risks disclosures. Additionally, it is proposing a Climate Risk Information System to improve data quality. Inclusion of reporting methodologies like The Business Responsibility and Sustainability Reporting has helped authenticate compliance frameworks that enhance transparency, accountability and institutional capabilities.

 

Companies, however, are facing a severe shortage of experienced and qualified professionals with the ESG and climate change expertise, who can steer the companies towards the right direction, while balancing environment and governance aspects. These shortages exacerbate for institutions like banks, especially state-run banks, due to the high level of regulations they are subjected to. After all, they are custodians of public trust.

 

To conclude, while we are still far from achieving the desired results, the global ecosystem is gradually moving towards actionable and impactful changes. Green financing emerges as a viable tool to steer us towards our sustainability goals. The journey is long, but with concerted efforts, robust financial mechanisms and collective actions, we can accelerate the roadmap for a greener, more sustainable future.

 

(The writer is Chairman of ESGrisk.ai, and Group CEO of Acuité)