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Significant Potential to Increase Impact of Climate Finance- Report

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Climate finance can become significantly more transformative by addressing systemic barriers to low carbon and climate resilient investments, according to a new World Bank report.

Although global climate finance has grown significantly in recent years, there remains a sizable gap between the public resources that are available and the investment needs to address climate change in developing countries.

The report makes the case that while stimulus packages to combat the coronavirus-induced economic slowdown can help countries shape a sustainable recovery, they will only be transformative if the limited public funding for climate action leverages substantially more funding from other sources.

“This is exactly the right time to look at how we can make climate finance more effective and more impactful,” says Marc Sadler, Practice Manager of the World Bank’s Climate Change Fund Management Unit. “The increased realization of economic benefits from clean development pathways allow climate finance spending to be much more catalytic. The critical levers identified in this report can – with strategic allocation of climate finance – unlock greater value for money and help countries build back better.”

The report identifies eight sets of climate levers and analyzes how climate finance can best be deployed to maximize their transformative impact for developing countries to achieve clean development goals. The eight climate levers are: project-based investments, financial sector reform, fiscal policy, sectoral policies, trade policy, innovation, carbon markets and climate intelligence.

The report proposes a set of recommendations for transformative climate finance, including:

  • Employ a wider variety of financial instruments: Expanding the use of instruments such as policy-based finance, results-based finance, equity finance and guarantees can enhance the impact of climate finance deployed.
  • Enhance leverage on a wider, systemic basis: Public climate finance should maximize leverage from private and government sources. The scope and impact of this leveraging should go beyond project boundaries to achieve economy-wide impacts.
  • Link to long-term strategic planning: Financing decisions should be aligned with long-term strategies for low-carbon resilient development, while avoiding spending that is inconsistent.
  • Invest in “climate intelligence”: Appropriate knowledge generation can have a powerful effect: include climate impact and vulnerability maps; early warning technologies; models for long-term scenario simulation and planning; and physical and transitional risk assessment tools.

“The climate finance system has made great strides in the past decade, increasing in both volume and impact,” says Jonathan Coony, World Bank Senior Carbon Finance Specialist and report co-author. “But circumstances have changed over that time and reviewing the programming of scarce public finance to deliver transformation at scale will be essential to help our clients shape a sustainable recovery.”

Transformative Climate Finance: A new approach for climate finance to achieve low-carbon resilient development in developing countries is available for download here. The report was launched as part of the Kickstarting the Sustainable Recovery series organized by the World Bank’s Climate Change Group in partnership with Innovate4Climate to shed light on how sustainable finance can be part of the COVID-19 recovery and help countries build back better and stronger.

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Labour market recovery still ‘slow and uncertain’

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As the COVID-19 pandemic grinds on and global labour markets continue to struggle, the latest International Labour Organization (ILO) report, published on Monday, warns that recovery will remain slow.

In its flagship World Employment and Social Outlook Trends 2022 (WESO Trends), ILO has downgraded its 2022 labour market recovery forecast, projecting a continuing major deficit in the number of working hours compared to the pre-pandemic era.

“Two years into this crisis, the outlook remains fragile and the path to recovery is slow and uncertain”, said ILO Director-General Guy Ryder.

Disheartening outlook

Last May’s previous full-year estimate, forecasted a deficit equivalent to 26 million full-time jobs.

While this latest projection is an improvement on the 2021 situation, it remains almost two per cent below the number of pre-pandemic hours worked globally, the report pointed out.

Moreover, global unemployment is expected to remain above pre-COVID levels until at least 2023.

The 2022 level for those without jobs, is estimated at 207 million, compared to 186 million in 2019.

“Many workers are being required to shift to new types of work – for example in response to the prolonged slump in international travel and tourism”, added the ILO chief.

‘Potentially lasting damage’

WESO Trends also warns that the overall impact on employment is significantly greater than represented in the raw figures, as many people have left the labour force.

The participation rate of the 2022 global labour force is projected to remain 1.2 percentage points below that of 2019.

The downgrade reflects the impact of COVID variants, such as Delta and Omicron, as well as the ongoing uncertainty surrounding the pandemic’s future course.

“We are already seeing potentially lasting damage to labour markets, along with concerning increases in poverty and inequality”, said Mr. Ryder.  

Starkly different impacts

The report warns of stark differences in the impact that the crisis is having across groups of workers and countries – deepening inequalities within and among nations – while weakening the economic, financial and social fabric of almost every State, regardless of development status.

The damage is likely to require years to repair, with potential long-term consequences for labour forces, household incomes, and social and possibly political cohesion.

While effects are being felt in labour markets globally, ILO observes a great divergence in recovery patterns, which seem to correlate with the containment of the coronavirus.

Regional differences

The European and the North American regions are showing the most encouraging signs of recovery, while southeast Asia, and Latin America and the Caribbean, have the most negative outlook.

At the national level, labour market recovery is strongest in high-income countries, while lower middle-income economies are faring worst.

And the disproportionate impact of the crisis on women’s employment is expected to last in the coming years, according to the report.

At the same time, WESO Trends flags that the closing of education and training institutions “will have cascading long-term implications” for young people, particularly those without internet access.

There can be no real recovery from this pandemic without a broad-based labour market recovery. And to be sustainable, this recovery must be based on the principles of decent work – including health and safety, equity, social protection and social dialogue”, said the ILO chief.

Projections

The analysis includes comprehensive labour market projections for 2022 and 2023 and assesses how labour market recovery has unfolded worldwide – reflecting different national approaches to pandemic recovery and analysing the effects on different groups of workers and economic sectors.

As in previous crises, it also highlighted that for some, temporary employment had created a buffer against pandemic shocks.

And while many temporary jobs were terminated or not renewed, alternative ones were created, including for workers who had lost fulltime work.

On average, ILO maintains that the incidence of temporary work did not change.

The publication also offers a summary of key policy recommendations aimed at creating a fully inclusive, human-centred crisis recovery at both national and international levels.

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Green Infrastructure Development Key to Boost Recovery Along the BRI

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The Belt and Road Initiative (BRI) presents a significant opportunity to build out low-carbon infrastructure in emerging and developing economies throughout the world. A new insight report from the World Economic Forum, Advancing the Green Development of the Belt and Road Initiative: Harnessing Finance and Technology to Scale Up Low-Carbon Infrastructure,” illustrates the green potential of this new development paradigm. It also highlights the ‘Vision 2023’ action plan of the Green Investment Principles of the Belt and Road, jointly developed within the World Economic Forum’s Climate Action Platform.

Emerging and developing economies face rising demand for energy and mobility as they grow, industrialise and urbanise. Today’s infrastructure investment decisions will lock in emissions trajectories for decades and could make or break the world’s ability to achieve the Paris Agreement objective of limiting global temperature rise to well below 2°C.

“The Belt and Road Initiative offers a new development paradigm through investment in green infrastructure that avoids the irreversible carbon lock-in effect on global climate change,” said Antonia Gawel, Head of the Climate Action Platform, World Economic Forum. “Collaborative action from public and private stakeholders will be needed to facilitate bankable green infrastructure projects, supported by international standards and forward-looking climate policies. The private sector is especially important for infrastructure construction, bridging the investment gap and scaling up promising green technologies.”

“By accelerating the buildout of low-carbon infrastructure, the Belt and Road Initiative can play a leading role in decoupling economic development from emissions growth for emerging and developing economies,” said Raymund Chao, Asia Pacific Chairman, China Chairman and Chief Executive Officer, PwC. “To capitalise on the increasing global appetite for green assets, the financial sector will play a vital role in channelling investment flows towards green energy and transportation projects.”

The Green Investment Principles (GIP) for the Belt and Road was launched in 2018 to accelerate green BRI investments. Membership has recently expanded to 41 signatories and 12 supporters from 15 countries and regions, holding or managing combined assets in excess of $49 trillion and providing significant funding to BRI projects.

“This insight report uses a number of vivid cases on low-carbon technologies, financial instruments, and policy measures to showcase how the effective combination of such approaches can facilitate the green development of the Belt and Road Initiative. Multilateral cooperation platforms such as Belt and Road Initiative International Green Development Coalition (BRIGC) and the Green Investment Principles for the Belt and Road play an important role in sharing best practices and fostering international cooperation on green development with countries that benefit from the Belt and Road Initiative,” Li Yonghong, Deputy Director General of the Foreign Environmental Cooperation Center, Ministry of Ecology and Environment, People’s Republic of China.

“This insight report offers an important contribution to low-carbon development in diverse countries along the Belt and Road. It signals that financial institutions and enterprises are taking action now to incorporate environment and climate risks into their investment portfolios to avoid transition risks and improve outcomes for sustainable economies and societies. “said Rebecca Ivey, Chief Representative Officer, Greater China, World Economic Forum

“Since the launch of the GIP, our member institutions have invested extensively in green projects in emerging market economies. However, greater efforts are needed to help these economies achieve their climate goals. This report provides a fresh perspective of how green and sustainable finance can facilitate the wide application of low-carbon technologies in emerging markets and developing economies. The GIP will continue to expand its reach and actively support the climate transition activities of the EMDEs,” said Dr. Ma Jun, Chairman of Green Finance Committee of the China Society for Finance and Banking.

The report uses case studies to highlight the financial sector players, financial instruments, low-carbon technologies and conducive local policies and can and need to come together in advancing the green development of the Belt and Road Initiative.

  • JinkoSolar expands its South-East Asia solar photovoltaic module supply chain
  • Silk Road Fund invests in renewable power assets across Africa and the Middle East
  • Huaneng finances and builds Europe’s largest battery storage project
  • Santiago’s innovative PPP financing structure to electrify its bus fleet
  • Kazakhstan advances its transition from fossil fuels to green energy
  • Asian Infrastructure Investment Bank (AIIB) helps investors manage climate and other ESG risks

Above all, this report sets the premise for a global infrastructure development strategy and calls for further action to protect our planet and build a sustainable tomorrow.”

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COVID-19 pandemic stalls global economic recovery

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The UN’s key report on the global economy, released on Thursday, shows that the rapid spread of the Omicron COVID-19 variant has put the brakes on a rapid recovery, counteracting signs of solid growth at the end of last year. 

The 2022 World Economic Situation and Prospects (WESP) report, produced by the UN Department of Economic and Social Affairs (DESA), cites a cocktail of problems that are slowing down the economy, namely new waves of COVID-19 infections, persistent labour market and lingering supply-chain challenges, and rising inflationary pressures.

The slowdown is expected to carry on into next year. After an encouraging expansion of 5.5 per cent in 2021 — driven by strong consumer spending and some uptake in investment, with trade in goods surpassing pre-pandemic levels — global output is projected to grow by only 4.0 per cent in 2022 and 3.5 per cent in 2023.

‘Close the inequality gap’

Commenting on the launch of the report, António Guterres, the UN Secretary-General, declared that, with WESP calling for better targeted and coordinated policy and financial measures, it is time to close the inequality gaps within and among countries. “If we work in solidarity – as one human family – we can make 2022 a true year of recovery for people and economies alike”, he said.

Liu Zhenmin, Under-Secretary-General of the United Nations Department of Economic and Social Affairs, drew attention to the importance of a coordinated, sustained global approach to containing COVID-19 that includes universal access to vaccines, and warned that, without it, “the pandemic will continue to pose the greatest risk to an inclusive and sustainable recovery of the world economy”. 

The report predicts that developing countries will take a greater long-term hit that wealthier nations. Africa and Latin America and the Caribbean are projected to see significantly lower growth, compared to pre-pandemic projections, leading to more poverty and less progress on sustainable development and climate action. 

The number of people living in extreme poverty is projected to remain well-above pre-pandemic levels, with poverty projected to increase further in the most vulnerable economies: in Africa, the absolute number of people living in poverty is projected to rise through 2023. In contrast, the economies of richer countries are expected to almost fully recover by next year.

Safety nets

The special financial measures put in place by many governments since the pandemic – such as bailouts, improved social protection and job support – should, says the report, stay in place to ensure a strong recovery.

However, in light of rising inflation, several central banks have begun to unwind their extraordinary monetary response to the crisis.

Many low-income developing countries, are facing unsustainable external debt burdens, amid sharp interest rate rises.

Additional borrowing during the pandemic and increasing debt-servicing costs, have put many of them on the verge of a debt crisis. These countries are in urgent need of further and coordinated international support for debt relief, the report notes.

Jobs, slow to re-appear

Employment levels are projected to remain well-below pre-pandemic levels during the next two years, and possibly beyond. Labour force participation in the United States and Europe remain at historically low levels, as many who lost jobs or left the labour market during the pandemic, have not yet returned. 

These shortages in developed economies are adding to other pressures, such as inflation, and supply-chain challenges.

At the same time, employment growth in developing countries remains weak, amid lower vaccination progress and limited stimulus spending. Africa, Latin America and the Caribbean, and Western Asia, are projected to see a slow recovery of jobs. In many countries, the pace of job creation is not enough to offset the earlier employment losses. 

The WESP was released two days after the latest World Bank’s Global Economic Prospects report, which drew similar conclusions, predicting that, given the rapid spread of the Omicron variant, the COVID-19 pandemic will continue to disrupt economic activity in the near term.

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