As set out in the terms of reference launching the group, the diminishing window of opportunity to act defined by the science requires an exceptional push on the scale, quality, and composition of investment and finance, urgently needed by developing countries: to close the adaptation gap, to build resilience and protect the vulnerable from climate change; to drive systemic change and innovation for carbon neutral transformation in the context of just transition; and to protect and restore natural capital. Delay would be deeply dangerous to development and the poorest are hit hardest by climate change.
The report of the IHLEG published just before COP27 set out an integrated debt and financing strategy that can deliver on the finance at the scale, quality and pace that is needed. It sets out an approach and specific proposals on how to utilise the complementary strengths of different pools of finance to ensure the right scale and kind of finance and reduce the cost of capital rather than simply focusing on the aggregate number; on how to align all finance with sustainability, as reflected in the SDGs and climate goals, with enhanced transparency to ensure all can partake in the drive to net zero and foster climate resilience in line with Article 2; and on highlighting the necessary partnerships to deliver concrete results.
The report featured prominently in the discussions at COP27, receiving broad-based support, and has gained traction in the global deliberations on climate finance. The aim of the next phase of the work of the group is to utilise the findings and recommendations of the report to inform the global agenda setting on climate finance and to impart momentum on the implementation of actions set out in the report.
The Sharm El-Sheikh Implementation Plan (SHIP) makes a strong call for “a transformation of the financial system and its structures and processes, engaging governments, central banks, commercial banks, institutional investors and other financial actors” to better serve both climate and development goals. It calls upon the shareholders of multilateral development banks and international financial institutions to “reform multilateral development bank practices and priorities, align and scale up funding, ensure simplified access and mobilize climate finance from various sources” and encourages multilateral development banks to “define a new vision and commensurate operational model, channels and instruments that are fit for the purpose of adequately addressing the global climate emergency, including deploying a full suite of instruments, from grants to guarantees and non-debt instruments, taking into account debt burdens, and to address risk appetite, with a view to substantially increasing climate finance”. Furthermore, SHIP calls on multilateral development banks to “contribute to significantly increasing climate ambition using the breadth of their policy and financial instruments for greater results, including on private capital mobilization, and to ensure higher financial efficiency and maximize use of existing concessional and risk capital vehicles to drive innovation and accelerate impact.