A Wake-Up Call on Climate Change: Giving People and The Planet What They Need

Finance Innovation for Climate and Development

82% of the funding was public (38% bilaterally and 44% multilaterally), 16% came from private investors, and the final 2% came from export credits. Only 21% of these flows were routed through grants from bilateral and multilateral development banks, while the majority of these flows (58% of the total flows) took the form of public loans, adding to the debt loads of developing nations. These monies have been mostly utilized to support climate projects in the areas of energy (32% of total financial flows), transportation (14%), agriculture, forestry, and fisheries (9%), and water supply & sanitation (8%).

Previous Successes in Climate and Development Finance Innovation

• Green bonds: The total amount of green bonds issued in 2019 was $259 billion, and in 2021, the amount issued in developing nations more than doubled to a record $95 billion (from $41 billion in 2020).

• EIBs, or environmental impact bonds, are bonds whose repayment is indexed to anticipated and/or actual environmental benefits. As only four EIBs have been issued to date, the use of these bonds is still in its infancy. The first EIB was issued in 2016 by Quantified Ventures with DC Water to fund a $25 million green stormwater infrastructure project.

• Blended finance: Allianz Group and International Finance Corporation inked a blended finance collaboration in November 2021 with the goal of establishing a global platform for investments connected to climate change and offering up to $3 billion to private businesses in emerging economies.

• The IMF's role: In 2022, the Resilience and Sustainability Trust will be established, a global framework that aims to provide long-term financing and low-interest loans to vulnerable countries by re-channeling Special Drawing Rights (SDRs) from countries with strong external positions. This follows the allocation of $650 billion in SDRs that was completed in 2021.

• Voluntary carbon markets: Despite their limited use, voluntary carbon markets---on which participants sell their carbon credits voluntarily---are growing in popularity. In fact, their global size quadrupled in just one year, reaching $2 billion in 2021. Recently, a few private projects were started to offer a code of behavior and instructions on how to use carbon credits (e.g. the Voluntary Carbon Market Integrity Initiative).

• Private philanthropy: Philanthropic giving can be a source of funding for climate-positive projects, but it is still not being used to its full potential. In 2020, grants for reducing global warming were $6--10 billion (+14% from 2019), or around 2% of all philanthropic giving worldwide.

Innovative Finance's Purpose for Climate and Development

• Establish a global framework for creative climate finance: A manual based on the principles of inclusion, equity, and justice that includes clear instructions for each stakeholder (such as when and how to use cutting-edge climate finance tools like debt-for-climate swaps/green or environmental impact bonds/blended finance, how to effectively manage funding processes, etc.) would enable potential investors to move from making climate finance commitments to taking action.

•