UK bets on private investors to fill climate aid gaps after cuts

Development Secretary Jenny Chapman said the government was relying on private investors to fill the gap in the UK’s provision of climate aid and support after sweeping cuts last year reduced the UK’s climate aid contribution. Independent.

A key tenet of the 2015 Paris Agreement, the climate agreement that calls on the world to limit global warming to “well below 2C,” is that rich countries should provide climate finance to help developing countries, which often contribute little to the climate crisis but often suffer its worst impacts.

The UK has historically been a leader in climate finance efforts, contributing £11.6bn from its aid budget over the five years between 2021/22 and 2025/26.

But there has been concern among development organizations in recent weeks as it emerged that the amount of UK aid going towards climate finance will fall by almost 15 per cent to £6bn over the next three years.

But Baroness Chapman said the government was trying to supplement this by taking in much more money from private investors.

“We definitely aim to continue to increase climate finance every year,” he said. “We have reached the £11.6bn target and aim to go further by leveraging additional funding, even if there is less grant-based funding within that total.”

Critics point out that efforts to adapt countries to the effects of the climate crisis will struggle to attract private capital because they tend to be “public good” rather than for-profit projects, although renewable energy projects are increasingly available for financing by big investors and are still clamoring for investment on an African continent where 600 million people remain without electricity.

Britain’s new strategy comes after years of criticism that rich countries are not doing enough to support developing countries during the climate crisis.

A major climate finance target for rich countries to reach $100bn (£75bn) by 2020 has been missed by three years, while an updated target to reach $300bn by 2035 has been widely criticized as falling far short of what is needed.

Money to adapt to climate change appears to be particularly lacking, leaving many of the world’s poorest countries unable to cope with the floods and droughts they increasingly face.

Central to the new UK strategy will be the intention to use UK aid more carefully to “reduce risk and act as a much greater catalyst”. [private funding] “It’s flowing more than in the past,” Baroness Chapman said.

The UK’s development finance institute, British International Investments (BII), will play a key role in the new plan. For almost 80 years, BII has been a fundamental part of the UK’s foreign aid efforts; It has created one million jobs worldwide and powered 26 million people in sub-Saharan Africa by investing in projects that most traditional financiers would hesitate to undertake.

Owned by the UK government and backed by UK public finance, BII invests in projects yielding returns as low as two per cent; The theory is that the “halo effect” around BII investments will encourage greater participation by risk-averse private financiers.

Critics have targeted BII for its tendency to enter into more “investor-friendly” deals with partners that include luxury hotels and companies owned by billionaires, rather than focusing on areas where people in developing countries need investment most.

But a new strategy published by BII earlier this month shows how the government aims to use its investor-centric approach. BII aims to make new investments of £15 billion in developing countries over the next five years; £8bn comes from BII itself, with the rest from other private investors such as pension funds and asset managers.

About 40 percent of this total is expected to qualify as climate finance; 25 percent of the total will be directed to the world’s least developed countries.

According to Baroness Chapman, the strategy reflects the “new UK approach to development”, where the UK is “moving from traditional aid grants to long-term partnerships that bring investment, expertise and international finance”.

Baroness Chapman said the new BII strategy would help ensure climate remains a “priority area” in the UK’s development strategy, alongside women and girls, health and “sharing expertise in areas such as finance and governance”.

But others in the development field have raised concerns that the UK’s investment-led approach may not be able to cover the full scope of what climate finance is required, with a specific shortfall in money needed to adapt to the impacts of the climate crisis expected.

There was particular dismay last week when the UK government announced it would halve its planned financial contribution to the UN’s Green Climate Fund, a key funding body on which low-income countries depend for grants, from £1.62bn to £815m for the 2024-2027 funding period.

“The minister talks about aiming to increase climate finance every year, but the sad reality is that we are reducing the UK’s contribution to the UN’s largest climate fund,” said Sarah Champion, chair of the International Development Committee. Independent.

“The government could only spend £11.6bn [climate finance] We set a target by including private sector investments in the total figure. “This is despite evidence showing that private financing is rarely suitable for non-revenue-generating interventions,” he continued: “With climate change increasingly affecting our lives, we need the government to lead the world in making the changes necessary to create a livable planet, which sadly appears to be in retreat.”

Ms. Champion’s comments come from high-profile economists, including those at the InterAmerican Development Bank. Avinash Persuasion and the Brookings Institution Vera Songwe all warned that the private sector would struggle to finance climate adaptation efforts. “You can’t charge for a seawall because everyone benefits from it; it’s a classic public good… the private sector doesn’t fund adaptation,” Bay said. persuasion During a recent evidence session at the International Development Committee.

A separate study by NGO Mercy Corps found: three percent In developing countries, 20 percent of adaptation financing needs are met by the private sector; Even optimistic assumptions suggest that this rate is unlikely to exceed 20 percent.

“Cutting climate finance and prioritizing grant funding to countries and communities on the front lines of the climate emergency is this government’s completely wrong approach,” said Catherine Pettengell, chief executive of Climate Action Network UK.

“UK climate finance should not be used to profit corporations, but should instead ensure that those who have done the least to cause the climate crisis pay the highest price with their lives, livelihoods, health, ecosystems and futures.”

Baroness Champion said: Independent He said he believed the government’s new approach to climate finance could still generate significant funding for climate adaptation, and also defended the decision to cut Green Climate Fund funding.

“There are good examples of private finance being mobilized into adaptation and resilience projects, and often grant funding helps catalyze this investment,” he said.

“We had to make difficult decisions as we reduced our payments. [overseas aid] “But the UK remains one of the fund’s largest contributors and we will continue to support the Fund’s leadership to maximize its impact on vulnerable countries.”

This article was produced as part of The Independent. Rethinking Global Aid project