Tuesday, February 11, 2025
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Green Climate Fund explores capital-market borrowing to achieve COP29 target

“UN’s Green Climate Fund Considers Borrowing Money: Climate Justice at Risk?”

The UN’s Green Climate Fund (GCF) is facing a challenge to increase its spending in order to meet the goals set by governments at COP29. The fund is considering borrowing money from banks and other investors to achieve this target. Alain Beauvillard, the GCF’s director of strategy, policy, and innovation, mentioned that the fund needs new sources of funding as foreign aid budgets are not growing fast, and some are even falling.

In addition to borrowing from capital markets, the GCF is also exploring the option of accessing international financial assets such as Special Drawing Rights and benefiting from global taxes on polluting economic sectors. However, this move towards borrowing has raised concerns among campaigners who worry that it may undermine climate justice.

Harjeet Singh, director of the Satat Sampada Climate Foundation in India, believes that turning to capital markets for climate finance may prioritize profit-driven projects over critical adaptation efforts and addressing loss and damage, which are essential for vulnerable communities. Borrowing money means that the GCF would have to pay back with interest, which may not be feasible for projects like rebuilding homes after a natural disaster or constructing infrastructure to combat rising sea levels.

The decision to triple annual outflows from UN climate funds was made at the last minute during the COP29 talks, leaving governments with little time to debate the specifics. Developing countries are interpreting this decision as a call for increased inflows as well, not just doing more with the current funding.

The GCF’s board and trustee, the World Bank, would need to agree on entering the capital markets, which could be a complicated process. Other UN funds have already borrowed money successfully, such as the Climate Investment Funds issuing its first bond to lend to clean technology projects in developing countries.

The Adaptation Fund, focused on supporting vulnerable communities against climate impacts, also faces challenges in meeting its funding targets. The fund relies on contributions from wealthy government donors and struggles to secure enough funding for its projects. The decision at COP29 to triple outflows from climate funds could help bridge the gap in adaptation finance, but implementation and actual funding are crucial.

Overall, the pressure is on multilateral climate funds to increase their spending and make the most out of their current resources. Donor governments will need to make new pledges to help reach the target set at COP29, but it also requires efficient management of funds to leverage greater outflows. The future of climate finance and the role of borrowing from capital markets remain uncertain, with concerns about the impact on climate justice and vulnerable communities.

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