Can the $300bn COP29 NQCG pledge crowd in $1trn of investments?
COP29 concluded after more than 30 hours of delay, with a last-minute pledge to commit $300bn annually to climate finance over the next decade. But will this commitment be enough to attract an additional $1trn from private investors each year?
At first glance, the $300bn annual commitment to climate finance appears to be a significant step forward compared to the previous arrangement, which required countries to contribute $100bn per year—a target that has only just been met in recent years.
However, representatives of poorer and more vulnerable nations were quick to highlight the shortcomings of the agreement. Adjusted for inflation, the increase is less substantial than the headline figure suggests. Moreover, the statement failed to clarify how much of the commitment would be expected to come from private investors, merely stating that funds would be raised from both public and private sources.
Moreover, the $300bn is supposed to fund not just climate mitigation but also adaptation and just transition.
The final text agreed at COP29 also “calls on all actors to work together to enable the scaling up of financing to developing country Parties for climate action from all public and private sources to at least $1.3trn per year by 2035.”
Historically, the United States has been the largest absolute contributor to NQCG funds, with the Biden administration increasing its commitments. However, with the Trump administration poised to return to power in a few weeks, this commitment is now in question.
Clarity needed
Investors are watching public finance commitments closely to assess their role in funding the transition. Teju Akande, climate change manager at the £64bn LGPS pool Border to Coast Pensions Partnership, emphasised the need for clarity ahead of the February implementation deadline for the Nationally Determined Contributions (NDCs).
“We need to see further work from countries to translate the agreed commitments into action. We expect this to be reflected in the NDCs which countries are expected to update early next year in time for COP30,” she said.
“Policymakers need to create a better enabling environment to provide greater clarity for investors and support finance flows. Although momentum toward net zero continues to build, significantly more is needed both to increase ambition and to deliver on existing pledges and commitments,” she added.
This uncertainty was echoed by Antoni Ballabriga, global head of sustainability intelligence and advocacy at Spanish bank BBVA. While he acknowledged the $300bn pledge as “a step forward,” he argued it was insufficient.
“According to the UN Independent High-Level Expert Group on Climate Finance, external finance from EMDEs will need to cover $1.3trn per year by 2035, which is recognised in the final text,” he noted in a social media post.
He was particularly critical of the lack of clarity around public versus private funding and the distinction between grants and loans, in other words the quality of funding provided.
For many of the most indebted countries in the global South, this distinction could make a crucial difference in their ability to address the crisis. Research from Christian Aid and Debt Justice published earlier this year shows that 32 African countries are already spending more on debt repayments than on healthcare.
Blended finance
Ballabriga argued that establishing blended finance mechanisms will be essential if institutional investors are to play a role in addressing the climate crisis in the global South. He emphasised that states and multilateral development banks could play a key role in de-risking these investments.
An UNCTAD report published late last year estimates that developing countries face an annual investment gap of $2.2trn to fund the energy transition. A recent report from the blended finance network Convergence highlights that sub-Saharan Africa now accounts for 41% of blended finance deals globally, followed by Latin America and the Caribbean and East Asia and the Pacific. However, small deal sizes and perceived investment risks remain major obstacles to attracting private investment.
From Baku with intent: why NDC ambition matters for investors
