Four ways to scale up climate finance for developing countries

There is a growing realisation that climate change is an inevitable urgent challenge impacting the economic and social development of all countries. This awareness has driven an increasing number of developing and emerging countries to show strong commitments in the transition to sustainable economies.

Finance is one of the key elements that helps move toward a sustainable, low-carbon future. In principle, sufficient financial resources from the public and private sectors are available to support developing and emerging nations. The mobilisation of the capital is not an issue.

The reality is that the existing capital is not making its way into innovation, green investments, technology and poorer countries.

First, developed countries need to take steps to show commitments to support developing and emerging countries through public finance. However, there are limitations to addressing climate change issues through public finance alone. So the role of the private sector is important. Greater emphasis needs to be placed on using public finance institutions to leverage private capital and build policy incentives for directing private finance to developing countries.

International financial institutions also need to take collective action. They need to make unified efforts to create an investment-conducive environment for poorer countries, develop capacity building and knowledge sharing programs, establish development and education strategies and provide incentive-based governance mechanisms to attract investors. All these are required because the existing finance mechanism does not fully satisfy the needs of developing nations.

Second, increasing political commitment to environmental issues is crucial. A lack of political interest is leading to budgetary and institutional limitations in the context of climate change. Climate change issues are generally not seen as key to developing countries' ambitions around economic growth and poverty eradication. The contribution that green growth could make to strengthen economic growth and poverty eradication is not at the core of the high-level political debate in many countries. It is important for governments to realise that the transition to a green pathway is becoming financially viable and there is a need to provide frameworks for green growth that can lower policy uncertainties.

Key political players need to understand that additional and incremental costs for green growth are an investment to generate new values, technologies and markets and green growth policies and low-carbon development can be designed in such a way that can simultaneously address multifaceted development needs.

Third, the technology, at present, is not making its way into the market to effectively assist developing countries. This is partly because the costs are too high, the risks are too great or the markets are too small. These are a set of challenges faced by investors. Besides this, developing countries don't have an adequate understanding of the technologies that are available and how, and in what ways, those technologies could be applied to their countries. There is a lack of linkage between technology transfer and finance. So it is essential to create a conducive regulatory environment for technology transfer.

Last, it is critical to write bankable project proposals that translate environmental propositions into a common language for investors and take those proposals to the financial institutions that will finance project implementation.

A number of international organisations and agencies, including the Global Green Growth Institute (GGGI), are focusing on assisting countries to develop projects that are investment-ready. GGGI works with governments to help them achieve their growth goals of real inclusive and sustainable change for their people and the environment and help countries to develop green growth plans that are "bankable" - projects that meet investor criteria and that will be implemented. International organisations could help speed up the flow of finance for developing countries by developing robust projects that are investment-ready, improving their capacity to formulate strong bankable project proposals, making them more aware of the technologies that are available; and enhancing the understanding of key political leaders on climate finance.

All in all, it is vital to formulate proposals that can appeal to investors from a risk and reward perspective, create a policy-friendly environment in a country that is conducive to green growth investments and provide enhanced and more incentive-based governance mechanism for private investment.

Yvo de Boer is director-general of the Global Green Growth Institute and former executive secretary of the United Nations Framework Convention on Climate Change. He can be found tweeting at @yvodeboer_gggi.

This article is part of BusinessGreen's Road to Paris Hub, hosted in association with PWC.