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UK Generates Billions in Climate Finance and First CRDC in Africa

Billions in climate finance will be mobilised for the global Net Zero transition over the next decade following an initiative from the UK and World Bank at COP28 today, 4 December.

The plans that will unlock private sector investment for innovative projects that tackle climate challenges head on were championed by Treasury Minister Baroness Vere in her speech in UAE to mark Finance Day at COP28.

The launch of Climate Investment Funds (CIF) Capital Market Mechanism next year will see bonds generate up to $750 million per year in new climate finance – $7.5 billion over the next decade – which could in turn attract well over $50 billion in co-financing for climate projects in emerging and developing economies. The intention to launch the mechanism was first announced by Prime Minister Rishi Sunak, then Chancellor, under the UK’s COP26 presidency.

The UK’s finance ambitions at COP28 builds on its COP26 legacy – including a commitment to have the world’s first net zero aligned financial centre to help mobilise finance and tap the power of markets – and its own domestic agenda, with long-term decisions to cut emissions and attract investment reducing a burden that has been historically shouldered by working families.

At COP26 the UK launched the Glasgow Financial Alliance for Net Zero (GFANZ), encouraging firms to set a goal of reaching net zero by 2050, and established the Transition Plan Taskforce to develop best practice guidance on private sector transition planning – a remit it has since delivered upon, with the government shortly to consult on the best way firms can disclose their transition plans in the UK.

Treasury Minister Baroness Vere said:

As a world leader in green finance the UK has a responsibility to lead by example in the climate transition – a responsibility to deliver on our international commitments and help in both greening the international financial system and supporting developing countries in their own transition.

Mobilising billions in climate finance alongside direct investment in – and partnerships with – emerging economies shows that we take this responsibility seriously, and that we will take the long-term decisions necessary to keep 1.5 alive.

In a separate speech at COP28 today, UK Minister for Development and Africa Andrew Mitchell will note the significant finance developing countries need for the climate transition, particularly to adapt to climate impacts.

At the summit, he will bring together financial institutions to agree priorities to mobilise private finance into adaptation and resilience, and announce an up to £484 million portfolio of UK investments. These investments will work with the financial sector to help developing countries access climate finance and mobilise private investment into sustainable development, climate adaptation and resilience, and energy transitions.

This includes:

  • £391 million investment in the Private Infrastructure Development Group, who get infrastructure finance moving by developing pipelines of bankable projects in low-carbon, climate-resilient infrastructure
  • £44 million of new investments by British International Investment to support the clean energy transition and build climate resilience in Africa and Asia
  • £32 million investment, subject to final documentation, in the Green Guarantee Company – the world’s first global hard currency guarantor for climate bonds and loans in developing countries, lowering the cost of financing climate projects in those countries

Collectively these are enabling private and institutional investors to finance the transition – bridging the gap between developing countries’ climate finance needs and public finance available.

A UK-hosted event at COP28 saw some of the world’s biggest creditors come together to offer Climate Resilient Debt Clauses (CRDCs). The UK’s export credit agency UK Export Finance (UKEF) has reached agreement on add CRDCs to its new and existing loan agreements with Senegal and Guyana. A further ten countries are considering the offer. This follows the UK’s announcement at COP27 that UKEF would become the first export credit agency globally to offer CRDCs in its direct lending to low-income countries and small island developing states.

Canada announced that they are to follow in the UK’s footsteps in offering CRDCs – which allow governments to delay their debt repayments and free up resources to fund disaster response and recovery – with France expanding their offer and the World Bank extending their pilot to existing loans. Managing Director of the IMF Kristalina Georgieva also praised the UK at COP28 for shaking up the world in how it deals with the countries and projects hit by natural disasters.

Minister Mitchell together with Prime Minister Mottley of Barbados reiterated the call for all creditors to offer CRDCs by 2025. A further 66 countries joined that call, meaning that 73 nations are now calling for action.

Minister for Development and Africa, Andrew Mitchell, said:

Climate-vulnerable countries urgently need investment at scale to adapt and become resilient to the devastating effects of climate change. The UK is mobilising private finance to support them, including £391 million of new funding for the Private Infrastructure Development Group to develop low-carbon, climate-resilient projects that will attract private investment. And by delivering new Climate Resilient Debt Clauses in Senegal and Guyana, the UK is also allowing affected communities to temporarily pause debt repayments in the wake of a climate disaster, giving them breathing space to recover.

President of Senegal, Macky Sall, said:

Like many other African countries, Senegal is already suffering from the effects of climate change. By including a climate resilient debt clause in our loan from UK Export Finance, Senegal will be able to pause payments when a climate disaster strikes, releasing much needed finance when we need it most to focus on resilience and boosting our economy instead. We call on other creditors to offer climate resilient debt clauses by the end of 2025.

A new partnership will promote greater action from export credit agencies and banks in achieving net zero emissions by 2050. UK Export Finance rallied together export credit agencies from around the world to launch the Net Zero Export Credit Agencies Alliance, which is supported by the UN and will collaborate with GFANZ. This news comes as UKEF unveils over £600 million in transactions supporting climate adaptation and sustainability across Africa and the Middle East.

Tim Reid, CEO of UK Export Finance, said:

I am proud that UK Export Finance has secured agreement from Guyana and Senegal to be the first countries to adopt CRDCs in their direct loans with us. We hope the CRDCs never need to be used, but should Guyana or Senegal experience a severe environmental shock or health crisis, they will have more to spend on what will be most important: protecting their citizens’ lives and livelihoods.

Export credit agencies also play a crucial role in helping businesses to transition towards net zero and shifting finance flows towards climate-friendly projects and investments. The Net Zero ECA alliance announced today mobilises export finance in support of a common goal: achieving global net zero by 2050 and limiting global warming to 1.5 degrees. I look forward to working with UKEF’s counterparts around the world to support this journey.

Through its COP26 Presidency, the UK also supported establishment of global integrity initiatives to develop standards and ensure integrity in voluntary carbon markets, aimed at unlocking this innovative source of finance to accelerate the net zero transition.

In a separate speech, Baroness Vere set out that the government’s forthcoming consultation on voluntary carbon and nature markets will include its intention to endorse the outputs of these initiatives and consider how these could be reflected in UK policy, regulation and guidance. We will also test demand for a new labelling scheme for UK credits, in addition to existing work with the British Standards Institution to develop Nature Investment Standards.

The 2023 Green Finance Strategy outlines how government is increasing flows of finance for climate and nature in the UK and globally. Early next year the government will deliver on a commitment within that strategy, by launching a Transition Finance Market Review to assess how the UK as a financial centre can mobilise transition finance at scale, including to emerging and developing economies.

Further information

  • The first UKEF CRDCs follow the UK’s announcement at COP27 that UKEF would become the first export credit agency globally to offer CRDCs in its direct lending to low-income countries and small island developing states. The UK has also been pressing Multilateral Development Banks (MDBs) to come forward with CRDCs. At the event at COP28, five MDB Presidents are due to set out their plans on CRDCs.
  • The UK, together with Barbados, Ghana, France, the US, Canada and Spain launched a call to action at the Paris Finance Summit in June 2023 for all creditors to offer CRDCs by the end of 2025. The call to action now has support from the whole V20 group of vulnerable countries (68 countries, including Barbados and Ghana).
  • The Climate Investment Funds (CIF) is one of the largest multilateral funds helping low- and middle-income countries adapt to and mitigate climate change. Since 2008, it has been channelling funds from government donors and private sector to support over 400 projects in 72 countries. The UK is the largest historic donor to the Climate Investment Funds with contributions totalling £2.7 billion since 2008.
  • Today’s announcement confirming the formal launch of the CIF Capital Markets Mechanism in 2024 comes after detailed work to secure the backing of all the main MDBs and donor countries, and confirms the World Bank as Treasurer, Clifford Chance as Legal Advisor and a number of firms as lead managers for the inaugural bond.

The £484 million package to help developing countries access climate finance and mobilise private investment into sustainable, climate resilient development includes:

  • £391 million investment in the Private Infrastructure Development Group (PIDG), who get infrastructure finance moving by developing pipelines of bankable projects in low-carbon, climate-resilient infrastructure. This will enable PIDG to implement their new strategy, which will only invest in projects which support mitigation, adaptation or resilience. As an example of impact, at COP PIDG and Standard Chartered have set out an ambition to issue local guarantees to mobilise $300 million of investment in Vietnam’s Just Energy Transition Partnership.
  • British International Investment (BII) investing £44 million in new projects in the clean energy transition and climate resilience in Africa and South Asia.
  • Investing £32 million via MOBILIST in the Green Guarantee Company, which offers specialist guarantees for climate adaptation and mitigation projects in developing countries – decreasing the cost of capital for climate project developers. This is subject to final documentation.
  • Investing £9 million in the Emerging Markets Climate Action Fund (EMCAF), managed by Allianz Global Investors and the European Investment Bank, which invests in climate aligned businesses, such as ARCH Cold Chain Solutions East Africa Fund which is protecting food and medicine supply through extreme temperatures. The UK’s investment will unlock £18 million of senior investment in the fund.
  • Building on the UK co-chaired Taskforce on Access on Climate Finance, by investing £5 million to establish a new global Centre for Access to Climate Finance – an independent voice to bring together and amplify ideas for climate finance reform, to respond to the calls of the countries most affected by climate change.
  • Mobilising private investment into climate resilient infrastructure, by investing up to £3.2 million in tools to integrate adaptation and resilience into investment decisions and national planning frameworks, building on a pilot programme in Jamaica and work by the Institutional Investors Group on Climate Change.

Autumn Statement provided long-term certainty for industry to invest in decarbonisation, with a particular focus on clean energy supply chains through the  £960 million Green Industries Growth Accelerator (GIGA). GIGA aims to expand UK manufacturing capacity and strengthen global clean energy supply chains across hydrogen, offshore wind, electricity networks, nuclear and Carbon Capture, Utilisation and Storage.

The government’s intention to consult on specific steps and interventions needed to support the growth of high integrity voluntary carbon and nature markets and protect against greenwashing was announced in the 2023 Green Finance Strategy. Today’s announcement outlines our intention to, subject to this consultation, endorse the outputs of the Voluntary Carbon Markets Integrity Initiative (VCMI) and Integrity Council on Voluntary Carbon Markets.

In addition, the consultation will propose user friendly guidelines for how voluntary credits should be used in claims, as well as seeking views on what further information is needed to provide assurance on the quality of credits used in claims. It will also test demand for a labelling scheme for UK credits, and whether this could unlock additional finance for net zero in the UK.

The Transition Finance Market Review, as first announced in the 2023 Green Finance Strategy, will consider what the UK financial and professional services ecosystem needs to do to become a leading provider of transition financial services and innovative instruments on the pathway to 2050.

Source: Gov.UK