Share the full article
How much funding do wealthy countries owe to climate-vulnerable nations? And how does it get to them? The first week of COP29 in Baku, Azerbaijan, closed with stubborn rifts and discouragingly little progress on the summit’s major challenges. Impact investors don’t have a direct seat at the negotiating table. But Agents of Impact are working back channels to elevate private investors’ role in ushering capital where it’s most needed.
“A big step in figuring out the scale and mechanisms of adaptation finance requires bringing together public and private funding. You need to blend it to deliver scalable solutions,” says Acumen’s Ayesha Khan.
A raft of strategies for how to do that have anchored conversations at organizations’ and countries’ side events and “pavilions.” Acumen announced a commitment to deploy $300 million in adaptation finance for smallholder farmers by 2029, including $90 million for farmers in Pakistan. Gawa Capital is showcasing its $300 million adaptation fund for rural communities in Latin America. Lightsmith Group is developing a “virtual green bank” to offer debt, equity and technical assistance to companies building adaptation solutions.
All are being touted as models for leveraging public and/or concessional financing to move private capital toward adaptation and resilience.
“It feels incremental, but there’s movement,” says Khan. “I think we’re setting the stage for more decisive movement on a global level at the next COP in Brazil.”
A seat at the table
Eyes have been on COP30 in Belem, Brazil since before COP29 began. Critics have openly questioned the Congress of Parties’ capability in steering global climate progress with the selection of Azerbaijan, an oil state, as a host. (The UAE, another oil state, hosted COP28 in Dubai. Both summits have been tarnished by side negotiations for new fossil fuel deals.)
The big issue on the negotiating table in Baku is over the New Collective Quantified Goal on Climate Finance, or NCQG, which would replace the $100 billion annual commitment established under the Paris Agreement that expires this year. The role of private finance in aiding low- and middle-income countries’ climate transition is a major sticking point: recipient countries want the lion’s share of the funding in the form of grants; wealthy countries want much of the funding to come from the private sector.
A report released on Thursday from the Independent High-Level Expert Group on Climate Finance said $1.3 trillion is needed annually to pay for climate adaptation and resilience in poorer countries. The economists authoring the report suggested that roughly half could be mobilized from private investors, with another $250 billion annually committed by publicly funded development finance institutions.
That’s why private investors need a voice at the table, argues Sabrina Nagel of the Atlantic Council’s Climate Resilience Center. The center has been working to represent private sector needs for capital mobilization in the NCQG negotiations. Efforts to build trust between public and private actors for the past two years are showing up at COP29, Nagel tells ImpactAlpha. “There’s a gradual openness to integrating private voices into the negotiations.”
Institutional investors and large asset managers like Temasek, BlackRock and HSBC are more visible in Baku than impact managers like Acumen, Lightsmith Group and Gawa Capital, even though many of the funnels for private adaptation finance are being developed and led by impact investors.
“Impact investors need to be at the table defining the rules of climate capital, because we’re the last mile. We’re who go to the vulnerable communities,” says Gawa’s Luca Torre.
Gawa’s Kuali Fund has secured commitments from institutional investors by leveraging concessional capital from the Green Climate Fund and the Spanish government. Lightsmith Group is using a grant from USAID to design its virtual green bank based on learnings from its $186 million adaptation-focused venture fund. Acumen has spent the past seven years working with the Pakistani government to build distribution channels for climate-focused private equity.
“This is a field that’s still being developed. We’re not where mitigation financing is, where the markets are sophisticated and the measures are sharper. We’re still doing a lot of workshopping,” says Khan.
“Small tickets are needed,” adds Nagel. For now, “it’s so much more about the quality and availability of finance than the quantum.”
Forging ahead
The mobilization of private investment in the climate transition will become a more pressing issue if Donald Trump’s incoming administration upholds his pledge to withdraw from the Paris Agreement. That uncertainty, along with a resurgence of open fossil fuel championship – including from Azerbaijan’s president at COP – is accelerating a shift in how countries shape their Nationally Defined Contributions to slashing carbon emissions and minimizing global warming.
Brazil and other emerging economies are “moving toward making the NDCs not just overall policy targets, but a strategy [with] executable transactions,” observes Lightsmith Group’s Jay Koh. “That kind of conversation is where you can turn societal needs into demand for products and services into an investable set of opportunities.”
Up next is investable “national adaptation plans,” says Nagel, “where an adaptation investment pipeline can be built according to the NDCs and aligned with the private sector. That hasn’t been done in the past.”
Regional strategies, like the African Green Banks Initiative, are helping smaller countries develop investment pipelines and funding mechanisms for green growth and climate adaptation projects. Last week, Cote d’Ivoire announced plans for a $500 million green finance fund through the initiative to mobilize both public and private funding.
Pakistan, which contributes less than 1% of global greenhouse gas emissions but ranks among the most climate vulnerable countries, hosted a roundtable at COP last week where its prime minister, Shehbaz Sharif, called for at least $6.8 trillion in climate funding for emerging economies by 2030. Its finance minister, Muhammad Aurangzeb, appeared alongside Khan at the launch of Acumen’s adaptation facility.
“Together with Acumen we are continuing on our path toward sustainable economic growth and development,” he said at the launch event. “Their commitment to Pakistan’s agricultural system is more than a climate investment. It is an investment in the Pakistani people – the entrepreneurs, the founders, the farmers, and our communities.”
Khan recalls the devastating floods that affected a third of the country in 2022 and toxic smog that is choking Pakistan’s urban residents.
“We don’t have time to wait for these larger global commitments to crystallize and for clarity on what needs to be done for the ‘real’ funding to materialize,” she says. “We have to act now.”
