Two birds, one stone: tackling climate change through international aid  

By on 25/04/2023 | Updated on 25/04/2023
Two African women carrying goods on their heads outside a concrete house in Tanzania.

Trillions of dollars are needed if the world is to limit temperature rise and address the impacts of climate change. Developing countries need support to transition to green energy and sustainable development, and at a recent EY webinar, experts discussed how international aid can help

International aid is a key humanitarian and foreign policy tool for many governments around the world, and it is playing an increasing role in helping developing countries reach net zero and to compensate for the loss and damage their populations suffer at the hands of climate change.

Many governments use public funds to put the world on the path towards environmental sustainability whilst at the same time reducing inequality and promoting economic development. But they do not have the financial means to do this alone. So, how can they accelerate change through collaboration? How can they make investing in green programmes as straightforward as possible in a complex arena? And how can investors and donors – both public and private – ensure their money makes a real and lasting difference on the ground?

Global professional services firm EY brought together a panel of experts from the UK, US and the United Nations to answer these questions and more.

Kicking off the webinar, Kathryn Stratos, the deputy director for climate & cross-sectoral strategy, Center for Environment, Energy & Infrastructure at the US Agency for International Development (USAID) gave an overview of the agency’s work.

As America’s primary development assistance agency, USAID is active in more than 100 countries, has 10,000 staff and runs programmes – including humanitarian, health, education, governance, biodiversity and climate endeavours – totalling around US$25bn.  

The agency adopted a new climate strategy last year, which aims to advance net zero and climate resilient and equitable development and also serves as a commitment to the priorities outlined in the US’s nationally determined contribution (NDC) and national adaptation plans.

Kathryn Stratos

Stratos said the strategy aims to “enable us to confront both the most urgent demands of the climate crisis and to help transform systems in a way that will lock in climate resilient pathways”, and also cements the country’s intention “to work with the private sector, local governments and local communities, including the marginalised and underrepresented groups within them”.

“We in the climate community are really underscoring to our colleagues that this is a new paradigm for development that we all need to subscribe to,” she said.

Although she acknowledged that an “ever expanding set” of climate initiatives, commitments and campaigns “can be bewildering at times”, she said the antidote is to focus on long-term systematic change, stick to tried and tested methods, and to focus on results rather than the amount of money pledged.

Then comes work to “broaden the tent” by focusing not only on climate results but also on development priorities, such as cleaner air and water, improved health outcomes, and more resilient landscapes and cities, she said.

‘Crowding in’ private finance

Pradeep Kurukulasuriya, executive coordinator, environmental finance at the United Nations Development Programme (UNDP) shared his insights into how Official Development Assistance (ODA) can help to drive climate commitments.

Given the number of humanitarian issues that need to be dealt with, ODA “is pretty stretched as it is”, he said, resulting in “a lot less investment in long-term development needs”.

This was having an impact on support for peace and prevention and gender equality in developing countries, and he emphasised that there needed to be recognition that “the scale of the challenge that we face is not going to be addressed with ODA alone – we have to be much more deliberate in our efforts to crowd in larger streams of private finance”.

He pointed out that there is no shortage of capital – “we’re talking about a global stock of about US$300 trillion” – but that due to the current system, finance is not being channelled to where it is most needed. Some is going towards renewable energy investments in emerging and stable markets but in sub-Saharan Africa “it’s abysmal”, he said.  

As such, developing countries are having to allocate “precious dollars” from their own tax receipts to climate resilience. “They have no choice when they are facing sea level rise, and they’re facing drought, and they’re facing energy shortage to do that,” Kurukulasuriya said.

Pradeep Kurukulasuriya

To address this, the UNDP has been working to help countries create an enabling environment and framework for attracting domestic private finance whilst ensuring that international private finance flows are strengthened. This is “absolutely critical… because without that we’re not going to get anywhere”.

In part, this requires financing instruments that provide the investor community with confidence. He said traditional grant funding is needed in many “emerging and risky market settings” but that there would also need to be guarantees and tax reform policies. And, while carbon markets are beginning to emerge and there is “huge interest” in debt instruments and bonds “there’s a lot more that needs to be done in terms of integrity issues”, especially against the backdrop of the debt crisis, he said.

He emphasised, more generally, that “logic alone is not enough. We have so many biases and beliefs that consciously or subconsciously influence decision-making”. What is needed, therefore, is “behavioural change at a scale I don’t think we have ever seen before”.

We got a glimpse of what global behavioural change looks like during the COVID-19 pandemic, he explained. “I think we need to see something at that kind of scale, which fully recognises the need for us to consciously move towards net zero. And I don’t think that is where we are today. So there is a lot of work ahead.”

Addressing the overwhelm

Russell Marsh, associate partner at EY Singapore, shared his observations from working on international aid programmes. He has worked on climate and renewable energy policy issues for nearly 25 years from the UK, Australia and most recently Singapore, with a focus on ASEAN countries. The projects include the UK government’s ASEAN Low Carbon Energy Programme which supports countries in the region to accelerate the deployment of low carbon energy and on which EY in the lead delivery partner; an international aid programme of the Australian government that focuses on deployment of sustainable infrastructure and energy transition; and the USAID energy transition programme in Indonesia.

One of his observations is that “it’s a very crowded space. There are lots of donors, both public and private, who are looking to support the energy transition in this region” and that while this was an opportunity, it could also be a challenge. In this context, attention is needed to ensure that programmes “are not tripping over each other” and are delivering valuable work for the beneficiary countries in a way that does not overwhelm them with “constant requests for inputs”.  

Marsh emphasised that for this reason, communication and collaboration between major donors is important – a point mirrored by Stratos. And it is starting to happen, with donors finding out what their peers are doing so they can invest in programmes that align with others rather than overlap.   

Another of his observations is that it can feel like new net zero initiatives are coming out every week, especially in the run up to COP, and trying to keep up with them, understand the differences between them, and decide which to focus on can be difficult, particularly in countries where the government departments responsible are small. The influx of new initiatives and mechanisms is unlikely to slow down any time soon, he said.

Russell Marsh

Moving on to his third observation, Marsh said what is particularly interesting in the ASEAN region is governments’ focus on securing finance for green infrastructure that also has a social function. “That goes back to the point around making sure you know what the recipient government or the beneficiaries are looking for so you can make sure that you are able to design the programme to best meet their needs.”

Up next was Nick Bridge, special representative for climate change at the UK Foreign, Commonwealth and Development Office (FCDO), who agreed with various points made by his fellow panellists.

Like the UN’s Kurukulasuriya, he agreed work was underway to leverage “huge amounts” of private finance but that “it’s not going into the places it needs to go into”.

He said there had been a “massive surge” in humanitarian aid, partly due to climate and nature induced tragedies, “which are going to escalate more and more”. As countries compete for green investments and deals such as the US Inflation Reduction Act and the EU’s Green Deal “we need to ensure that countries across Africa and Asia are also being supported to have the enabling conditions to attract all of that finance”.

He also agreed with a point Marsh had made about the “now very complex, multi-dimensional set of goals” that have been committed to and businesses’ tendency to ask “What’s the standard? What’s the regulatory framework? What’s the tax framework? How do we all get to net zero in the most effective and efficient way?”

“We’re only just beginning to work through that,” Bridge said.

Time to act faster

He moved on to talking about progress made at COP26, during the UK’s presidency. When it took on the presidency, less than a third of the world had committed to net zero and by the end of its presidency 92% had. He called this a “seismic shift” and said “we don’t have time to not act faster, at scale, and in all aspects of our economy”.

The net zero commitments now in place had “unleashed more ambition in the near term” around 2030 nationally determined contributions, but there is “still a long way to go”, he said, not least in terms of figuring out how to decarbonise transport, agriculture and industry.

He pointed out that negotiations around COP26 had resulted in a doubling in aid commitments, a tripling in nature commitments, and had got the delayed implementation of the goal for US$100bn in climate finance to be made available “back on track” – though the delay to the latter had eroded trust in many countries, he said.

Nick Bridge

“We just need to get on and deliver that US$100bn and then look very ambitiously at the next phase.”

What is also crucial, Bridge said, is to align climate and nature goals. He said he was pleased to see that the climate community is “talking in the same breath and in an integrated way” about climate, nature, environment, and ecosystems.

“It’s only really coming to dawn on people just how destabilised our ecosystems and our earth systems are already and how that will play out in terms of the impact on every country’s resilience and adaptation,” he said, adding that there was a greater political understanding now of the way that adaptation and resilience “needs to be at the heart of our development strategies”.  

“We have one shot at aligning the financial system, aligning governments and aligning new investment flows,” he said.    

Supporting the green transition beyond Europe’s borders – and the role of data

Franco Conzato, senior expert, Directorate for Sustainable Development Policy and Coordination, Directorate-General for International Partnerships at the European Commission, set out that the EU, its member states and the European Investment Bank are together the largest provider of climate finance in the world, having provided developing economies with €23bn (US$25bn) in 2021.

Now, through its Global Gateway Strategy, Conzato said the EU is working to narrow the global investment gap and support both green and digital transition beyond Europe’s borders. The ambition is to “present transformative large-scale projects” that combine public and private financing, mobilising up to €300bn (US$325bn) for investment in infrastructure – half of it in Africa.

Projects are almost complete in countries including Nigeria, Zambia and the Cote d’Ivoire.

He emphasised that, particularly in Africa, what is important is partnering not only with national governments but with regional organisations – without that collaboration, advancing programmes can be “problematic”, he said.

Franco Conzato,

And he made a point about data. The EU has been working to support knowledge platforms, such as those that aim to identify common policy priorities in Europe and the African Union and, crucially, to improve the efficiency of delivering data within Africa, “giving a push” to country-based research.

To help understand how projects can be scaled up – one of the big challenges – Conzato said the EU is testing new tools, including one called ‘systemic review’ which “looks at the whole universe of knowledge in a certain area” and makes it “available to everyone”.

To ensure transparency in this endeavour, Conzato said the key was to treat knowledge “as a public good” and to build trust around dissemination of evidence between development partners.

Nature-based solutions, standards, ‘shareholder activism’ and sustainability

After their opening comments, panellists took questions from the webinar’s audience, the first of which centred on nature-based solutions.

On this, USAID’s Stratos highlighted that it won’t be possible to limit global warming to 1.5°C without conserving forests and undertaking landscape reforestation and regreening. Her agency has a “very large” biodiversity conservation programme but also sees opportunities for nature-based solutions that capture carbon and make landscapes and urban areas more resilient. She gave the example of green infrastructure such as mangroves which can be used to prevent flooding downstream in urban areas. “Measures such as that can be very cost effective, and have a lot of development co-benefits that a hard infrastructure solution might not have,” she said.

The FCDO’s Bridge said that on day one of COP26, the UK chose to focus on ending deforestation by 2030 because “if you’re looking at one thing you can do in the world that world leaders and their citizens can relate to, that would be it… it’s an absolutely vast part of the climate solution that was previously not given enough attention”.

Another member of the audience asked the experts to expand on how investors could help tackle climate change.

The UN’s Kurukulasuriya said board members were now recognising the need to shift towards net zero, not least because “there are afraid of being stuck with stranded assets” and “do not want to be on the wrong side of history down the road”.

Therefore, he said, it is “very much in their minds” to divest away from “harmful investments that we cannot tolerate anymore”, such as in fossil fuels, and to invest in R&D, clean energy and green technologies that “stand the test of time”.

‘Shareholder activism’ was also playing a part in steering board members towards the “type of values that shareholders themselves should be striving for”, he added.  

Bridge’s view is that work on data and standard setting should be accelerated towards incentivising “every asset class and every business to fully understand the sustainability of their supply chains… we really need to move that process forward. The whole financial system globally has only around a decade or less to become fully aligned with sustainable investments”.

The next question asked what could be done to ensure that recipient countries are not given technologies – solar panels, for example – that they don’t have the means to maintain or to dispose of if broken.   

EY’s Marsh said what can be done to mitigate this is to ensure that technical assistance has been provided according to what the beneficiary country needs and has asked for, and to put in place a “robust” process for removing technology if abandoned.

Legacy should be designed into any programme, he said.

“This is a big one,” Stratos said. “If we’re going to help a country embrace new technologies, we also need to think about the whole lifecycle of it”. She said the recycling of solar panels should be promoted, which linked in to educational, youth and community programmes on the ground in beneficiary countries. “How can we give the community a sense that ‘this is an investment in you – what can you do to help maintain it or to dispose of it properly afterwards?’.”  

Coming back to Bridge’s earlier point about standards, Marsh said there is often more than one, whether for green bond issuance or climate disclosure, for example, leading investors to deliberate over which they should use. “We need to see a bit more harmonisation,” he said.

These comments were mirrored by Stratos who said that wherever possible, standards should be simplified “so that we can really hold the private sector accountable to the targets they have set” and also to support them to do “what are sometimes new and complex procedures”.

What was clear from this webinar is that international aid will play a huge part in the race to net zero. And as the panellists agreed, in this hugely complex arena, coordination and collaboration is key.

Watch the full Getting to net zero: how international aid can drive a sustainable transition webinar on our dedicated event page. The webinar was hosted by EY – with support from Global Government Forum – and took place on 28 February 2023.

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