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On Thursday, June 27, Globesight hosted the virtual roundtable “Innovative Climate Finance: Reforming Global Financial Architecture for a Sustainable Future” as part of the ‘Path to COP29’ event series and London Climate Action Week. The event, moderated by Globesight’s Climate & Innovative Finance Lead, Aurélien Pillet convened key stakeholders from international organizations, financial institutions, and philanthropic organizations, including esteemed guests: Saliem Fakir,  Executive Director of African Climate Foundation; Dr. Mallé Fofana, Regional Director & Head of Programs – Africa at Global Green Growth Institute (GGGI); Satheesh Kumar Sundararajan,  Lead Climate Finance Specialist at The World Bank Group; Guly Sabahi,  Senior Advisor of Climate Finance at NDC Partnership, and; Lucia Fuselli, Founder of Climate Strategies & Energy Chair at WAPPP. 

The discussion centered on innovative climate financing mechanisms and necessary reforms to mobilize resources effectively for climate mitigation and adaptation, particularly in the most vulnerable regions. The speakers collectively highlighted the critical need to address financing challenges hindering climate action in developing countries, especially with the upcoming COP29. The urgency for reforms in the international financial architecture and scaling up of climate finance was underscored. This common theme was echoed throughout the presentations, emphasizing the significant gap between current financial flows and what is required to meet the Paris Agreement goals.

In the discussion on key imperatives for climate finance, the urgent need to bridge the existing finance gap was stressed, noting that annual climate finance flows must increase significantly. The disparity between current financial flows and required investments, with particular emphasis on the insufficient public finance for adaptation and the need to scale up private sector investment, was highlighted. This sentiment was shared by all speakers, indicating a consensus on the necessity for increased and innovative financing mechanisms. The importance of aligning climate finance to the development needs of the countries, focusing on the real economy, was also emphasized.

 The challenges in the global financial architecture were addressed, noting high borrowing costs, debt sustainability issues, inadequate traditional financial instruments, inequitable distribution of funds, and administrative burdens. Each speaker provided their perspective on these issues, offering a comprehensive overview of the systemic problems that need to be tackled to improve climate finance flows. It was noted that broader partnerships beyond financiers, including all key stakeholders, are essential to support investment platforms and ensure long-term capacity building.

 Recent developments in climate finance were discussed, highlighting key initiatives such as the Bridgetown Initiative, as well as high-level events like COP27, COP28, G20 meetings, World Bank-IMF Spring Meetings, AfDB and IsDB Annual Meetings, and recent discussions at Bonn SB60. The need for reform and the importance of innovative finance mechanisms in addressing the climate finance gap was emphasized. Despite numerous initiatives, it was noted that financial flows remain insufficient to meet the needs of the Global South, highlighting the importance of innovative climate finance to unlock private sector capital and minimize risks. The necessity of aligning large pools of capital beyond traditional climate finance to support development needs effectively was also stressed.

 The importance of innovative financing mechanisms, strategic partnerships, and capacity building in achieving sustainable development and climate resilience in Africa was emphasized. Implementing NDCs in Africa is estimated to cost trillions of US dollars from 2020 to 2030, with significant needs identified in the agriculture, forestry, and other land use and water sectors. A unique approach to mobilizing green and climate finance has been developed, utilizing a value chain approach and providing technical assistance from policy development to investment mobilization and reporting. By the end of 2023, billions of US dollars in green and climate finance had been mobilized through instruments such as green bonds, thematic bonds, debt-for-nature swaps, and credit enhancement mechanisms. Various countries have been supported in developing their bond markets and implementing carbon pricing mechanisms and Article 6 policy approaches. The importance of having investment pipelines and bringing down the cost of capital in Africa to draw on domestic finance was underscored.

 The need for reform in the global financial architecture to ensure a sustainable future was highlighted. The current global climate finance architecture was outlined, showcasing various funding sources and the immense climate finance needs of multiple trillions of US dollars per year by 2050. Opportunities within climate finance, including the role of climate funds as the ultimate de-riskers and finance aggregators, were emphasized. However, challenges such as a lack of firepower and insufficient capacity were also highlighted. Steps to address these challenges were suggested, including overhauling accreditation processes and focusing on regional programs to maximize private sector investments. Innovative climate finance instruments like debt-for-nature swaps and payments for ecosystem services were discussed, stressing the need for reform in the global financial architecture to mobilize necessary resources.

 The critical need to increase climate finance to meet global warming targets and the role of international financial institutions in facilitating this were highlighted. The current inadequacy of climate finance levels was pointed out, emphasizing the importance of mobilizing private sector finance. An approach to increasing climate finance through various reforms and initiatives was detailed, including changing the mission to focus on global public goods, implementing climate-resilient debt clauses, and optimizing balance sheets. Several case studies illustrating efforts to mobilize private investments were provided, highlighting the importance of innovative financing structures and de-risking products.

 An overview of efforts in climate investment planning and mobilization was provided, emphasizing the importance of a global coalition dedicated to ambitious climate action and sustainable development. An interactive tool developed to support the creation of ambitious, fair, and implementable NDCs for submission in 2025 was introduced. The need for a programmatic approach and mobilizing all types of investments to expedite the implementation of NDCs, National Adaptation Plans (NAPs), and Long-term Strategies (LTS) was highlighted. It was stressed that climate finance is available but not always accessible at the speed and scale required, and the framework aims to address this by evolving through ongoing consultation and input from various stakeholders.

 Collectively, the speakers agreed on the necessity of innovative climate finance mechanisms, strategic partnerships, and the need for reform in the global financial architecture. They complemented each other by providing different perspectives and examples of successful initiatives, highlighting the importance of collaborative efforts to mobilize the necessary resources for climate action. Moving forward, the Road to COP29 Series will continue to explore these themes, aiming to drive meaningful progress in innovative climate finance and the reform of global financial structures to support sustainable development and climate resilience.

We thank our esteemed guests for their invaluable insight and contributions to the engaging discussion and participation of all the guests and attendees. We look forward to future opportunities to advance this important agenda further through the upcoming events taking place as part of our ‘Road to COP29’ event series. 

The new climate finance goal, known as the New Collective Quantified Goal (NCQG), is set to replace the existing US$100 billion annual commitment that developed countries agreed to at COP15 in 2009. Parties agreed to source this funding from diverse channels, including public, private, bilateral, multilateral, and alternative sources, to help developing countries mitigate and adapt to the impacts of climate change. Due to the absence of a globally agreed definition for international climate finance, the already mobilized US$100 billion raised several issues that include: counting climate finance that may not be climate-relevant, over-prioritization of mitigation over adaptation, difficulty determining whether the climate finance pledged is new and additional, favoring loans over grants, among others. 

As such, the NCQG needs to address developing countries’ evolving priorities and needs, ensuring that climate finance is adequate and effective in the face of current climate realities, particularly the loss and damage these countries are burdened with. Scheduled for adoption at COP29 in Azerbaijan, the NCQG is currently being negotiated across seven critical issue areas, as outlined in the World Resources Institute’s working paper. These elements include setting the financial target, defining the thematic scope, determining the time frame, identifying contributors, establishing transparency arrangements, ensuring the quality of climate finance, and defining the overall scope of the NCQG.

Within these NCQG deliberations, the issue of loss and damage is an essential component under the thematic scope. Developing countries have emphasized the importance of adding loss and damage as a quantifiable goal within the NCQG to ensure that loss and damage receive separate and equitable attention alongside mitigation and adaptation efforts. At the 2024 Bonn Climate Conference (SB60), these countries pushed for explicit commitments to finance loss and damage as part of the NCQG. However, the conference outcomes revealed a significant need for further progress before COP29, with substantial misalignment persisting between developing and developed countries on this critical issue.

Evolving needs of the Global South

Current sources of climate finance simply cannot meet the needs of the Global South. The existing US$100 billion annual goal covers climate action under two categories: mitigation and adaptation, excluding the increasing frequency and severity of climate-induced disasters that many countries in the Global South are already experiencing and which are worsening. There have been record-breaking heat waves in various parts of Asia, heavy rainfall, some of the worst floods in East Africa, and severe droughts in Southern Africa. In just the first six months of 2024, extreme climate events worldwide are estimated to have caused at least US$41 billion in damage, according to a new report by Christian Aid. 

Non-economic costs frequently remain unaccounted for in these estimates, with only insured losses typically reported. A report published by Climate Analytics Caribbean, the first-ever systematic analysis of how loss and damage are framed and reported in Caribbean countries, highlights this issue thoroughly. The report emphasizes that the impacts of slow-onset events and various other climate hazards tend to go unreported, leading to substantial underestimation of the true costs of loss and damage in the region. This underscores the urgent need for a more comprehensive approach to assessing and addressing climate impacts beyond direct financial losses. Integrating loss and damage into the NCQG could be a crucial initial step toward addressing these gaps.

Furthermore, the Climate Policy Initiative (CPI) estimates the cost of inaction at an overwhelming US$1.2 trillion. In a mid-range scenario outlined by the L&D Collaboration, loss and damage (including economic costs alone) impose a staggering burden on developing countries: an estimated US$425 billion annually in the 2020s, escalating to US$670 billion in the 2030s and reaching approximately US$1.2 trillion annually by the 2040s. Despite these projections, developed countries have shown reluctance to commit to a substantial target, merely proposing an increase from the existing US$100 billion goal. Conversely, while the inclusion of a loss and damage sub-goal in the NCQG remains uncertain, developing countries have staunchly advocated for a minimum floor of US$400 billion till 2030, noting that this is still an underestimate given that loss and damage are often missed in modeling estimates. As a frame of reference, the first needs determination report indicates a need of around US$2.2 trillion for mitigation finance and US$764-835 billion per year for adaptation finance by NDCs. In contrast, loss and damage financing remains significantly underestimated and is also not included in the report, highlighting a critical gap in climate finance.

Assessing the Quality of Current Climate Finance Commitments

Earlier in May, the OECD released new data indicating that wealthy nations, despite a two-year delay, fulfilled their longstanding pledge to provide US$100 billion in climate finance to developing countries in 2022. However, several climate finance analysts and climate justice activists have scrutinized the quality of this climate finance. A significant portion of the funding has been repackaged as loans rather than grants and is often integrated with existing development finance. The OECD report shows that 60% of public climate finance in 2022 was in the form of loans. Additionally, analysis from the Center for Global Development finds that the reported increase in bilateral finance to the OECD was driven by refocusing existing finance from other aid objectives to climate initiatives. 

These critiques underscore the importance of including a loss and damage sub-goal in the NCQG. Doing so not only enhances the quality of climate finance by ensuring new, additional funds are specifically allocated to address loss and damage but also reinforces accountability in meeting the evolving needs of climate-vulnerable countries. These perspectives were reaffirmed by the priorities outlined by the Least Developed Countries (LDCs) and Small Island Developing States (SIDS) for COP29, ensuring that climate finance is genuinely ‘new and additional’ to existing financial flows, thereby reducing the risk of rich countries conflating their climate finance with other financing streams.

Navigating the Concessional Finance Landscape to Secure Loss and Damage Funding

Negotiating parties must carefully consider the relationship of the new climate finance goal with the operationalization of the new funding arrangement that countries are likely to see under the Loss and Damage Fund. The confirmation of the World Bank as an interim secretariat host and trustee for the Fund announced at SB60, is a positive step towards its full operationalization. However, its progress will depend significantly on the outcomes of COP29. This consideration must also be contextualized within the current global concessional finance landscape. Over the 2024-2025 period, nearly a dozen concessional finance entities are scheduled to host their replenishment campaigns. As these funds often rely on the same pool of donors, there could be heightened competition for new resources, including those for the Loss and Damage Fund.

In this context, the idea of a global tax on the ultra-wealthy, championed by Brazil as the current G20 Chair, could be an intriguing avenue to raise climate finance. This proposal has garnered momentum, supported by countries such as Germany, South Africa, France, and Spain. Renowned Economist Gabriel Zucman, who is outlining the technical details of this proposal, argues that a minimum tax of 2% on the wealth of the 3,000 richest billionaires could potentially unlock an additional US$250 billion annually. Economist Esther Duflo also spoke about this at the IMF/World Bank spring meetings, referring to it as a ‘moral debt burden’ tax and proposing exploration of “new sources of funding that we don’t have yet – and therefore, have not yet been assigned to anything – and that are not implausible, that could conceivably exist”. As Brazil aims to push for a joint declaration at the upcoming meeting of the G20 finance ministers next month, there could be an opportunity to advance this approach and bolster financial resources for loss and damage.

The urgency and complexity of loss and damage demand a robust and dedicated approach to finance for the Global South. The inclusion of loss and damage as a sub-goal in the NCQG represents a crucial opportunity to begin addressing these needs. However, it will require substantial commitments and clear differentiation from existing assistance to be truly effective. This is why a dedicated sub-goal for loss and damage in NCQG is so important: it could provide avenues for innovative funding approaches and ensure new, additional funds are specifically allocated to this issue, thereby improving the accountability and quality of climate finance.

Climate change is accelerating migration, particularly in the Global South. 

Deteriorating environmental conditions are pushing people from their homes, seeking refuge in safer, more sustainable regions. According to data from the IOM 2024 World Migration Report and the 2024 Global Report on Internal Displacement (GRID) published this month, migration is becoming a major factor in climate change spillover. This migration, whether internal or cross-border, poses significant challenges but also presents opportunities, particularly through remittances from migrants. These financial flows can help bridge the gaps in adaptation and resilience investments in their home countries.

The Climate-Migration Nexus

Climate change is increasingly a primary driver of migration. It exacerbates environmental conditions, leading to both slow-onset events, such as droughts and desertification, and sudden-onset disasters, such as floods and hurricanes. These stressors hit agrarian societies hardest, leading to food insecurity and economic instability, which in turn fuel migration. Consider Sub-Saharan Africa; prolonged droughts have decimated crops in Somalia and Ethiopia, driving many to urban areas or abroad. The Internal Displacement Monitoring Center’s (IDMC) 2024 GRID revealed that in 2023, Somalia saw 673,000 people displaced due to climate-related events. This movement is often a matter of survival rather than choice.

Remittances: A Financial Lifeline

Remittances—funds sent back home by migrants—are crucial for many families in the Global South. Often surpassing official development assistance, these funds can play a pivotal role in building climate resilience and adapting to new environmental realities.

• Sustainable Agriculture: Remittances can fund climate-resilient agricultural practices. Investing in drought-resistant crops and efficient irrigation systems can bolster food security and reduce vulnerability to climate shocks.
• Infrastructure Development: These funds can improve local infrastructure, such as building flood defenses and upgrading housing to withstand extreme weather. This dual benefit of protection and economic relief is invaluable.
• Financial Inclusion: Promoting financial products tailored to migrants and their families can ensure remittances are saved and invested wisely. Savings accounts, insurance, and credit facilities provide a safety net against climate risks and support long-term planning.

Innovative Mechanisms

Several mechanisms can enhance the impact of remittances on climate adaptation:

• Diaspora Bonds: Issuing bonds to diaspora communities can finance large-scale climate adaptation projects like seawalls and renewable energy infrastructure.
• Mobile Money Platforms: Technology can facilitate remittance transfers, especially to remote areas. Platforms like these can also offer financial services that encourage the productive use of funds, such as microloans for green businesses.
• Community Investment Funds: Pooled remittances can finance collective adaptation projects, such as community water reservoirs and sustainable agricultural initiatives.

A Case in Point: Bangladesh

Bangladesh offers a compelling example due to its vulnerability to cyclones, floods, and rising sea levels. According to the IDMC’s 2024 GRID, roughly 1.8 million people were displaced by climatic events in 2023, enabling opportunities for:

• Cyclone Preparedness: Remittances have enabled families to build resilient homes, elevated against floodwaters and reinforced to withstand storms.
• Agricultural Innovation: Migrant families invest in salt-tolerant rice and improved irrigation, sustaining agriculture in flood-prone areas.
• Community Infrastructure: Through pooled remittances, communities have constructed elevated roads and cyclone shelters, significantly reducing vulnerability during extreme weather.

As climate change continues to drive migration, leveraging remittances to build resilience becomes imperative. Investments in sustainable agriculture, robust infrastructure, and financial inclusion can significantly bridge the adaptation gap. Innovative financial mechanisms and community-based models can amplify this impact, turning the challenges of climate-induced migration into opportunities for sustainable development. By fostering partnerships and crafting conducive policies, stakeholders can harness the power of remittances for climate adaptation, ensuring that the forces driving migration can also propel communities towards a more resilient future.

Leveraging Private Sector Participation in Blended Finance for Climate Resilience

In the face of escalating climate challenges, innovative financing mechanisms are crucial for mobilizing resources to combat climate change. According to the Climate Policy Initiative’s estimates, an investment of US$ 266 trillion is required between now and 2050 to mitigate and adapt to climate change effectively. Blended finance has proven effective in funding climate resilience projects. Drawing from IsDB’s expertise in blended finance that targets public investments, there is an opportunity for IsDB to leverage its experience to structure similar vehicles aimed at catalyzing private sector investments at scale. By aligning these efforts with the Sustainable Development Goals (SDGs) and climate objectives, IsDB can play a transformative role in driving private sector engagement in climate resilience.

The Lives and Livelihoods Fund (LLF):

At the forefront of blended finance initiatives is the Lives and Livelihoods Fund (LLF), a flagship facility housed at the IsDB Group. The US$ 2.5 billion blended finance vehicle, uniquely leveraging concessional financing, works to lift the poorest out of poverty across 33 IsDB member countries through public investments in primary health and infectious diseases, small-holder farming and rural agriculture, and basic infrastructure. The portfolio of projects approved by the LLF from 2016 to 2021 is already transforming thousands of lives and livelihoods spanning sub-Saharan Africa, the Maghreb, the Middle East, Central Asia, and Asia. Since its creation in 2016, its financing has benefitted over 3 million smallholder farmers to improve their productivity and livelihoods, providing access to quality healthcare for 12.5 million women and children, and is expected to provide over 7.5 million people with better water and sanitation facilities.

The LLF’s investments in Pakistan illustrate the case for blended finance. By pooling public resources with philanthropic contributions, keen to support a national health priority, the LLF actively supported the highly impactful Pakistan Polio Eradication Initiative with US$160 million in concessional financing. This support strengthened the program’s operations, enhanced its surveillance capabilities, facilitated vaccine procurement and social mobilization, and improved its communications,  maximizing the impact of the program leading to 99% reduction in polio incidence. The LLF’s support has helped ensure that all children under five are immunized, vaccinators are afforded training and support, and communities are made aware of the importance of polio vaccination.

Linkages with SDGs:

The LLF channels public funding towards climate-resilient infrastructure, healthcare systems, sustainable agriculture, and renewable energy projects that address multiple SDGs in target countries. The LLF, through its integrated approach, with its crosscutting focus on climate adaptation and gender equality, delivers solutions that span multiple SDGs across several countries. 

From Public to Private Investments: Unlocking Private Sector Engagement:

Building on the LLF success, taking into account public debt constraints in the Global South, as well as the extent of the 15-figure financing gaps to achieve both the SDGs and climate goals, IsDB can pivot towards structuring similar blended finance vehicles targeting private sector investments. By leveraging financial instruments such as grants, junior debt, junior equity, or guarantees, coupled with reputational support and local expertise, IsDB can reduce investment risks and create attractive opportunities for commercial investors. This approach not only unlocks new sources of funding for climate resilience projects but also fosters innovation and entrepreneurship in IsDB member countries.

The transition from public to private sector investments would align closely with IsDB’s commitment to the SDGs and climate action. By focusing on sectors such as renewable energy, sustainable agriculture, and climate-smart infrastructure, the IsDB can continue to promote its integrated approach to achieving impact across the SDGs, including poverty eradication, gender equality, and climate resilience. Specifically, by integrating climate considerations into its investment strategies, IsDB could contribute to global efforts to mitigate the impacts of climate change. 

This would require strategic partnerships and innovative financing structures. IsDB could collaborate with multilateral development banks, philanthropic organizations, and private sector entities to design blended finance vehicles tailored to the needs of private investors. By providing technical assistance, capacity building, and financial incentives, IsDB can catalyze private sector engagement in climate resilience projects at scale, driving sustainable development and economic growth.

IsDB is uniquely positioned to drive private sector engagement in climate resilience by leveraging its network of partners and extensive experience and expertise in blended finance. By harnessing the power of public, private, and philanthropic resources, IsDB can structure innovative financing mechanisms that de-risk and mobilize private capital for initiatives aligned with the SDGs and climate goals. As IsDB transitions from public to private sector investments, it can play a transformative role in driving sustainable development and building climate resilience in IsDB member countries and beyond. As the global community intensifies efforts to combat climate change, embracing innovative financing mechanisms is crucial to creating a more sustainable and resilient future for all.

This article was originally published in the IsDB SDG Digest – Issue 19- Cherishing our Past Charting our Future, April 2024

World Malaria Day is a moment to celebrate the successes we have achieved as a global community in combating the world’s most deadly infectious disease. Organizations committed to tackling Malaria, such as the Global Fund, RBM Partnership, and Malaria No More, have poured billions of dollars into prevention and treatment, and the world has repeatedly shown its commitment to tackling the scourge of the disease through the provision of funds and supplies to help those most in need.

But despite advances in modern medicine and vaccines and the work of so many to fight Malaria’s spread, a quarter of a billion people a year are still infected by the disease, with more than 600,000 dying annually. Although Malaria can affect anyone, those most vulnerable are pregnant women and children, meaning the highest-burden countries are also suffering sustained challenges on gender equity.

This is compounded by political instability in countries such as Chad, Niger, Mali, Ethiopia, Sudan, and Yemen, where hungry women and children are disproportionately facing the burden of conflict and displacement but also bear the brunt of infectious disease. It is this double burden that so tragically blights the lives of millions of people across some of the world’s poorest nations. One child dies every minute from Malaria; it need not be this way. So, on this Malaria day, we stand for the millions in need, facing a world in which they are neither safe from conflict nor from deadly disease.

With pressures on Global Health funding increasing, it is vital that the world continues to recognize the ongoing challenge of Malaria and its impact on the hundreds of millions of lives it affects. Now is not the time to reduce attention or resources. Health systems in the highest-burden countries are fragile and stretched to capacity, and without continued focus, the world risks backsliding on the world’s most deadly disease.

In recent years, the global community has intensified its efforts to combat climate change, recognizing it as one of the most pressing challenges of our time. However, despite the almost doubling in annual climate finance over the past decade, finance flows need to multiply at least seven-fold to US$ 4.3 trillion by 2030, as highlighted by the Climate Policy Initiative (2022). Climate finance needs to be mobilized from the public and private sectors as well as from conventional and innovative sources. As nations and organizations strive to implement sustainable practices and reduce carbon emissions, innovative approaches to finance are emerging. One such approach gaining traction is Islamic climate finance, which merges the principles of Islamic finance with environmental stewardship.

Islamic finance operates on the principles of Shariah, or Islamic law, which prohibits unethical or exploitative practices and encourages social responsibility and economic justice. The core principles of Islamic finance include the prohibition of interest (riba), uncertainty (gharar), and investments in businesses that involve activities deemed harmful or forbidden in Islam, such as alcohol, gambling, and weapons. According to the Asian Development Bank and the Islamic Development Bank (2022), Islamic finance has grown significantly since its inception in the 1970s and is a US$ 3 trillion industry in over 80 countries, concentrated in well-established Islamic finance markets, notably in the Gulf (Qatar, Saudi Arabia, and UAE) and Asia (Indonesia and Malaysia).

In the context of climate change, Islamic finance offers a unique perspective that aligns with the principles of environmental conservation and sustainable development. Islamic climate finance encompasses various instruments and mechanisms designed to fund projects and initiatives that address climate change while adhering to Shariah principles. In Islamic finance generally, there has been increasing interest in Environmental, Social, and Governance considerations (ESG), as well as green and sustainable products.

One of the key instruments of Islamic climate finance is the green Sukuk, often referred to as Islamic green bonds. Green Sukuk are structured to generate returns to investors without violating Islamic principles. These bonds can be used to finance green projects such as renewable energy infrastructure, energy-efficient buildings, and sustainable transportation systems. By issuing Sukuk for climate-friendly projects, governments and corporations can raise capital while contributing to environmental sustainability.

In addition to green Sukuk, Islamic banks and financial institutions are increasingly offering green financing products that comply with Shariah principles, such as green investment funds that channel capital into sustainable businesses and initiatives.

Islamic microfinance is another aspect of Islamic climate finance that focuses on providing financial services to low-income individuals and communities, particularly in regions vulnerable to the impacts of climate change. By offering microfinance products that support climate adaptation and resilience-building efforts, Islamic microfinance institutions contribute to poverty alleviation and environmental sustainability simultaneously.

Furthermore, Islamic social finance mechanisms such as Zakat (obligatory almsgiving) and Waqf (endowment) can be leveraged to finance climate-related projects and initiatives. Zakat funds, collected from eligible individuals, can be directed toward environmental conservation projects, disaster relief efforts, and community resilience programs. Similarly, Waqf assets, dedicated to charitable purposes, can be used to establish sustainable infrastructure and support climate adaptation measures.

The principles of transparency, accountability, and risk-sharing inherent in Islamic finance can enhance the resilience and effectiveness of climate finance initiatives. By prioritizing ethical investments and promoting equitable resource distribution, Islamic climate finance can contribute to the achievement of global climate goals while upholding the values of social justice and economic inclusivity.

However, challenges remain in mainstreaming Islamic climate finance and scaling up its impact. According to the G20 (2023), Islamic climate finance constitutes less than 2% of global Islamic finance. These challenges include the lack of standardized frameworks for Shariah-compliant green finance, limited awareness and understanding of Islamic finance principles among stakeholders, and the need for greater collaboration between Islamic financial institutions, governments, and international organizations. (see Figure 1).

To overcome these challenges and unlock the full potential of Islamic climate finance, concerted efforts are required from policymakers, regulators, financial institutions, civil society organizations, and religious scholars. This may involve developing comprehensive guidelines and standards for Shariah-compliant green finance, enhancing capacity-building initiatives, and fostering partnerships to mobilize resources and expertise, as well as building dedicated project pipelines and proposing dedicated Islamic climate finance windows (e.g., in the Green Climate Fund) to support enhanced climate action. In addition, the 2023 G20 Policy Brief has identified opportunities for growth in the Islamic Climate Finance Market based on ease of implementation and alignment with climate goals. These include more accessible mechanisms such as International green sukuk issuances and regional green infrastructure funds supported by Multilateral Development Banks, as well as more climate-targeted goals such as climate takaful programs, green Islamic finance technology, and Paris-aligned awqaf investments. (See Figure 2)

The growth in international green sukuk issuances shows that Islamic climate finance represents a promising avenue for integrating faith-based values with environmental responsibility to address the urgent challenges of climate change and helping to bridge the climate finance gaps in the Middle East and North Africa (MENA), Sub Saharan Africa, and South Asia at pace, and at scale. By embracing the principles of ethical finance and social justice, as well as financial innovation, Islamic climate finance has the potential to catalyze climate finance pathways and contribute to a greener, more resilient, and equitable future for the regions.

Author: Aurélien Pillet, Climate & Innovative Finance Lead, Globesight

As the world marks the first official International Day on Clean Energy on January 26, 2024, it’s important to reflect on the pivotal commitments made recently by global leaders at COP28. Their pledge to expedite the deployment of renewables and enhance energy efficiency marks an incremental but important step towards realizing the collective objectives of the Paris Agreement. This commitment underscores the urgency of steering the world towards energy systems free of fossil fuels by mid-century at the latest.

To keep global warming well below 2°C and limit it to 1.5°C, experts from the International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA) advocate for a tripling of renewable energy capacity by 2030, equivalent to at least 11,000 GW. Additionally, it is vital to double the global average annual rate of energy efficiency improvements from around 2% to over 4% annually until 2030.

The transformation of global energy systems holds the potential to create new jobs, enhance lives, and empower people and communities. This is integral to achieving UN SDG 7 for “affordable, reliable, sustainable, and modern energy for all,” addressing the needs of nearly 800 million people globally without access to electricity.

Looking ahead, nations are poised to leverage a diversified portfolio of technologies to decarbonize the energy sector. This includes renewables, energy efficiency, and other zero-emission technologies. Nations have showcased commendable progress aligned with their Nationally Determined Contributions (NDCs) and carbon neutrality commitments, demonstrating a global commitment to a sustainable future.

Acknowledging the importance of this decade for renewables and energy efficiency, accelerated action and ambitious policy implementation are vital to addressing energy security and affordability challenges. However, the current financial pledges fall far short of the trillions of dollars required, highlighting the urgency for a robust global rethink.

A transformative journey towards clean energy that is also just, requires a robust set of policy measures, which enhance global framework conditions and elevate market readiness. Key aspects include facilitating technology transfer, mitigating protectionist practices, upholding rules-based international trade principles, and optimizing processes related to permitting and public procurement for clean energy technologies and projects. 

Collaboration is also essential, both between states, but also between states and a wide range of stakeholders. Promoting international partnerships, knowledge-sharing initiatives, and advocating for research and development investments will accelerate the global adoption of clean energy solutions. Additionally, creating incentives for innovation and emphasizing inclusivity, ensuring active participation from marginalized communities, contribute to a more equitable and sustainable future. By integrating these elements into policy, we can build a resilient foundation for a just and successful clean energy transition.

As for financing, a more agile and intelligent approach to climate finance is essential for unlocking a just and seamless transition to clean energy. The pace and scale of climate financing will need to be unprecedented to transition from billions to trillions. Simply put, this requires higher commitments from the Global North. Deploying innovative market-based financial and de-risking instruments, streamlining due diligence and investment approval processes, and providing technical assistance and capacity-building support. This should expedite access to climate finance, enhance the pipeline of bankable projects, and empower nations to achieve their climate mitigation goals.

Furthermore, channeling funds through green funds into catalytic clean energy programs in the Global South will be instrumental in achieving broader sustainability objectives. Embracing innovative, market-based financial mechanisms and business models is imperative to cultivate a robust portfolio of bankable projects, de-risk investments, and attract private sector funding at scale. 

Additionally, supplementing these efforts with additional funds from compliance carbon markets and voluntary carbon markets will further augment financial support for clean energy initiatives. This multifaceted approach ensures that financing mechanisms align with the urgency and magnitude of the global clean energy transition, fostering a sustainable and equitable future.

On this International Clean Energy Day, we stand at a crossroads, acknowledging the progress made at COP28 and the monumental task ahead. As repeatedly made clear by leaders across the globe, the urgency to expedite the deployment of renewables and enhance energy efficiency cannot be overstated. However, our current financial commitments fall far short of the mark. So, as we celebrate the progress made, let this be a call to action — a commitment to mobilize the trillions required, leveraging agile climate finance and channeling funds strategically to achieve a sustainable and equitable energy future. The path forward demands unprecedented commitment, but through collective resolve, we can usher in an era where clean energy is more accessible, affordable, reliable, and sustainable, especially for countries in the Global South.

– Aurélien Pillet – Climate & Innovative Finance Lead, Globesight