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The conclusion of the UN Cop-29 climate summit during the early hours of November 24 was met with a mixture of applause and disdain. More than 200 countries agreed in Baku to collectively provide developing countries “at least” $1.3tn of climate finance a year by 2035 from all public and private sources. 

As part of this, developed countries committed at least $300bn for climate action in developing countries, which can come from “a wide variety of sources” such as public, private, bilateral, multilateral and other alternatives. While the $1.3tn figure is what the UN’s independent expert group on climate finance has said is needed by 2035, there is a severe lack of detail over where these funds will come from.

Climate negotiators from developing countries including Cuba, Bolivia, Kenya, Indonesia and Pakistan all expressed their opposition to the final text. The agreement is “nothing more than an optical illusion”, said Chandni Raina, India’s climate negotiator, adding that it was a “paltry sum” and that much greater ambition was needed. Nigeria’s special envoy on climate, Nkiruka Maduekwe, said the annual finance pledge was “a joke” that should not be taken lightly.

Marco Serena, chief sustainable impact officer at the Private Infrastructure Development Group (PIDG) who attended Cop-29 in Baku, tells fDi that the final agreement is “a step forward”, but falls short of the funding requirements of vulnerable countries. 

“More clarity is needed to understand whether the funding will come in the form of concessional loans, equity and debt investments, and/or technical assistance grants to build institutional capacity,” he says. 

The Energy Transitions Commission (ETC), an association of private and public sector leaders, estimates that an annual average of $3.5tn capital investment in new assets will be required between now and 2050 to reach net zero, including in low-carbon energy, building, transport and industry technologies. About $900bn of this investment will be required in middle- and low- income countries. 

ETC chair Adair Turner told fDi ahead of Cop-29 that a crucial issue is that “people bandy around [climate finance] figures all over the place” and “it's never quite clear whether they’re talking about debt or grants”.  

The bulk of the $3.5tn of required capital investment is “nothing to do with grants or transfers”, he added. Rather, it is about investments that generate positive returns and are affected by the cost of capital, which is much higher in developing regions like sub-Saharan Africa than in more developed parts of the world.

This sentiment is echoed by other sustainable finance experts, who argue the Cop-29 climate finance pledge will not necessarily move the needle and help attract sustainable FDI into developing countries. 

“There is an opportunity for FDI in developing countries but there is a need for innovative financial mechanisms and policy reforms to create conducive environments for private investment,” says Faraz Khan, CEO of SpectrEco, a sustainability data and advisory firm, who cites public-private partnerships, guarantees and streamlined regulatory frameworks as examples.

Developing more effective and liquid capital markets in developing countries is another method that experts say is needed to increase more sustainable investment in developing countries. “FDI should certainly be a proportion of the funding but it’s also important that domestic capital is directed towards climate risk mitigation,” concludes Mr Serena of PIDG.