At a 2018 UNFCCC-sponsored climate change conference held in Bangkok, Thailand, one issue and question stood central to the policy discussion at the conference: how should Article 9.5 of the UN climate change convention (which states that developed country parties [e.g. USA] should biennially communicate their financial contributions to developing country parties) be defined? Should it be viewed as a clearly defined goal that promises a specific amount of financial disbursement from the OECD industrialized countries to the developing world or should Article 9.5 be more accurately described more of an aspirational goal of mobilizing and building the process of partnerships to support capacity building? (ENB 2018).
Over the short term, disagreements over how to define Article 9.5 are likely to continue in 2021 and subsequent couple of years afterwards. The failure to meet the promise of mobilizing an annual disbursement of $100 billion by the industrialized countries at the 2009 UNFCCC conference, coupled with funding only one-third of the $10 billion Green Climate Fund (GCF) and former U.S. President Donald Trump’s decision to cancel the promise of $2 billion U.S. contribution to the GCF in June 2017,Footnote 4 deepened a sense of pessimism among many developing countries and civil society advocacy groups as recently as 2017. As Meena Raman, legal advisor to the Third World Network, observed during the Trump Administration: “the fund of hope is becoming a fund of hopelessness” (Ives 2018, p. A10). Fueling the feeling of despair is the cumulative impact of intensifying drought and other climate change-related extreme weather patterns in northern Kenya, Somalia, and other countries/regions in the Horn of Africa. This region has experienced four severe droughts in the last two decades, which has pushed some of the world’s poorest people and vulnerable communities to severe food insecurity conditions (Sengupta 2018).
Over the long term, three questions are likely to shape the future success (or failure) of the global climate change investment and finance architecture. First (and continuing a bit more on the theme of despair), will the United Nations as a global climate change/sustainability governance body, continue to follow the post-1992 UNCED model of process (e.g., organizing meetings, deliberating on resolutions) taking precedence over results (e.g., achieving specific goals and measures)?Footnote 5 Second, what impact will the emerging Green New Deal in the USA and in other countries accelerate new climate change finance and investments? Third, what is the future outlook for new models of “market-fixing” sustainability-driven enterprises?
Will it be business as usual in terms of climate change investment and finance-related issues or will there be a breakthrough in this emerging post-pandemic global governance system?
When representatives of governments, civil society, and private companies converged in Brazil for the 1992 UNCED conference, the mood of the international community was cautiously optimistic. Perhaps more than any other international negotiation process leading up to the early 1990s, the UNCED process allowed the international community to imagine a world in which governments can come together to work toward a collaborative path toward long-term sustainability. What was a contentious debate then and one continues to persist to this day centered on the core question of how to finance this global vision of sustainable development (Park et al. 2008). Should the industrialized countries pay for the costs of additional measures undertaken by developing countries to tackle global environmental problems? This notion of “additionality,” that is financial commitments beyond existing development assistance, “became a rallying cry for the developing countries in the negotiations on Agenda 21 prior to the Earth Summit, and something that has been raised many times since: a desire for a sustainable future is rarely followed up with adequate institutional support and economic resources” (Park et al. 2008, p. 4).
Perhaps the most compelling critique of the UNCED process took place ten years after the Earth Summit when the world’s leaders gathered for the World Summit on Sustainable Development in August 2002. “Only ten years after the Rio Summit, the cracks in the official vision had grown into open fissures” (Park et al. 2008, p. 4). When the international community gathered in Brazil in 2012 for the UN Conference on Sustainable Development or Rio + 20, the diplomatic progress was still hampered by the core questions of “who must do what and who pays?” (Tollefson and Gilbert 2012).
Will the Green New Deal legislation in the USA and in other countries lead to new flows of climate change finance and investments?
In the version of the Green New DealFootnote 6 (GND) proposed initially by Senator Edward Markey and Representative Alexandria Ocasio-Cortez in February 2019, there is an ambitious language of transitioning the USA to 100% renewable, zero emission energy sources, dramatic new investments into zero emissions electric cars, and transportation systems. What is missing, at least for now, is an equally ambitious vision of how the transition to 100% renewable, zero emission energy sources will be financed. To bridge the annual gap of $2.5 trillion in financing sustainable development goals between 2015 and 2030 (UN 2014) in the USA and worldwide, there is a critical need to go beyond the governmental sector in terms of a long-term climate change investment and finance solution. The transition to a low carbon economic future in the USA and worldwide will require a sustained long-term strategy of collaboration with the private sector, particularly with institutional financial investors, in order to tap into the $200 trillion in private capital markets in the USA and worldwide (Della Croce and Hindle 2019).
To enable this sustained long-term strategy of private financial market collaboration, there needs to be the design and development of new blended financial instruments,Footnote 7 which are investment approaches that mix private and public sources to achieve a specific social and environmental impact (Bartlett et al. 2017). Case in point: approved as a $400 million general obligation bond in November 2017, the Miami Forever Bond,Footnote 8 for instance, used the municipal bond market to raise $400 million to fund a wide range of urban climate change resilience projects in Miami and nearby communities in Florida.
What is the future outlook for new models of “market-fixing” sustainability-driven enterprises?
One key issue that is likely to shape the future success (or failure) of the global climate change investment and finance architecture is the future outlook for new climate-resilient business enterprises, whose models are built on an integrated goal of accelerating low carbon pathways, adaptation finance, and climate justice toward long-term “market transformation”Footnote 9 impact in the developing world. What makes these enterprises “transformative” rather than just “incremental” is that their business model focus extends beyond “market fixing” to what Mazzucato (2016) calls “market creating.” Similar in business philosophy to such concepts as “regenerative” (Rodale Institute 2014) in the case of agriculture and food system and “sustainability business model” (Stubbs and Cocklin 2008) and “inclusive market development” (Mair et al. 2012) in the business management field, these “market creating” climate-resilient enterprises reflect two trends which are currently taking place worldwide.
The first trend stems from a growing consensus that a much stronger global progress is needed on a wide range of climate mitigation/low carbon pathway technologies and business models related to energy efficiency, energy storage technologies, zero emission vehicles, and carbon capture and storage to keep our planet below 2 °C (Brown and Granoff 2018). While there is wide agreement that large amounts of climate change investment and finance need to be mobilized (e.g., $1 trillion in additional clean energy investment is required to limit global temperature rise below 2 °C, according to Ceres (2014)), there is a critical need to move beyond the goal of establishing ever more stringent yet elusive global targets to better understanding what types of climate change finance and investments are likely to result in some blend of mitigation and adaptation impact and effectiveness (Brown and Granoff 2018), particularly in the context of India, Vietnam, and other climate fragile developing countries. With climate change-related financial and economic losses set to reach $1.5 trillion between 2003 and 2013 (Hallmeyer and Tonkonogy 2018), the private financial market (e.g., in the insurance sector) for investors and companies to measure and manage their risks from climate change is likely to remain strong in the coming decades.
The second trend stems from the growing recognition that climate justice needs to play a greater role in any meaningful climate change-driven market transformation process. Climate change justice scholarship has traditionally been shaped by the perspectives of philosophical and environmental ethics (Jamieson 2010) examining climate change in the context of historic and current carbon emissions or from the perspectives of sociology (Roberts and Parks 2007) discussing how social movements have united and gained traction under the climate change policy umbrella. While the role of business in global climate change governance is growing in the academic literature (see Green 2013 and Paterson 2018), and extensively in the policy literature (e.g., World Economic Forum, Business for Social Responsibility, among others), what has been traditionally been missing in both the academic and the policy research literature is the explicit focus on climate change justice and the role it can and needs to play at the nexus of climate change governance and investment/finance (Gifford and Knudson 2020).