• Climate change finance readiness

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    BENEL D. LAGUA

    BENEL D. LAGUA

    IN his keynote address at the recent Asia LEDS Forum 2016 in Hanoi, Secretary Emmanuel De Guzman of the Climate Change Commission noted that “the financial resources needed by the world to avert a global catastrophe that could make our planet uninhabitable are staggering. But the costs of inadequate actions are even greater; they are, in fact, incalculable. Humanity’s future hangs in the balance.”

    Here are some of the estimates.

    The fifth Assessment Report by the Intergovernmental Panel on Climate Change (IPCC) approximates the costs of adaptation in developing countries could be between $70 billion and $100 billion per year covering the period between 2010 and 2050. UNEP says that national and sector level studies show that adaptation costs in 2030 are likely to be in the range of $140 billion to $300 billion per annum. By 2050, total costs could be in the range of $280 billion to $500 billion.

    These amounts are staggering. Given this significant gap, bilateral and multilateral institutions will play an important role, as external fund sources need to be raised to help developing countries. The Green Climate Fund, for example, has received pledges of $10.2 billion from the developed world. Even as this is a small sum, it is necessary to leverage this fund with capital from the private sector and from institutional investors in order to achieve a major scale-up.

    Subsequently the matter of ensuring fund utilization by the countries in need must be addressed. Whatever is available from multilateral and bilateral must be translated into accounts on the ground by local firms engaged in climate adaptation or mitigation projects. The pledged amount must reach the intended beneficiaries in the domestic arena.
    The challenge for developing countries like the Philippines is to figure out how it can actually access and make use of this resource. The country must develop the capacity to generate bankable projects that can be supported by climate finance resource. We must strengthen our absorptive capacity and develop the delivery structure down to the field level, and strengthen the participating institutions in this network. For the Green Climate Fund, the country’s National Designated Authority will play a critical role.

    To move forward, we should develop an enabling environment for addressing gaps in execution. The country must be able to prepare and present climate finance projects that can tap into climate finance resources. The country must take steps to identify opportunities on bankable projects, which can fit the requirements of climate finance providers.

    The general view is that local proponents are unable to access these funds. Some of the barriers to finance are the following:

    Lack of project proponents with evidence to demonstrate viability;
    Lack of capacity and knowledge to develop and package project proposals;
    Need to improve creditworthiness;

    Limited awareness on financing source and instruments; and,
    Lack of know-how on credit project assessment criteria and selection procedures.
    Thus the intervention must not be on the country level alone. We must enhance the capacity of development institutions to finance environmentally and climate friendly technology and improve their environment performance. This is a challenge that institutions like the Development Bank of the Philippines are trying to address. We are assessing our exposure to high capacity, climate vulnerable sectors and projects. We have to improve and enhance our protocols for effective climate risk management. We have to develop new programs that will finance energy efficiency projects and improve the capacity of our cadre of officers and staff involved in this effort. We have to strengthen our project management, environmental and social safeguards, including the parameters for measuring, reporting and verifying the impacts of investments.

    Finally, we need to encourage project proponents who will embrace the challenge of taking risks in climate mitigation and adaptation projects. More ventures must be exploited in the following areas: solid waste management, watershed management, green buildings, sustainable construction, green jobs, eco-labeling projects, sustainable consumption, clean air and sustainable transports, and renewable energy like solar, wind, hydro, geothermal, biomass, among others.

    Benel D. Lagua is executive vice president at the Development Bank of the Philippines. He is an active FINEX member and a long time advocate of risk-based lending for SMEs. The views expressed herein are his own and does not necessarily reflect the opinion of his office as well as FINEX.

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