NEWS: COP22 – Experts stress importance of financing small and medium enterprises
At the 22nd Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC COP22), experts including CDKN’s Ari Huhtala discussed how innovative financing solutions and closer stakeholder engagement can help developing countries reach and exceed the targets set in their Nationally Determined Contributions (NDCs) under the 2015 Paris Agreement. Small and medium-sized enterprises (SMEs) could play a meaningful and central role in this effort.
There is widespread consensus about the need for private sector involvement to ensure the successful implementation of the Nationally Determined Contributions (NDCs). In the developing world, SMEs constitute up to 90 percent of the private sector, and therefore supporting their growth and competitiveness should be a central component of any NDC implementation strategy.
The main challenge faced by developing country SMEs wanting to adopt climate-friendly technologies is a lack of access to financing, particularly to pay for high start-up costs and growth-stage expansion. Much of the finance needed to improve this situation will have to be provided by a combination of public and private sources, that is, blended finance. Martin Hiller, Director General of the Renewable Energy and Energy Efficiency Partnership (REEEP), moderated the discussion. “There is a lot of money out there, but it’s not about the amounts,” Mr Hiller argued. “It’s about having the right kind of funds at the right time, in the right place to trigger action. Precise deployment of these funds is key to unlock the huge potential of SMEs, but every individual dollar should make sense,” he said.
Ari Huhtala, Deputy CEO of Policy and Programmes at the Climate and Development Knowledge Network (CDKN), stressed the importance of SME financing while presenting CDKN’s Quick-Start Guide to Planning for NDC Implementation. “We all agree on the important role of MSMEs, […] but what we need to unlock their potential for combatting climate change is financing in the hundreds of billions of dollars. In the end, what is needed is good projects and mutual understanding between all parties, then a high profit margin is no longer an important requirement.”
The panellists shared a number of innovative approaches to SME financing. Syamsidar Thamrin, Deputy Director of Weather and Climate at the Indonesian Ministry of National Development Planning, discussed the Indonesian strategy for reaching 100% energy access by 2020 along with emissions reductions of 41% by 2030. “This strategy requires strong involvement from the private sector in order to achieve our ambitious energy access and climate change goals within the timeframe. It includes economic incentives for renewable energy, close cooperation with private sector, a simplification for permits and the urgent development of an innovative finance mechanism to get projects off the ground.”
“SMEs feel excluded from the climate finance process,” added PFAN’s Peter Storey. “In order to achieve the impact we need, this finance must be unlocked by up-scaling and bundling MSMEs into larger portfolios to become attractive partners in the capital markets.”
Mark Fogarty, a finance specialist in the Asia-Pacific region and member of REEEP’s governing board, talked about some of the steps REEEP is taking to unlock that financing, including “a number of funds and financing models that are able to leverage SMEs’ equity, in order to blend these sources of finance and make them more attractive to national or international development banks. Such funds can produce great contributions to individual country NDCs,” he stressed.
This side event, Creating Climate Finance Pathways for Nationally Determined Contributions, was organised by the Renewable Energy and Energy Efficiency Partnership (REEEP), the International Center for Environmental Technology Transfer (ICETT) and the Private Financing Advisory Network (PFAN).
Photo: courtesy AMISOM