FEATURE: Private sector facility: New business opportunity for private sector on climate action
Munjurul Hannan Khan, CDKN’s Country Engagement Leader, Bangladesh and Tahmina Hadi, CDKN’s Junior Consultant, Bangladesh highlight that how effective mobilisation of the private sector by funding entities such as the Green Climate Fund, can create an enabling environment for the private sectors to engage in a business model that supports climate change.
The Green Climate Fund (GCF), as UNFCCC’s operating financial entity, has been established to ensure financial support in addressing the adverse impacts of climate change. This fund will deliver its resources to help developing countries invest in climate resilient and low-emission economic development. The GCF will mobilize USD 100 billion by 2020 per year from public and private sources for supporting projects and programmes on climate compatible development.
Private Sector Facility (PSF), an innovative window of GCF, has been operationalised to catalyse private investments in projects/programmes pertaining to mitigation and adaptation actions. GCF established a pilot programme to support micro, small, and medium-sized enterprises of up to USD 200 million (decision B.10/16) under the PSF. This is an opportunity for the small and medium-sized enterprises to obtain direct and indirect financial support to focus investments on renewable energy, transportation, energy efficiency, agriculture and water efficiency, forestry and land use, waste management, and urban planning. However private sector needs to be accredited entities and/or potential accredited entities in order to establish and manage the pilot projects/programmes.
GCF seeks to balance the allocation of its funds between adaptation and mitigation, while allocating a significant portion of its resources to engage the private sector. In addition, nearly half of the adaptation resources are expected to be allocated to Least Developed Countries (LDCs), Small Island Developing States (SIDS) and African states. This flexibility, scalable approach and aims to pursue climate compatible development in a way that facilitates transformation of business-as-usual while integrating environmental, social, economic and development benefits in an inclusive manner, makes GCF stand out from other global funds.
There is no denying that the private sector is an instrumental economic agent in development sector. Governments of developing countries, particularly LDCs, must understand the potential of private sector engagement in climate action. For instance, in Bangladeshi the private sector invested approximately 75% of the total national economy in 2013-2014. However, their engagement towards low-emission and climate resilient development has yet to gain adequate momentum in Bangladesh as well as in other LDCs. The private sector presents innovation and willingness to take new initiatives compared to the public sector. The private sector also has the ability to undertake effective adaptation and mitigation action, provided adequate funds and technologies are available and accessible. Flow of international finance would enable engagement of the private sector on climate action, to contribute to climate compatible development.
Effective mobilisation of the private sector would facilitate opportunities to initiate carbon trading through implementing internationally transferrable mitigation units. In accordance with Article 6 of the Paris agreement, implementation of the internationally transferred mitigation outcomes or units (also known as carbon credits), which is a voluntary activity, would help to achieve climate commitments put forth by countries in their nationally determined contributions (NDCs). LDCs including Bangladesh have the potential to enhance existing carbon sinks and reservoirs to remove and reduce the carbon emissions from the atmosphere, providing opportunities for acquiring carbon credits which can be traded in the international market. The proceeds generated from selling the carbon credits can be used to meet the administrative expenses, and also assist the developing countries, particularly the vulnerable ones to meet the costs of adaptation and mitigation. Such mechanism would help to enhance their participation in contributing to the global goal of reducing emissions. Therefore, national policy must facilitate congenial environment for the private sector so that they can benefit the country by engaging in the said markets. Climate change policy of LDCs, however is lagging behind to facilitate framework to capture international benefits by engaging their private sectors in carbon trading.
As a part of the readiness programme, CDKN has been implementing a project in Bangladesh to mobilise the private sector and to raise their awareness on GCF’s PSF, identify their institutional strengths and weaknesses, and enhance their capacity to access resources from the PSF. CDKN is also extending help to the private sector in developing bankable proposals so they can successfully access resources from the PSF. The private sector in other LDCs will need similar support.
There is a growing concern, particularly from LDCs, regarding the operation of GCF. The GCF is a new concept and is evolving in its institutional mechanisms. Hence, the GCF and the PSF are not very clear to either the public or the private sector of LDCs. It is critical for the GCF to effectively engage with the private sectors in developing countries, more specifically with LDCs to mobilise the private sector in implementation of climate related projects and programmes.
While private sector is proactively involved in various areas of business, their investment in climate action is limited due to lack of information about the facility as well as their inability to understand potential benefits of engaging in PSF opportunities. It is expected that new climate financial mechanism i.e. the PSF may act as a catalyst to re-present the financial unpredictability and inadequacy perception that private sector has related to business opportunities in climate change. Therefore, engaging the private sector of LDCs through providing readiness and preparatory activities would facilitate them to effectively gain access and mobilise resources from the PSF.
Picture Credit: Green MPs