Leveraging the Private Sector

Large multinational businesses operate globally across multiple countries and increasingly look for common commitments and direction of travel across all countries in developing their country investment strategies. Their supply chains and operations are global and responding to different policy and market signals creates challenges. Hence, ensuring a consistent and stable policy environment within individual countries is important and encourages further investments in those countries. In addition, adopting ambitious targets also involves transitioning away from fossil fuels, and related signals for possible energy transition pathways should be part of the NDC. Integrating the highest level of ambition and adopting the outcomes of the GST and the GGA sends a clear message and encouragement to the private sector, including not only large multinational companies but also domestic companies such as small and medium-sized enterprises (SMEs) to adopt ambitious targets and implement robust transition plans aligned with national strategies. (See also “Opportunity: Setting Targets, Including Economy-Wide NDC Targets”, “Opportunity: Raising Ambition Through Setting and Achieving Thematic & Process-Related Targets”)

In the climate transition, there will be competition for capital and investment, and countries with the best plans and frameworks may attract more investment. NDCs 3.0 are likely to provide a useful starting point for businesses to understand national economy-wide transition plans and sectoral investment plans. NDCs can send policy and market signals to shift the economics of the transition and change future corporate cashflows and market valuations in order to (re)shape the private sector’s investment decisions. NDCs could refer to such plans as principal implementation documents for the country’s climate and development priorities. Such plans can be updated and adopted in parallel to the NDCs 3.0 and cover fiscal policy incentives and sector-specific policy measures, processes for identifying a robust pipeline of projects, and detailed and plausible capital-raising plans, with frameworks on annual reporting on progress. (See also “Opportunity: Enhancing Understanding of Investment Needs”).

The private sector could be leveraged to provide insights that will enhance understanding of investment needs. Collaboration with the private sector, including through pilot projects, could provide quantitative data on the costs of actions and associated financial needs. These initiatives might offer invaluable insights into unit costs, capital costs, and operational expenses, informed by real-world implementation experiences. By integrating private sector insights, governments could develop better-informed supporting investment strategies that prioritize cost-effective solutions and maximize the impact of NDC implementation.

Channeling investment in technologies, or scaling up or rolling out new approaches, requires the private sector to understand the key levers and enabling environment they are working within. This includes the policies, regulations, guarantees, and other government support required for confident investment in relevant priority sectors. Engaging private sector stakeholders to understand their needs and priorities could help to better ensure that the enabling environment is conducive climate-aligned investment or action. Private sector stakeholders in priority sectors could provide input, via coalitions and neutral forums, on barriers and possible solutions for unlocking investment flows, or technologies for example.

Businesses and investors require legal and fiscal stability for their investments, particularly, for capital-intensive long-term infrastructure projects. Having favorable and stable enabling environment will enable businesses and investors to have confidence in investing, retooling, training or developing new approaches that respond to and deliver climate actions. An integrated planning approach (See also: “Opportunity: Mainstreaming the NDC in National Planning Processes”) can help to support a consistent and clear policy approach which can help to better identify potential private sector support including financing or technology (See also: “Route: Unlocks Finance” and “Route: Technology and Capacity-Building as Needs and Enablers”).

When setting sectoral targets for emissions reductions, it can be helpful to explicitly mention what the expected contribution from the private sector (e.g., the oil and gas industry and the renewable energy industry and end-use sectors such as transport, buildings and across hard-to-abate industries) is to reach the target. These expectations can create business opportunities and clarify the role of the public and private sector in jointly achieving the targets. By aligning efforts to meet the targets at a national level, both sectors can maximize their impact by adopting complementing strategies (See also: “Opportunity: Disaggregating and Enhancing Targets Across Sectors and Government Levels”).

Many businesses have extensive supply chains both within and outside of countries.Working with business groups and coalitions, both within and outside of countries (e.g., local trade associations, local networks of the UN Global Compact, or WBCSD (for business), SME Climate Hub (for SMEs) or UNEP FI, IIGCC or GFANZ (for investors) globally), to understand collective opportunities and needs, and ways to align business targets and actions with national climate priorities for example, can increase ambition and resilience through supply chains in the country.

Working with businesses and investors to identify and priorities climate-friendly policies, investments, strategies and actions can lead to development of new value chains and associated local content and other economic opportunities such as job creation and new markets. It can also help to minimize negative consequences and support just and equitable transitions. (See also “Route: Delivers a Just and Equitable Transition”). Furthermore, specific incentives such as tax breaks or subsidies could be used to encourage businesses to adopt sustainable practices or new opportunities.

When establishing or reviewing the monitoring and evaluation process, a system to track the private sector contribution from business data could be incorporated. Relevant data can be found in public sources such as corporate sustainability reports, environmental disclosures, or can be obtained through dialogue with companies. To ensure quality and comparable information, policy actors could require the private sector to report their contributions using internationally accepted and widely adopted business disclosures and reporting frameworks such as the GRI Standards and CDP, and more recently, the work of the International Sustainability Standards Board and efforts to consolidate this through the Net-Zero Public Data Utility (NZPDU) and integrate with the Global Climate Action portal. Collecting this data can provide a fuller picture of the progress as it complements official public data. In addition, aligning national MRV systems with those of the private sector can ensure that the investments and proceeds from the private sector are used for eligible projects, and both use the same type of methodology to monitor, report and verify activities.

While many businesses are setting ambitious climate targets, some others do not engage with climate processes. It is also likely that many businesses do not fully understand NDCs and related planning processes, or how they might be impacted by them. Countries could consider communicating clearly the expected contribution from the private sector, as well as setting up monitoring processes and providing appropriate guidance and incentives. Educating private investors on investment opportunities in climate change related sectors and in companies, providing climate change solutions (renewables, waste management, water management, resilient infrastructure etc.) is a further opportunity to enhance private sector engagement and education on climate processes. Ongoing dialogues and exchanges between the public and private sector, as well as directing financial incentives towards, for example, public private partnerships to further engage the private sector and mobilize private investment, can also be considered.

Private sector actors, both individual companies as well as trade associations and chambers play an important role in skilling the people needed for successful implementation of NDC goals.

Many businesses and investors have also set their own transition plans with highly ambitious targets and look to invest in the countries that are equally ambitious and offer the enabling environment necessary to achieve such targets.  Awareness of such transition plans could help leverage these to achieve national climate and development priorities. The alignment between such national priorities and the private sector plans could enable greater flows of foreign direct investments as well as transfer of technology, knowledge, managerial and operational expertise, and good industry practices into the country.  The finance for the transition could be based on clear, interlinking and interdependent transition plans of countries and private sector as well as those of development banks, regulators, supervisors, and standard setters.

Multilateral development banks, bilateral development finance institutions and other public sector stakeholders are also in transition and are expected to use their limited public sector resources more effectively to mobilize private capital and investments. Leveraging their country programs and transition plans, as well as their expertise and networks of private sectors companies is also advisable, particularly, for investments and projects that have potential of commercial viability and suitable for blended finance solutions.