About this Opportunity
Facilitating an enabling environment for finance mobilization is important in increasing the implementation of climate action.
Domestically, strengthening national finance sector approaches and actions requires policy guidance, conducive regulations, and incentives to unlock investments for NDC implementation. This includes establishing clear and supportive policies and incentives for investment into sustainable economic activity, for instance through sustainable finance taxonomies. By establishing clear criteria for what constitutes a green or sustainable investment, taxonomies help shift investment decisions and ensure that capital flows toward projects that contribute to climate mitigation and adaptation. Additionally, financial sector policies aimed at developing local capital markets play a pivotal role in facilitating domestic finance mobilization. Building capacities for local governments, financial institutions, and other stakeholders to enhance their ability to develop, implement, and monitor climate projects is crucial to achieve compliance with ambitious climate policy objectives. This may involve training programs, knowledge-sharing initiatives, and technical assistance to build expertise in climate finance. De-risking finance to enhance private sector involvement entails addressing challenges such as sovereign risks and currency uncertainties that often deter investors from emerging markets. This involves exploring opportunities for risk sharing, collaborating with local financial institutions, and implementing strategies to incentivize private sector investment.
Internationally, maximizing cooperation opportunities on finance necessitates communication, exploration of innovative finance sources, and establishment of innovative mechanisms to catalyze collaboration for development in a systematic way, such as country platforms for engaging the private sector. Furthermore, aligning climate finance information across national and international domains is significant, ensuring coherence between NDCs, National Communications (NCs), Biennial Transparency Reports (BTRs), and Long-Term Strategies to effectively attract financing. By implementing these approaches, countries can create an environment that mobilizes both domestic and international finance for climate action.
The following strategies could help to implement this Opportunity:
The following strategies and enablers can help to facilitate an enabling environment:
Strengthen national finance sector approaches and actions
Engaging ministries of finance from the outset is important for the successful implementation of NDC-related investments. Ministries of finance and central banks can be integral to the NDC development process, providing policy guidance, incentives, and regulations to create enabling conditions that de-risk investments. By implementing financial sector policies that facilitate investments at various governance levels and developing local capital markets, these ministries can ensure a cohesive strategy that supports the comprehensive financing needs outlined in the NDC. The NDC Investment Planning Guide and Checklist provides a number of examples of policy and regulatory measures that could be taken by countries, including developing lending requirements, simplifying procedures for opening, operating, and closing business in specific sectors, and creating taxonomies for NDC-aligned investments.
De-risk finance
Governments could explore policies and mechanisms to reduce private sector risk as part of a comprehensive strategy to enhance investment in NDC-related projects. This includes implementing risk-sharing mechanisms like the Green Climate Fund’s Private Sector Facility (GCF), collaborating with local financial institutions to improve their capacity to serve households and Small and Medium-Sized Enterprises (SMEs), and incentivizing private sector investment through portfolio guarantees or long-term loans. Additionally, governments could work on enhancing the creditworthiness of investments and adjusting the ‘risk-reward ratio’ to make investments more attractive.
Using NDCs to clearly communicate climate finance details globally, as laid out in National Communications and Biennial Transparency Reports
This aims to ensure that information circulated in these international and national domains is aligned, clear, nonduplicative, and systematically related to generate impacts that are “more than the sum of their parts” to attract financing, with a focus on ensuring clear signposting between NDCs, NCs, and BTRs.
Country Examples
India, Indonesia, South Africa, and Viet Nam: The Blended Finance for the Energy Transition (BFET) program is a collaborative initiative whose primary goal is to mobilize more than USD 1 billion from private sources to accelerate the deployment of clean, reliable and affordable energy solutions in India, Indonesia, South Africa, and Viet Nam and other emerging markets with catalytic co-funding from the US government and other partners. Equitable access to renewable energy and a just energy transition are at the core of the initiative. The BFET is specifically looking for partners to unlock new sources of institutional capital, such as pension funds and insurance companies, traditionally absent from financing energy transition in these regions due to their level of risk appetite. (Source: Just Transition Finance: Pathways for Banking and Insurance, ILO)
Rwanda’s Green Fund, known locally as FONERWA, is a groundbreaking environment and climate change fund, established by the Government of Rwanda. The fund is the country’s main vehicle for climate finance. The fund’s mission is to mobilize, manage, monitor, and facilitate access to green and climate finance and provide financial and technical support to catalyze climate-resilient development impacts at scale. The Fund provides three financial instruments:
- Grant: Accessed by public institutions and non-governmental organizations.
- Innovation Grant: A performance-based investment for research and development, proof-of-concept, and demonstration. Private sector companies can apply for up to USD 300,000 and must provide 25% match funding.
- Credit Line: FONERWA provides Rwanda’s cheapest money with a credit line that provides financing at 11.45% — well below market rates. The credit line was created with the Development Bank of Rwanda. Private sector companies must provide 30% match funding. (Source: Climate Finance, Republic of Rwanda).
Further Resources
Climate Investment Planning and Mobilization Framework (GCF/NDC Partnership, 2023)
The document provides step-by-step guidance and a non-prescriptive menu of options that countries can consider, leveraging concrete experiences of countries adopting successful strategies.
A Ministry of Finance Framework for Climate Action (Coalition of Finance Ministers for Climate Action, 2023)
This resource offers a framework for Ministries of Finance to engage in climate action, emphasizing their crucial role in the design, update, and implementation of NDCs and LTS. It builds on long-standing collaboration with the CFMCA, including the first and second reports on the role of finance ministries in NDCs.
Toolkit to Enhance Access to Climate Finance (Commonwealth Secretariat, 2022)
This Commonwealth Practical Guide shares experiences, best practices, and lessons from the CCFAH in six areas: climate change project development, climate finance readiness, accreditation support, capacity development, climate policy support, and knowledge management. It aims to enhance access to climate finance by providing detailed guidance on these key aspects.
Readiness Support for Greening Central Banks (GCB) (NDC Partnership, 2021)
The GCB initiative offers coordinated technical assistance to bolster national capacities for low-carbon and resilient investments. Member countries of the NDC Partnership can request support in areas such as designing climate-resilient financial sector transition plans, mapping climate risks, promoting sustainable investments, and developing tools for assessing climate risks and creating common taxonomies for the financial sector.
The Green Guarantee Company (Green Climate Fund, 2022)
The Green Guarantee Company aims to boost credit ratings for borrowers in developing countries through guarantees on climate bonds, facilitating access to global capital markets like the London Stock Exchange. With an initial investment of USD 40.5 million from the GCF, it plans to create an ecosystem around climate bonds, connecting local issuers with international investors and fostering significant climate impact through increased issuance of bonds and loans in developing countries.
Ministries of Finance and Nationally Determined Contributions: Raising Ambition and Accelerating Climate Action (Coalition of Finance Ministers for Climate Action, 2022)
Focused on enhancing the alignment between ministries of finance and the implementation of NDCs, this report explores strategies for increasing ambition and accelerating climate action. It emphasizes the importance of financial leadership in achieving climate targets outlined in NDCs.
A Holistic Toolbox for Private Sector Engagement in Development Co-operation (OECD, 2016)
The policy brief provides a comprehensive toolbox for engaging the private sector in development cooperation. This includes promoting inclusive projects, using both centralized and decentralized approaches, incorporating responsible business practices, and collaborating with Development Assistance Committee members and multilateral organizations to streamline activities and maximize impact.
Joint Declaration and Task Force on Credit Enhancement of Sustainability-Linked Sovereign Financing for Nature and Climate (High-Level Climate Champions, No Date)
This initiative is committed to collaborating on mobilizing credit enhancement for sustainable climate and nature-linked sovereign financing, including instruments such as full or partial credit guarantees, credit insurance, and political risk insurance. The shared objective is to scale climate and nature-linked financing by improving access to and affordability of credit enhancement instruments for sovereigns and other public sector entities. The participants aim to increase the volume of sustainability-linked financing, making it a relevant and accessible source for developing countries and public sector entities, while also seeking to leverage private sector reinsurance and insurers where appropriate.
Women’s Access to Green Finance in Africa (UN Women, 2024)
his advocacy notes outlines the most recent data on women’s access to green finance in Africa and indicates what policymakers, civil society organisation and financial institutions can do to improve women entrepreneurs’ situation in accessing green finance.
The Climate and Humanitarian Localisation Agendas: Entry Points to Enhance Climate Adaptation and Resilience Financing and Action (Red Cross, 2024)
The brief provides a comprehensive analysis of barriers to accessing climate-related finance for local actors, across the climate and humanitarian systems, through the lens of locally-led approaches. It then proposes solutions to overcome these barriers and to enhance the role of local actors in climate adaptation and resilience efforts.
How This Links to Other Routes
Facilitating an enabling environment is closely intertwined with various pathways and opportunities in the broader landscape of climate action. Navigate to the resources below to learn more:
Route: Aligned to the Paris Agreement Temperature Goal
Strengthening the enabling environment for finance mobilization aids in setting targets, including economy-wide NDC targets, enhancing sector-specific mitigation efforts, and reflecting activities and responses in the NDC.
Route: Aligned to Paris Agreement Global Goal on Adaptation
Facilitating an enabling environment for finance mobilization strengthens the interlinkages between NDCs and adaptation communications, enhances data availability for informed decision-making in adaptation planning, and amplifies nature- and ecosystem-based solutions.
Route: Delivers a Just and Equitable Transition
Unlocking finance for a Just Transition through an enabling environment facilitates frameworks for Just Transition processes, and ensures that Just Transition activities are reflected in the NDC.
Route: Mobilizes All-Of-Government and All-Of-Society
Fostering an enabling environment for finance mobilization supports multilevel governance, incorporates all voices in the planning process, and promotes cooperation with the private sector for NDC implementation.
Route: Technology and Capacity-Building as Needs and Enablers
Creating an enabling environment for finance mobilization addresses technology needs and uptake, leverages different approaches to technology transfer, and identifies capacity-building needs.
Route: Technically Sound and Transparent Documents
Ensuring an enabling environment for finance mobilization maintains technical soundness in documentation and processes and promotes transparency in financial planning and reporting.
