29 November 2022: The pathways to limit temperature rise to below 1.5 0C goal have pretty much disappeared, and catastrophic impacts of climate change are well and truly upon us. Bending the emissions curve at scale and speed, to keep the planet habitable is among the most pressing challenges humanity needs to contend with in the ensuing years.

At COP 27, the urgency among stakeholders to take talk to action was palpable. The UNFCCC’s Standing Committee on Finance (SCF) released four new reports on climate finance, and these were backed up with purposeful deliberations, reflecting a growing attention to the financing challenge.

And yet, climate financing flows are falling well short of levels needed. Estimates of investment needed to undertake required climate mitigation and adaptation initiatives range between 3-6% of global GDP through 2050. Prevalent level of financing supply prints at below 1% of global GDP, is dominated by flows to mitigation, and remains narrowly concentrated by sector and geography.

Given this backdrop, the TL titled “Closing the climate finance gap - A rapid yet sustainable scale-up of financing is critical to realise the Global Net Zero ambition” , released by KPMG in India, reviews trends in global climate finance demand-supply, distils constraints to climate finance flows and identifies transformation levers to expand climate finance flows sustainably for impact.

The report identifies five barriers that need tackling

  • The heterogeneity in financing needs, coupled with limited pipeline of bankable opportunities, limits a scale-up of conventional financing.
  • Policy inadequacies, fiscal limitations, institutional & regulatory weaknesses, and shallow financial markets, especially in emerging markets and developing economies (EMDEs), stymie access to capital.
  • The socio-political challenges in phasing out regressive subsidies and in creating broad-based carbon pricing frameworks add to the resource crunch
  • Information architecture to support climate action, including information, disclosures, and taxonomies, remain work-in-progress and evolving
  • Cross-border flows from developed economies into EMDEs remain inadequate.

It also observes that near-term headwinds, including inflation, debt overhang and rising interest rates are adversely impacting resourcing and elevating risk profiles.

The report calls out for action on five fronts to bridge the climate financing gap:

  1. Sharper prioritisation of climate finance flows along differentiated financing pathways considering impact potential and distance to commercial viability
  2. Concrete enablers to translate government intent into action including clear policy, programmatic initiatives at scale, and institutional readiness, backed with deployment of a threshold level of public finance outlays.
  3. Structural reforms to deepen financial markets and diversify investor base while strengthening risk management architecture within the financing ecosystem concurrently.
  4. Functioning carbon markets and harmonised ESG taxonomy and disclosures through a wider coverage of carbon market instruments to effectively monetise emission reductions.
  5. Co-opting EMDEs into climate agenda covering cross-border financial flows, technology transfers, and in creating policy & institutional enablers to drive transformative change.

Sharing his views on the theme of the report, Anish De, Global Head for Energy, Natural Resources, and Chemicals (ENRC), KPMG said, “As a leading marker for climate agenda, the climate finance gap needs urgent attention and collective action. It will require greater resolve among governments to squarely tackle the intractable issues including reforms in financial markets, rationalization of fossil-fuel subsidies, building institutional capacities, and nurturing vibrant carbon markets. Deeper collaboration at scale among governments, multi-laterals, corporates and financial institutions will also be crucial.”

Anand Madhavan, Partner, Special Situations Group, Deal Advisory, KPMG in India adds, “Varied resourcing pathways are needed to deal with the heterogeneity of financing demand, in terms of emission impact, stage of technology evolution and distance to commercial viability. A one-size fits all approach is unlikely to work. The good news is that there is discernible dynamism in pockets of the climate financing ecosystem. An array of financing instruments opens possibilities, and new investor classes are making their presence felt.”

For a detailed understanding, please refer to the attached report.

Closing the Climate Finance Gap

A rapid yet sustainable scale-up of financing is critical to realise the Global Net Zero ambition

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For further information please contact :

Vidya Mohan
KPMG in India
Mobile No - +91 9820770846
Email - vidyamohan@kpmg.com