The Sharm El Sheikh Guidebook for Just Financing raises the critical question of what stakeholders need to do to translate commitments into implementable projects while capturing opportunities to leverage and catalyze needed finance and investments for climate action.
About the Guidebook
Brings the idea of Justice to Climate Finance
It sets a clear definition for Just Financing along with 12 corresponding guiding principles that serve as a framework to guide stakeholders to adopt innovative climate finance modalities and instruments that can unlock needed scale financing from public and private capital providers for climate action.
Contributes to bridging the information gap
It provides a mapping of climate capital providers based on their access criteria, risk appetite, regional and sectoral focus, ticket size and financing instruments to address the limited access of developing countries to climate funds.
Sets forth key recommendations and an actionable agenda
It outlines the roles each stakeholder can play to achieve just financing outcomes. It presents a realistic and implementable blueprint aimed at maximizing the effectiveness and efficiency of the existing climate finance system in the short-run, while rethinking the international architecture in the medium and long-term.
Climate finance has been at the forefront of the global agenda over the past years. Despite the vast amounts of pledges made, and the surging demand for climate finance, pledged global commitments do not make their way to the countries that need them the most. Further, many developing and emerging economies have limited access to long-term financing at scale, not to mention the burdensome cost of capital. Advancing the climate agenda in these countries will, hence, require climate financial flows commensurate to the climate challenge.
The Sharm El-Sheikh Guidebook for Just Financing brings the idea of ‘Justice’ to climate finance with the objective of translating commitments into implementable projects while capturing opportunities to leverage and catalyze needed finance and investments to support the climate agenda, in developing and frontier economies.
Just Financing Definition and Principles
The Guidebook defines Just Financing, as “financing that accounts for historical responsibility for climate change while ensuring equitable access to quality and quantity climate financing that supports resilient development pathways leaving no one behind”. It sets forth 12 core principles clustered under three main themes: Country Ownership, Equitable Pathways to Climate Finance and Governance.
- Recognize, respect, and take concrete action to support developing countries’ Right to Development and Industrialization through equitable pathways.
- Align global climate mitigation and adaptation targets with national development objectives.
- Support and fund the creation of enabling environments, and strengthening of technical capacities that are aligned with climate goals.
- Require strong institutional governance mechanisms at the international and national levels.
- Require robust transparency and accountability mechanisms.
- Is anchored on balanced multi-stakeholder participation and collective agreements that enhance international, regional, and local coordination and commitments.
- Require global stakeholders to actively consider and take progressive action to address historical disparities and responsibilities to meet climate needs.
- Mainstream the concept of Just Financing across all financial stakeholders at national and international levels.
- Ensure the right to quality and quantity climate finance.
- Address access, affordability, and resource allocation bias.
- Promote “Additionality”.
- Address the loss and damage caused by climate change.
Challenges to Investability of Climate Projects
Developing economies present unique opportunities for private investors, yet main challenges remain to be addressed on the macro, sectoral and firm levels. These challenges are mainly related to the supply and demand sides of climate solutions, while others are related to the enabling environment at the country level.
- Impact measurement of investments requires additional technical and financial resources for investors.
- Development risk of a project during the development stages before commercial operations begin.
- Novel technologies present a challenge given the low adoption and high perceived risk of proven and new technologies.
- Ticket size, especially for adaptation projects and in nascent sectors, constitutes a challenge for investors as they struggle to find climate investment opportunities that meet their minimum investment threshold.
- Market size is a considerable challenge as developing economies have smaller addressable markets, and limited perceived potential for climate investment.
- Up-front costs borne by companies include the shift of expense from an operating expense (OpEx) to capital expenditure (CapEx).
- High country risk of developing economies which aggravate the existing challenges, as it is higher than is ideal for many private investors.
- Transaction costs require capital providers to demand a large ticket size for climate projects compared to other investment opportunities, especially in emerging and frontier markets.
- Currency risk is an important challenge, mostly prominent in countries with volatile exchange rates, and in times of economic and market stress.
- Regulatory risk as climate projects face unclear, or conflicting regulations which affect the financial viability of projects and attractiveness for investment.
Innovative Financial Instruments
Innovative finance solutions can unlock existing pools of capital by de-risking mitigation and adaptation projects, whilst safeguarding societies that are most vulnerable to shocks.
- Supports projects with the potential for a commercial revenue model but below-market risk profile.
- Bridges the investment gap by shifting risks, reducing coordination and transaction costs, and enhancing returns.
- Helps deploy concessional climate-related investments more efficiently on the portfolio level and achieves high private investment mobilization.
- Offer projects a potential new revenue stream by placing a monetary value on greenhouse gas emissions.
- Support transitions in hard-to-abate sectors, where reductions remain extremely costly, and can reduce the cost of implementing NDCs by 2030.
- Governments can promote carbon markets through: capacity-building, stronger regulatory systems to shape the voluntary market, new carbon-trading strategies and standardized pricing schemes.
- Monetise economic and financial benefits of enhancing resilience in the form of credit, especially in the agriculture sector, and increase climate flows to adaptation and resilience.
- The transaction process can start from development partners and philanthropies that provide catalytic first loss capital by pooling resources into a facility.
- Requires a well-established regulatory framework to create an enabling environment that attracts the private sector.
A Focus on Africa
Advancing the climate action agenda will require collective action, enhanced coordination and knowledge sharing. To operationalize the proposed solutions of the Guidebook, recommendations have been categorized according to the different groups of stakeholders involved in the climate finance landscape.
- Generate more comprehensive costings of climate change needs.
- Leverage the potential of regional collaboration by the African countries that can use their commonalities in financing needs and complementarities in capacities.
- Identify investment needs for high-risk sectors and regions.
- Generate pipelines of projects for blended finance fit to local contexts, and with different risk/return profiles that meet different investor needs.
- Develop national-level results, M&E systems that incorporate principles of just financing.
- Provide technical assistance & capacity building to enable the identification of funding needs at the national and local levels.
- Generate a sizable impact by shifting out the risk curve, through seeding early-stage and/or greenfield projects to create investable pipelines, providing guarantees and first-loss capital.
- Prioritise allocation of blended grant-based catalytic funding to LMIC, LIC, and SIDS countries in Africa.
- Improving debt sustainability for African countries through promoting countries’ credit ratings and increase private sector confidence in investing in African market.
- Communicate the practical challenges private investors face and the minimum conditions required for investment.
- Private sector provides technical assistance to developing countries to create enabling environments conducive to scaling climate finance.
- Philanthropies unlock private capital by addressing high transaction costs and information asymmetries.
- Philanthropies expand de-risking mechanisms such as first-loss tranches, insurance, hedging, and technical assistance facilities, to catalyze commercial investment.
PARTNERS AND CONTRIBUTORS
Egypt-ICF Roundtable: Sharm El Sheikh Guidebook For Just Financing
Launch of the Sharm ELSheikh Guidebook for Just Financing during COP27
“Adequate, affordable, and fair financing will be key to realizing the goal of net zero. This practical guidebook sets out how all key stakeholders in the climate finance system can work to ensure a just and equitable outcome, moving beyond pledges to implementation with the necessary urgency and inclusivity.”Read More
“The climate crisis demands innovative and implementable solutions – solutions rooted in justice and equity, solutions that assist those most affected and vulnerable. USAID is proudly collaborating with the Ministry of International Cooperation to create innovative tools to support both the private and public sectors in meeting the enormous and consequential mandate of protecting our planet. Improving the enabling environment for private sector finance and investment is paramount to ensuring a just transition and building resilience to climate-related impacts.”Read More
“Investing in climate action makes smart economic sense. Climate policies need to be integrated with national financing strategies and help ensure that no one is left behind. To date, UNDP’s Climate Promise has supported 96% of countries in Sub-Saharan Africa to enhance and implement climate priorities - from enhancing food security to increasing the protection of ecosystems - while also providing support to vulnerable communities who are living on the frontlines of climate change. Given the economic and demographic challenges in our region, we also ensure that climate-smart investments are also growth-enhancing and job-creating. This Sharm El Sheikh Guidebook includes proposals and recommendations on how to create more favorable policy environments, enhance institutional and regulatory systems, and forge public-private partnerships. A green and climate-resilient future is possible but it must go hand in hand with social and economic growth to ensure prosperity for all”Read More
“Climate action experienced increased momentum over the past few years. Yet, this trajectory has been interrupted by the compounded crises since 2020; heightening the cost of the climate agenda and calling for more integrated and inclusive collaboration by all stakeholders. To achieve measurable change, we need to multiply our financial resources and achieve distributional justice across regions, and across sectors. We carry a prominent obligation to acknowledge and mend the existent disparities in the climate finance landscape. Within this context, the Sharm El-Sheikh Guidebook for Just Financing brings the idea of 'Justice' to climate finance to move from pledges to implementation. It emphasizes the need to scale-up investments towards climate adaptation and mitigation projects, while highlighting the importance of improved access to quality and quantity climate financing that leaves no one behind through a variety of mechanisms and tools to promote just financing. As a practical demonstration of the principles of the Guidebook, we launched Egypt Country Platform for the Nexus of Water Food and Energy (NWFE) Program, which is a country-led platform coordinated by Egypt’s ministry of international cooperation. It presents high priority national adaptation and mitigation projects and aims to catalyze and crowd in private investments through a variety of instruments, including blended finance.”Read More
"The Just Finance Guidebook is a critical tool for policy makers and private sector executives seeking to understand the broad spectrum of issues around climate finance facing both LICs and MICs. The Guidebook is the result of months of intense collaboration among an extraordinary group of stakeholders."
“CrossBoundary is committed to driving blended finance solutions in underserved markets globally – reflecting our core belief in the importance of Just Financing in accelerating progress toward both climate and development goals. Tackling the climate crisis is a collective undertaking that requires an unprecedented degree of collaboration. Strategic use of limited public resources to unlock private capital is critical for scaling investment into underserved markets which may be particularly vulnerable to the effects of climate change. As investment managers and advisors, we see great opportunity in Africa. More than half of our staff are based in Africa, and we are actively developing and financing projects across the continent, pairing lasting climate mitigation, adaptation, and development impacts with strong financial returns. There is enormous need to both continue driving capital absorption into existing infrastructure solutions for climate mitigation and adaptation, and to bring new business models to bear – particularly for nature-based solutions. We look forward to collaborating with other stakeholders to implement the recommendations of the Sharm El Sheikh Guidebook for Just Financing.”Read More
“The number one priority of the  African presidents my institute supports is investment. Much of this is climate related: from the renewable energy systems that will power the continents growth and industrialisation to the investments in irrigation and cold storage communities need to make to halt growing food insecurity. At around a quarter of a trillion dollars per year, these investment needs are vast and largely unmet. My institute engages with African Governments and Global investors and it is a tragic paradox that despite there being no lack of institutional finance looking for long term investments, very little is being channelled into Africa where the needs are highest. Egypt’s “Guidebook for Just Financing” is an important and practical tool to addressing this issue. It takes a system wide view of a complex topic and shines a light on the issues that need to be addressed to get finance flowing to where it is most needed. Beyond this, it provides clarity on what is expected from each of the actors involved in developing and financing projects on the continent: from the work governments need to undertake in preparing bankable projects and creating a secure, transparent environment for investment to the role development finance institutions and philanthropists can play in catalysing and de-risking. Egypt’s NWFE initiative (Nexus of Water Food and Energy) puts these principles into practice and is a powerful example of the work Governments need to do: linking a vision to strategy, policy and then the global outreach to finance a home grown climate transition plan. I would urge governments and financiers to read the guidebook and reflect on where they can do more to address an issue that is as crucial for Africa’s development as it is for the planet.”Read More
“Taking place a few weeks ahead of COP27, third edition of the Finance in Common Summit (FiCS), aimed to send a loud and clear signal: Public Development Banks are powerful allies of UNFCCC to accelerate the implementation of just energy transitions. By mobilizing more that 300 billion US$ of green and climate finance in 2021, the Multilateral Development Banks and the International Development Financing Club (IDFC), demonstrate that strong mandates are able to unleash climate investments on the ground. If all public development banks (PDBs) were to commit to a similar ratio as IDFC, they could extend more than 500 billion US$ of climate finance per year, and mobilize much more through the private sector.”Read More
“Every year, those living between the tropics of Cancer and Capricorn face losses and damages three to four times more than elsewhere. And this year, that was epitomised by the devastating floods that submerged a third of Pakistan. That loss became less invisible to others this year, as America and Europe endured extreme floods, heat waves and forest fires. All of humanity will be on the frontline if mitigation does not occur fast enough. That is why we need to provide access to a global balance sheet to fund mitigation efforts everywhere, backed by a new issue of Special Drawing Rights: a global mechanism backed by a global currency, to accelerate the delivery of global public goods. Because we are so close to the 1.5 degrees warmer trigger for cascading effects, the speed and the quantum of mitigation matter. So we must prioritise fast mitigation, such as a sharp reduction in methane emissions. The reality is, two hundred years of industrialisation has already baked in 1.2 degrees of warming, so even rapid mitigation is not enough from here. We need triple lending by the World Bank and other Multilateral Development Banks, in return for an additional focus on providing concessional finance for climate-vulnerable countries to invest in climate resilience. And we need a more shock-absorbent international financial system with every debt instrument carrying natural disaster and pandemic clauses. While these simple ideas will make a difference, they do not require any country to write a cheque to any other today. In addition to this, we will also need a new international mechanism, such as a levy on fossil fuel prices as they slip back from elevated levels, to deliver grants or grant-like funding for reconstruction after a climate or slow-onset event. It has never been more apparent what COP must deliver.”Read More
“Achieving a just transition will not and must not be a zero-sum game. By investing at significantly higher levels, by spreading innovations for both climate mitigation and adaptation around the globe, and by ensuring adequate long-term finance for the developing world, we must make this a gain for all nations. The Sharm El Sheikh guidebook provides a practical guide for implementing this just transition. It will take extraordinary ambition in partnership among the public, private and philanthropic sectors to achieve this. But there has never been a larger opportunity for us to spur growth, solidarity and achieve better and safer lives for communities everywhere.”Read More
“A just transition towards a net-zero world requires us to accelerate emissions reduction while meeting the socio-economic needs of developing and emerging economies. The Sharm El-Sheikh guidebook lays out how we can do this. In particular, it underscores the importance of synergising transition finance across the public and private sectors. The 140-strong Network of Central Banks and Supervisors for Greening the Financial System (NGFS) stands behind this effort with the launch of the NGFS Blended Finance Initiative at COP27.”Read More
"Climate change is a growing threat to our lives, to our livelihoods, and to the stability of our economic and financial systems. Investments in resilient societies, renewable energy, and green technology are urgent and vital. This requires vast sums of money—amounts that far exceed what governments alone can provide—so we need new ideas and new approaches to harness private capital to build cleaner, greener, stronger economies everywhere."Read More
"The World Economic Forum is committed to accelerating the just transition, through public-private collaboration. The Sharm El-Sheikh Guidebook for Just Financing is a crucial step in fostering inclusive partnerships towards a climate resilient future."
“Limiting climate change to 1.5 degrees Celsius requires the mobilization of enormous capital to emerging markets and developing economies (EMDEs). That is now possible because of the commitments of private financial institutions around the world to catalyze and finance the energy transition. However, barriers remain to getting that capital to where it is needed the most. The Sharm El-Sheikh Guidebook for Just Financing identifies the key reforms to overcome these barriers, providing essential recommendations at this critical juncture for EMDEs. GFANZ welcomes this Guidebook and will work to implement its recommendations through Country Platforms, Just Energy Transition Partnerships and other catalytic initiatives such as the CFLI. Building on the significant resources that GFANZ members are dedicating to the Indonesian and Vietnamese JETPs and Egypt’s Country Platform, GFANZ looks forward to working with a wide range of countries and stakeholders to ensure that the energy transition is truly just and global.”Read More
“The world is currently failing to meet its goal of limiting global warming to 1.5 degrees Celsius, in part because of a lack of adequate support and financing, particularly for energy transitions in low- and middle-income countries,” said Dr. Rajiv J. Shah, President of The Rockefeller Foundation. “At a time when the world faces concurrent, compounding crises — many of them caused by the changing climate — this Guidebook offers recommendations that can help mobilize financing to mitigate and adapt to climate change, empower people, and unlock economic opportunity.”Read More
“The principle of common but differentiated responsibility is at the core of climate justice and just energy transitions. As such, I strongly support the Sharm El-Sheikh Guidebook for Just Financing, for several good reasons: It forges a common path for climate action in Africa and it outlines the key role of each stakeholder in translating financial commitments into implementable projects. It also clearly lays out the climate financing gap on the African continent and proposes an actionable agenda to close that gap.”Read More
"The evidence is clear: Developing countries are bearing the brunt of our climate crisis. 1 billion people, overwhelmingly in the Global South, will face coastal flood risk by 2050. An additional 140 million may be driven from home by climate disaster or food and water insecurity. Yet these countries remain locked out of pivotal financing at scale that could help them adapt to our changing world: African states, for example, receive less than 5.5% of global climate financial flows, and only less than 10% of all climate finance investments are targeted to adaptation solutions. Just financing is not only a moral imperative. It is the only way we will reach our ambitious climate goals. At CIF, we have been on the front lines of driving catalytic climate finance in the developing world for almost 15 years. We have seen the challenges firsthand: Creating an enabling environment. Financing frontier, catalytic investments. Mobilizing the private sector. Yet we have also seen the power of collaboration: Bringing together key partners across government, development, financial institutions, business, and philanthropy in common cause around proven and innovative solutions. This Guidebook is a powerful example of how we must come together around a programmatic, multi-sectoral approach — and secure a better collective future."Read More
STRUCTURE OF THE GUIDEBOOK
The Guidebook covers a range of topics related to, and in service of, the climate finance ecosystem, with a focus on the immediate and unmet climate finance needs of developing countries and emerging economies. It is composed of six chapters, with each covering an area that is key to advancing the climate action agenda
The Climate Finance Landscape: Prospects and Opportunities
This chapter brings the idea of “justice” to climate finance as it provides a clear definition of Just Financing and the guiding principles as to what counts as just. It gives an overview of the climate finance landscape to identify key areas for improvement to enhance the effectiveness and efficiency of the existing climate finance system. It highlights the main stakeholders in the current financial system and the potential new players that can play a catalytic role in pushing forward a just finance agenda.
Creating an Enabling Environment for Climate Investment
This chapter provides guidelines for both Governments and all relevant stakeholders on how to complement each other's efforts to create an enabling environment that can facilitate translating climate commitments into investment action – from addressing regulatory frameworks, institutional arrangements, capacity building needs and creating new markets, to setting clear climate objectives and targets and identifying priority climate sectors, that ultimately support the development of a pipeline of investable projects.
Enhancing the Investability of Climate Projects
With the aim of providing guidance on how to enhance the investability of climate projects, this chapter addresses key barriers to private investment and possible solutions that can help unlock different sources of financing for climate projects. It summarizes available sources of public and private capital for developing economies, illustrating each stakeholder’s risk-return profiles and appetite, in addition to financial instruments. In the end, it outlines scalable, investable models that developing countries can deploy to crowd in private investments.
Catalysing Private Capital for Climate Action
This chapter introduces innovative financing modalities that can de-risk investments in developing countries, with a special focus on blended finance to scale-up climate investments through the deployment and mobilization of concessional and non-concessional climate finance. Furthermore, the chapter explores other innovative instruments that monetize mitigation and adaptation outcomes, such as carbon and resilience credits, which can improve profitability and catalyze private capital.
A Governance Structure for Just Climate Finance
The Chapter underscores the importance of establishing a holistic governance system for just climate finance. Through the identification of the main components, key stakeholders in the climate governance scheme, as well as current gaps, the chapter sets forth practical recommendations for strengthening current governance structures to unlock the potential for climate finance. It also identifies key factors for promoting transparent, comprehensive, and comparable financing flows at the international and country levels.
Mainstreaming Just Climate Finance in Developing Countries: A Focus on Africa
The sixth and final chapter of the guidebook showcases prospects and opportunities for climate finance in Africa, highlighting the continent’s needs and circumstances. It also presents practical recommendations per stakeholder, namely governments, bilateral and multilateral development partners and funding institutions, private investors and philanthropic institutions to advance the climate action agenda in the continent. Finally, the chapter presents a number of successful case studies spanning across different geographic regions and country income levels. They actively address climate-related challenges and propose solutions in both adaptation and mitigation investments, using blended and non-blended instruments/approaches, which could be replicated in developing and emerging countries.
ACTIONABLE AGENDA BY CAPITAL PROVIDERS
The Guidebook presents a set of successful case studies that provide insight into the different ways that public and private sources of capital can engage in efficient structures for Just Financing outcomes. These case studies span across different geographic region and country income levels. They actively address climate-related challenges and propose solutions in both adaptation and mitigation investments, using blended and non-blended instruments/approaches, which could be replicated in developing and emerging countries.
GET IN TOUCH
After our return to the dead city I passed several days in comparative idleness. On the day following our return all the warriors had ridden forth early in the morning and had not returned until just before darkness fell. As I later learned, they had been to the subterranean vaults in which the eggs were kept.
GET SOME HELP.
At last some four or five of us were summoned to our meal in an adjoining room. It was cold as Iceland said he couldn’t afford it. Nothing but two dismal tallow candles, each in a winding sheet.