COP29: SUSTAINABLE FINANCING

The 29th session of the Conference of the Parties to the UN Framework Convention on Climate Change (COP29) has been designated the "financial COP" by global media outlets, marking the first time in 15 years that discussions have centred on the allocation and structure of financial resources for developing countries to support climate change initiatives. The draft agreement on climate finance, which is intended to provide assistance to the world's less economically developed countries, calls for a minimum of $1.3 trillion to be made available on an annual basis. The current funding level, which is scheduled to expire this year, is set at $100 billion. In order to address this deficit, new sources of funding are proposed. Developing countries contend that financial support for climate change mitigation and adaptation should be provided exclusively by industrialized nations. In contrast, industrialized nations argue for the inclusion of richer emerging economies on the donor list. Azerbaijan is at the centre of these discussions, taking steps to ensure sustainable financing for green initiatives within the country.

First Agreements

It is anticipated by international experts that a new direction for climate finance could be established at the Baku summit. The President of the 79th UN General Assembly, Philemon Young, underscored the necessity of collectively delineating a novel trajectory for adaptation, resilience, and climate finance that aligns with the requirements of those most adversely affected. In this context, Azerbaijani Economy Minister Mikayil Jabbarov drew attention to one of the country's initiatives, namely the establishment of a Climate Finance Fund, which will be financed by fossil fuel producers, whether countries or corporations. "The forthcoming year of our presidency will be dedicated to fulfilling the commitments we have made," the Minister stated.

Furthermore, he noted that considerable headway has been made with regard to Article 6.4 of the Paris Agreement, which establishes a framework for carbon trading across a unified market overseen by the United Nations. It is worthy of note that prior to this agreement, participants encountered difficulties in reaching consensus on the methodology for calculating the value of carbon units in this market. "On the inaugural day of the Conference of Parties (COP) in Baku, countries reached an accord on a unified mechanism, exemplifying that collective action can facilitate the attainment of objectives," Jabbarov underscored.

As reported by Reuters, the establishment of a global market for certificates would permit major polluters to offset their emissions by purchasing carbon credits from countries that have reduced emissions in excess of their commitments. The purchasing countries could then utilize these credits to fulfill their national climate goals. The International Emissions Trading Association (IETA), a working group that supports carbon markets, has estimated that total trading could generate $250 billion a year by 2030, resulting in a reduction of 5 billion metric tons of carbon emissions annually.

Additionally, Jabbarov asserted that the carbon market mechanism would facilitate the mobilization of climate finance. "Furthermore, we commend the multilateral development banks for their announcement of $120 billion in annual commitments by 2030, which represents a notable advancement," he stated. During the event, entitled "From Commitment to Action," In his remarks on "Optimizing the Fund's Activities for Loss and Damage Compensation," Azerbaijan's Minister of Ecology and Natural Resources and COP29 President Mukhtar Babayev observed that the Fund is already prepared to distribute financial resources, thereby enabling the transition from promises to tangible support. "This signifies that financial resources will commence their distribution in 2025, which is of paramount importance for vulnerable communities. This progress is the result of the combined efforts of the fund and the global community. The initiative will result in tangible outcomes, including the construction of housing, the resettlement of individuals, and the assurance of lives and futures. Nevertheless, our mission is not yet complete. It is now necessary to identify projects and maintain the support flow.

Not Charity, But Support

Meanwhile, developing states have expressed their grievances over the inequitable distribution of resources. For example, Cook Islands Prime Minister Mark Brown addressed this issue during the Small Island Developing States (SIDS) Summit at COP29, stating that the Loss and Damage Fund should already be operational with a broad scope of work. Mafalda Duarte, Executive Director of the Green Climate Fund, indicated at the SIDS Summit that an additional $50 billion in allocations could be achieved by 2030. She observed a 2.3% increase in allocations during the previous year, emphasizing that "small island states are of critical importance to the Green Climate Fund," with more than 10% of the $16 billion budget specifically allocated to these states.

In her remarks, Secretary-General Patricia Janet Scotland of the Commonwealth underscored the imperative for developing nations to recognize that the climate finance they receive is not a form of charity, but rather a vital necessity. "It is imperative that action be taken without delay, as delays could have a detrimental impact on the future prospects of these nations." If we engage in collaborative efforts, we can achieve optimal results. "I urge all nations to demonstrate solidarity for the purpose of establishing a more equitable global order," she stated. The Executive Secretary of the UN Framework Convention on Climate Change, Simon Steele, expressed complete agreement with her perspective, emphasizing that financial commitments to address climate change advance the interests of all nations, including the most developed and affluent.

Svetlana Klimenko, a leading expert on sustainable finance at the World Bank, identified two key areas requiring attention to enhance climate action financing. The first is the assessment of risks and opportunities within the global financial system, and the second is the fostering of financial innovation. She posited that the availability of precise data on climate and natural risks would facilitate the ability to persuade a variety of stakeholders.

Brazil's Finance Minister I. Oliveira underscored the necessity of leveraging a substantial proportion of the liquidity present in global financial markets to facilitate green transitions. In this context, guarantees represent an important yet underutilized tool for the attraction of green investments.

Baku SME Declaration

A further crucial element pertaining to climate finance is the necessity to engage not only public resources but also private capital in this process. "Discussions of the green transition invariably encompass the advent of entirely novel economic systems. It is of the utmost importance to recognize the pivotal role that the private sector plays in global climate action. "It brings technology, innovation, and influences consumer behaviour; thus, engaging with the private sector is essential," stated Nigar Arpadarai, a UN High-Level Climate Leader at COP29.

During the event, "Green Transition Guarantee Group: leveraging private capital to accelerate the green transition in developing and middle-income countries," German State Minister for Europe and Climate Affairs Anna Lührmann emphasized that government budget funds are inadequate for the task at hand. "The accelerated implementation of green transitions necessitates a closer collaboration between states, international organizations, and the private sector. Only through such a partnership can a sustainable future be constructed," she stated.

In this context, the notable actions taken by Azerbaijan during COP29 are worthy of mention. On the third day of the summit, the Baku Coalition Declaration on Green Climate Transition for Small and Medium Enterprises (SMEs) was signed in a parallel event. As stated by Orkhan Mammadov, Chairman of the Board of the Small and Medium Business Development Agency (KOBİA) under the Ministry of Economy, the document's objective is to provide support to SMEs in their transition to green practices and to implement tangible measures in this regard: "Our discussion is focused on the expansion of financial support tools and the enhancement of knowledge and skills. KOBİA has initiated a global initiative on this topic. It is our contention that the endorsement of this initiative by member countries will facilitate the green transformation of SMEs." Additionally, Mammadov observed that 90% of companies globally are SMEs. Consequently, the Baku Declaration on Green Climate Transition for SMEs is poised to garner support within the UN framework. The greater the number of member countries that endorse it, the more they will contribute to SMEs' green transition.

Finance From Financiers

It is evident that financial initiatives cannot exist in a vacuum; they require the establishment of institutions that serve as their foundation. In this context, banks play a pivotal role. As Demetrios Papathanasiou, Director for Global Energy and Natural Resources at the World Bank, stated during the Ministerial Dialogue, In order to achieve the goal of tripling renewable energy and doubling energy efficiency, it is essential to prioritize the strengthening of financial institutions in developing countries. Banking institutions can play a pivotal role in this endeavour by developing projects that align with these objectives. He posited that the approximately $500 billion spent annually on fossil fuels should be reallocated toward renewable energy initiatives. It is incumbent upon financial institutions to reallocate resources in order to mitigate the financial losses incurred during the transition to renewable energy sources and to facilitate the repayment of outstanding debts. "The World Bank is actively addressing this issue, having mobilized its resources for this purpose. Furthermore, the Mission 300 program has been initiated with the objective of supplying electricity to 300 million individuals in Africa.

It has been announced that the European Central Bank (ECB), in collaboration with 141 central banks worldwide, is establishing a network with the objective of promoting the greening of financial systems, encompassing major economies and fossil fuel companies. Irene Heemskerk, Head of the ECB's Climate Change Centre, made this announcement during the session "Special Events on Nature and Climate." She further stated that this year, the ECB published a "Conceptual Framework to guide central banks' and supervisors' actions," which aims to facilitate the assessment of

Additionally, the Central Bank of Azerbaijan has played a role in advancing the field of green finance by approving a "Green Taxonomy," in accordance with the decision of its Board, made on November 7. This document presents a classification system devised to identify categories of environmentally-conscious activities and to delineate their technical categorization across diverse economic sectors. The "Green Taxonomy," primarily intended for application by financial institutions, can also assist private sector entities in ensuring compliance with established criteria and principles while developing green and sustainable transition strategies and attracting green investments.

The Green Taxonomy is internationally recognized as an indispensable instrument for greening financial systems and channelling financial resources toward sustainable economic activities. The document outlines the green criteria that apply to participants, including financial market participants and corporate entities, while promoting a consistent approach to sustainable finance and investments that have a positive impact on environmental goals. A well-defined taxonomy facilitates more effective decision-making processes and encourages investment opportunities that contribute to national environmental and climate objectives.

As stated in the preamble of this document, the World Bank estimates that the costs associated with achieving decarbonization and sustainable development by 2060 will be approximately $44.1 billion (approximately $24.7 billion for decarbonization and $19.4 billion for sustainable development), which represents approximately 3.2% of total GDP. Accordingly, this taxonomy will facilitate pivotal stages in the greening and decarbonization of Azerbaijan's economy, while attracting investments into renewable energy and sustainable agriculture—crucial sectors that will reinforce a more robust, sustainable, and diversified economic future for the country. This endeavour will bolster the country's global competitiveness while advancing the Sustainable Development Goals.