Rich countries have barely made a dent in the USD 100 bn per year they’ve promised emerging markets to help address climate change. And the real price tag? It’s in the USD tns, says UN High-level Climate Champion for Egypt Mahmoud Mohieldin. With so much still left to do, the big questions are: How do we tackle the funding gap? And whose responsibility is it to fix: Government or the private sector?

In this second part of our talk, Mohieldin tackles the hard questions on climate finance: from the role of the private sector (and mid-sized business in particular) vs the role of governments — and the eternal to climate debt vs investment debate. He also gives us a sneak preview on what to expect during COP27.

Did you miss part one of our talk? Tap or click here to read it.

KEY TAKEAWAYS-

• The private sector is best-positioned to lead on “mitigation” (cutting our collective carbon footprint) while governments need to lead on “adaptation” (tackling the fallout, including the washing away of coastal areas and how to keep cities liveable);
• More debt is not the answer — developed economies need to invest in mitigation and adaptation across emerging markets;
• COP27 is just the beginning — Mohieldin will work through COP28 with whoever the UAE presidency appoints as its champion;
• Mohieldin provides a day-by-day overview of what you can expect if you’re attending COP for the first time.

ENTERPRISE: What’s the role of the private sector versus that of the state in plugging the financing gap?

MM: With the climate gaps being in the USD tns — not USD bns — the private sector isn’t the singular answer, but it has a big role.

Business more or less knows its way on how to engage in mitigation, decarbonization, solar projects — like Benban in Egypt or Ouarzazate in Morocco. Private businesses are investing in wind farms, and in the case of Egypt, in green hydrogen and ammonia. Those are all private-public partnerships (PPPs). And I’m saying “private” first in PPPs because the private sector brings the technology and the finance while the public sector provides land and the regulatory framework.

ENTERPRISE: Does the private sector have a role to play in adaptation?

MM: I think it’s struggling there. What are the commercial benefits? They’re not as clear in all aspects of the adaptation work. Businesses exist to turn a profit. Responsibly, sure. But a profit. So if you look at the nexus of energy, water, food and agriculture, I think you can see room for the private sector to do nicely on adaptation.

ENTERPRISE: So what about the state?

MM: Well, that’s the elephant in the room. Public finance in developing economies is responsible for a huge part of the climate action agenda, especially in adaptation, and also in mitigation, where we see all of this investment in solar, wind and green hydrogen. That’s either public or through PPPs.

I would say that mitigation needs really to be given more to the private sector to lead, domestic and foreign, under the regulatory framework of the public sector with some room for development finance institutions.

But adaptation is mainly the responsibility of state budgets. My argument here is that we need state budgets in developing countries to be fully aligned with the principles of sustainability — at a minimum. This then needs to progress to a shadow budget for sustainability or, on a great day, an SDG or sustainability-linked budget that includes infrastructure, health, education, resilience, governance. Anybody who benefits from the state budget should be aligned with the sustainable development goal (SDG) priorities for the current challenges and for the future.

ENTERPRISE: You spoke earlier about the need to do all of this without adding to debt…

MM: Absolutely. More than 60% of finance for climate action is coming from debt instruments. I’m concerned that just c. 12-13% of this debt-based finance is concessional. In a world that faces a variety of debt challenges, with the rising cost of investment and with rising interest rates. We need debt-reduction mechanisms and the emphasis instead needs to be on investment.

Look, it’s not fair to ask countries that were not responsible for the deterioration of the climate to borrow commercially. I’ve been saying this for years, and the simple reality is that today countries of the developing world are one of three things: Those with a debt management problem; those with a debt management crisis; and those with a debt management catastrophe. The reality is that debt issues can be handled and there are technical and innovative solutions to do that. So what I’m saying is: Don’t add to the problem.

ENTERPRISE: What does debt reduction look like?

MM: Debt reduction mechanisms include, of course, debt swaps. There is a new generation of debt swaps, and I’m happy these will be discussed at our COP27 finance day. Not just linked to projects, but linked to KPIs. The new idea is to link debt reduction to your nationally-determined contributions (NDCs). So that will take care of the problem of low and high transaction costs.

Then there’s the creation of carbon markets. I’m happy that Egypt is working closely with African entities, the LSE and in the Singapore Stock exchange to build a carbon market tailored to the needs and priorities of developing economies. This will benefit from some of the most advanced carbon markets in the world, which happen to be now in Europe. We need to benefit from the experience of Europe not just to “carbon copy,” if you will, the structure of the carbon market, but to be more innovative and tailor it to African needs.

ENTERPRISE- You recently wrote a piece about greenwashing and the argument, advanced by the Economist, that ESG needs to be boiled down just to emissions.

MM: The debate about ESG funding and concerns about greenwashing are important, but that doesn’t mean you throw the baby out with the bath water. First, saying ESG won’t save the planet is reductionist. And second, there is a lot of work to be done under the ESG umbrella to bring industry and finance and regulators to engage in meaningful talks. That’s how you get the private sector lined up — ESG is at the center of that.

ENTERPRISE- Are business leaders in Egypt behind when it comes to thinking of climate compared to, say, those of other MENA countries? To European countries?

MM: We are where we are. It’s about three things here: First, the extent of knowledge and exposure in the business community. How many times have they attended relevant big meetings and conferences? For many business leaders and heads of mid-sized enterprises, this will be the first COP they ever attend in person — and perhaps even the first COP they follow.

Secondly, it’s about the incentive structure. To what extent does the law and regulatory framework of the financial sector encourage the business community and the financial services industry to take climate seriously? At the end, business responds to carrots and sticks — everywhere, not just in Egypt or the Middle East.

Third, it’s about the personal convictions of business leaders that it is possible to do well and do good at the same time. This needs to go beyond CSR, and beyond intermittent contributions to society. It’s about factoring sustainability into your business and your supply chain. And incentives will not just come from within the borders of the country. Incentives will matter massively to your ability to export, where global markets care about your carbon footprint, about how you are conducting and financing your business.

I was in discussions with some of the leading business and finance players in Egypt, including heads of the federations of the banks and of industry, and the chamber of commerce. We talked about the potential and the possible missed chances if everyone — not just them as leaders, but everyone — in the community doesn’t get involved.

People like that are exposed to thinking on climate action because of their positions, their travel, their attendance of meetings and conferences. But it’s about reaching out to everyone else to get them involved.

I think it’s important to remember that mid-sized enterprises are always ignored in discussions, and not just in Egypt. The large players and the SMEs get all the attention, but the mid-sized businesses? They’re the creators of jobs and they’re the great exporters of the future. To address this problem, we’re doing a competition across 27 governorates based on six categories: large, midsized, small / micro (related to the decent life initiative), women-led, startups, and community-based projects. We’ll have a multi-month competition to pick the smartest and greenest of these businesses — we’re picking three of each type. So country-wide, you’ll see 18 companies taken to Sharm El Sheikh. This is about creating the basis of a governorate-level investment map.

We’ll be doing this competition every year to promote knowledge sharing with lots of investment in training the trainers, with a new digital presence to help educate the community going forward.

ENTERPRISE: So what will COP27 be like from the point of view of an Egyptian CEO attending for the first time?

MM: This is a summit, the 27th in a series, as the name suggests. It is not a conference. Your readers need to mark their agendas from 6-18 November and then select the meetings and events that they’re most interested in attending, that are most relevant to them. There are many events that are open and others that are invite only. They need to register and they need to select the sessions that matter to them.

The world leaders’ summit takes place 7-8 November, so people will need to arrive on 5 or 6 November. At the leaders’ summit, you’ll hear from heads of state and government — presidents and prime ministers and also from the UNFCCC and others in the UN system.

Then the fun begins. There are two types of events: COP27 presidency events and then organized climate action events (scroll to the bottom of the page here for the calendar). The thematic days will be generally very interactive:

• Finance day on 9 November — we;ve talked a lot today about climate finance;
• Science, youth and future generations day on 10 November;
• Decarbonization day on 11 November, and there’s lots to discuss here, from energy and mobility to steel, cement and building materials — there is a lot of innovation happening here that should be of interest to your readers;
• Adaptation and agriculture day takes place on 12 November;
• Gender and water day will take place on 14 November;
• Energy and civil society day is 15 November — you can expect energy to get a lot of attention, for obvious reasons;
• Biodiversity day is 16 November, and that’s also the day we’ll focus on the transportation sector;
• Human settlement and solutions day is 17 November, and that’s when we discuss sustainable cities, green buildings and resilient infrastructures and more.

What all of these days and discussions have in common is that the focus is primarily on implementation. It’s about putting in place the data systems we need. It’s about leadership at all levels. And it’s definitely about finance.