Integrating MDBs into Green Finance Market at COP29 is crucial

One of the key areas Azerbaijan is focusing on within the framework of COP29 is financial issues. At this level, the main agenda will focus on developing countries and addressing the socio-economic and financial needs of those most affected by the negative impacts of global warming.

In 2015, the countries that signed the Paris Agreement committed to allocating $100 billion to developing countries by 2020. COP29 is expected to review and potentially revise this commitment, as the climate crisis poses a serious threat to people worldwide.

Azerbaijan has announced the establishment of the Climate Finance Action Fund (CFAF) to invest in climate action in developing countries. The process of allocations to the Fund for responding to Loss and Damage, a crucial pillar of climate finance for developing countries, has already begun.

The capital of the fund, of which Azerbaijan is a founding donor, will be formed with financial support from countries that produce fossil fuels, as well as companies engaged in oil, gas, and coal production. Annual payments by fund members will be made either in fixed amounts or based on production volume.

The CFAF will guarantee contracts for the purchase of future products from small and medium producers in the renewable energy sector and provide compensation for initial capital losses in green industrial projects.

Additionally, the fund will prioritize the food and agriculture sector to protect basic livelihoods and achieve net zero emissions. Income from these projects will be reinvested into the fund.

In this context, Orkhan Karimzada, an analyst on renewable energy, told Report that progress is expected at COP29 on the new climate finance goal (New Collective Quantitative Goal), focusing on the socio-economic and financial needs of developing countries.

Karimzada mentioned that during the COP29 conference, the focus will be on increasing financial support, ensuring fair distribution of aid to countries most affected by climate change, and strengthening financial mechanisms for adaptation and recovery processes:

“Although developed countries aimed to allocate $100 billion annually to developing countries starting in 2020, this goal has not been fully achieved. At COP29, it is likely that this goal will be reinforced, and more effective control mechanisms will be established.”

The expert highlighted that the availability and accessibility of climate finance will be a key topic at COP29:

“Developing countries should have faster and equal access to this financial flow. Balancing financial flows and focusing on costs related to adaptation measures is also crucial. Currently, financial flows are mainly directed towards the development of low-carbon (green) technologies, but it is important for developing countries to have a balanced allocation of funds for both adaptation and resilience measures.”

Karimzada outlined the following main steps:

- Increasing the transparency of climate finance and reducing bureaucratic obstacles;

- Establishing special financial mechanisms for small island states and least developed countries;

- Creating incentives for the private sector to contribute more to climate finance.

The analyst predicted that more flexible and adaptive financial mechanisms will be adopted for Multilateral Development Banks (MDBs) to align with the climate agenda at COP29.

“At COP29, the reform of Multilateral Development Banks regarding the fight against climate change and financial support to developing countries will be a main topic of discussion. It is important to deepen reforms to integrate MDBs into the Green Finance markets, attract more investments to climate projects, and guide the private sector in this direction,” he added.

He also emphasized the importance of joining the fair transition process:

"One of the main issues is that the private sector joins the fair transition process and willingness to take on more responsibility in this area. This transition requires attention to social aspects, such as protecting jobs and creating job opportunities in new fields, especially during the shift from traditional energy sources to low-carbon technologies. At COP29, support programs are expected to be expanded to increase the participation of both governments and the private sector in this regard.”

In conclusion, an effective fight against climate change must be fair to all parties and beneficial to nature. The responsibility primarily falls on developed countries.

Fiscal commitments are important not only to combat climate change but also to address inequality.