BlackRock, the world’s largest asset manager, has issued a research report advocating that the governments of developed countries provide $100bn in grant funding annually to emerging markets, to assist them to transition to clean energy and mitigate climate change.
While expected to be controversial with citizens in the developed world, this is the only way that the climate change challenge can be significantly tackled and is essential to the global aim of achieving net zero by 2050.
The report comes as countries across the globe prepare for UN climate change conference COP26 in November, with a shortfall in funding regarding which developed nations had previously pledged to assist poorer countries. Developed countries had promised $100bn every year in public and private funding from 2020. That target has not yet been reached.
The BlackRock Institute, the asset manager’s research arm, says that this amount is insufficient and that developing countries need $1-trillion annually to address climate change. It advocates that $100bn in grant funding be used to leverage $1-trillion in public and private finance.
“Climate change is a global problem: without a successful transition to net-zero everywhere, climate risk is unmanageable anywhere. Emerging markets are essential to the global transition — now accounting for 34% of global carbon emissions (excluding China) — but they are starved of capital to fund it. We estimate emerging markets will need at least $1-trillion per year to achieve net-zero emissions by 2050 — more than six times current investment,” the BlackRock report said.
“Given the collective interest in a successful transition and a shrinking window of time to act, we believe a much larger amount of public money needs to be directed from countries that can afford it to countries whose green transition is critical but underfunded,” it said.
Public money from the developed world could be used to absorb losses through loans, guarantees and equity in circumstance that would otherwise deter private investors. To leverage public budgetary funding at scale, financing would need to shift from a project by project basis to a facility level. Tools to do this could include “green banks, mechanisms such as auctioned carbon price floors, securitisation and suitably designed facility-level credit enhancements,” the report said.
Environment, forestry and fisheries minister Barbara Creecy said last week a pre-COP26 briefing that the $100bn a year pledged by developed nations, which has not yet materialised is in any case insufficient. Creecy said that Organisation for Economic Co-operation and Development (OECD) research suggests developing countries will need $3-trillion to $4-trillion to finance adaptation and mitigation.
“But we are not seeing the developed countries coming to the party with regard to the finance,” she said. “We need to start with a floor of $100bn and we need to start to move that floor to $750bn a year by 2030.”
SA is engaged in negotiations with climate envoys from several developed country governments to raise grant and concessional funding for its green transition.
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