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23 November 2023

Meeting more ambitious climate and biodiversity finance goals - options for Switzerland and beyond

4 minute read
Green investments Net zero
Mara Menz Senior Specialist, Impact Funds, Climate Investments
Martin Stadelmann Global Co-Head of Advisory

The international community stands at a critical crossroads on climate and nature finance.

There is a pressing need for high-income countries to increase their commitment to climate and biodiversity finance for developing countries as collective international finance targets are set to rise. In particular, a new Collective Quantified Goal (NCQG) for international climate finance is expected to be set at COP29 in Baku.

Mara Menz and Martin Stadelman from South Pole's Climate Investments team recently produced a study for the Swiss Federal Administration, assessing options to source and leverage more international climate and biodiversity finance that will help meet higher finance commitments. Here is what they found:

The challenge: Going beyond USD 100 billion for climate and beyond USD 20 billion for international biodiversity finance

From 2025 onwards, the collective international climate and biodiversity finance channelled from industrialised nations to developing countries is expected to increase substantially. Climate finance is expected to rise from the current USD 100 billion per year to a yet undefined but significantly higher amount. Biodiversity finance is expected to rise from USD 20 to USD 30 billion every year from 2030.

This calls for increased contributions from industrialised countries to support developing countries to meet their climate and biodiversity targets outlined in their National Determined Contributions (NDC), as well as other climate and biodiversity targets.

Looking at the example of Switzerland, this implies that its financial commitments will have to scale exponentially. Switzerland's contribution to international climate finance will need to grow well beyond the current CHF 600 million. CHF 200 million (30%) of this climate finance comes from private investments. The CHF 120 million for international biodiversity finance in 2020 will also need to grow quickly.

Two options: New sources of public or higher mobilisation of private finance

With the public budget under strain due to the COVID-19 pandemic and the war in Ukraine, the report highlights that Switzerland has two options to make increased contributions possible. Switzerland could develop or tap into new sources of public finance. It could achieve a higher mobilisation of private finance. Or it could - and should - do both.

There are many approaches other nations have been taking towards increasing their international climate and biodiversity finance contribution. For instance, the EU's Carbon Border Adjustment Mechanism and Germany's Emissions Trading System (ETS) serve as examples of how other countries could generate more public funding. Denmark and the Netherlands have also implemented successful measures to mobilise private finance through their development finance institutions and smart public-private partnerships.

11 new sources of public finance and 18 new instruments to mobilise private finance

The study proposes 11 potential approaches for how Switzerland could establish new sources for international climate and biodiversity finance. Some examples with considerable potential for adoption and financial effectiveness are:

  • A Swiss Carbon Border Adjustment Mechanism.
  • An expansion of the Swiss ETS and existing taxes and levies.
  • Introducing new taxes and levies such as an air and maritime levy or a fossil commodity trading tax.

Furthermore, the study identifies 18 instruments to mobilise more private international climate and biodiversity finance through public finance. Examples include:

  • Expanding the Swiss Investment Fund for Emerging Markets (SIFEM) as a Development Finance Institution to allocate more catalytic capital for climate and or biodiversity investments.
  • Creating a new public-private green investment fund.
  • Promoting guarantees and supporting impact asset managers that invest in climate and biodiversity projects in developing countries, including covering fees for first-time investments or supporting liquidity for non-listed shares of climate and biodiversity companies.

In addition to the financial options, the study highlights accompanying and enabling measures to successfully facilitate international climate and biodiversity finance, such as technical assistance for investment readiness of investees and for local financial institutions to establish “green credit lines."

Future-focused roadmap

The study concludes with a future-focused roadmap including several recommendations for the Swiss government and the parliament. It emphasises a focus on instruments reducing market barriers for private sector investments and improving the financial readiness of climate and biodiversity projects in developing countries. It also advocates for a greater financial risk appetite by governments and a focus on financial instruments that mobilise more private finance.

The study also stresses the need to reduce financial flows that accelerate climate change and biodiversity loss, especially in fossil fuel spending. In 2021, Switzerland's spending on fossil fuels exceeded CHF 4 billion, almost eight times its 2020 international climate finance. Moreover, in 2020, Switzerland allocated aroundCHF 40 billion to biodiversity-negative subsidies, while biodiversity-positive finance was only CHF 1 billion. Subsidies should be made conditional on positive or at least neutral climate and biodiversity outcomes.

It is now more urgent than ever for countries to come together to address climate change and biodiversity loss. South Pole's study serves as a roadmap for Switzerland and other countries to secure new sources and to mobilise more private finance. Both will be needed to meet the ambitious new collective quantified finance goals (NCQG) already set for biodiversity and expected for climate finance as an outcome of COP29 in fall 2024.

Get in touch with us to find out more
Get in touch with us to find out more

South Pole's international team of climate finance experts works with governments, public and private funders to mobilise finance for a net zero and climate-resilient world.

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