The Paris Climate Agreement and the 2030 Agenda represent an unprecedented consensus across the the world’s governments, to align our efforts on a comprehensive and ambitious development agenda. National climate pledges – also known as Nationally Determined Contributions (NDCs) – have been made by 197 countries to contribute to the Paris Climate Goal of climate neutrality. This level of ambition now needs to be matched with resources, partnerships and innovation.
To deliver these climate pledges as well as the Sustainable Development Goals (SDGs), developing countries need around US$4 trillion a year, so the private sector is critical. Around US$2 trillion are needed for climate-related sectors alone. While investments in clean energy are substantial - US$287.5 billion in 2016 after the record investment of US$348.5 billion in 2015 - clearly more action is required.
Along with the momentum created by the Paris Agreement comes the important challenge of transforming political promises into action. It is well recognized that finance in developing countries is fundamental for creating momentum, but countries continue to face challenges in attracting private sector investment at the scale needed to achieve an economic paradigm shift.
Some estimate that private sector contributions will amount to around 85 or 90 percent of the total cost of shifting towards a low carbon society. However, it is also acknowledged that investments are not happening at the pace nor at the geographical scale we need. Most private sector investments are in developed countries and not in developing countries, where most of the earth’s population live. An accelerated shift of investments into these markets is urgently needed to put the world on a zero-carbon pathway.
National climate plans represent at least a US$13.5 trillion market for the energy sector alone and specifically energy efficiency and low carbon technologies. The low carbon technology market is growing significantly and the cost of renewable energy is going down. This means the national climate plans of developing countries can open new market opportunities. These include expanded markets in building efficiency and demand side energy management, for example, through low carbon technologies in the transport sector such as electric cars; solar, wind, hydro and geothermal energy; and water and waste management. Businesses that act boldly and swiftly will reap the rewards.
While countries state that they need financial support to achieve their climate and development goals, one critical aspect and the precondition to unlocking the finances needed is a transparent enabling regulatory environment with laws and policy incentives that allow a healthy private sector to thrive.
UNDP recently conducted a survey in Uganda that showed a significant number of enterprises are already interested in contributing to the climate goals and SDGs. These companies work on solar energy and clean cookstoves, in banking , are steel manufacturing, water and sewerage, engineering and construction and many other areas.
Businesses showed greater interest in engaging with the SDGs than in the NDC priority sectors: 12 of the 17 SDGs received at least 25 percent business interest, while only three of the eight NDC priority sectors received similar interest. The SDGs appear to offer a better entry point to engage business in both SDG and NDC action.
As the graph below illustrates the SDGs with greatest private sector interest are SDG 7 – affordable and clean energy, followed by SDGs relating to climate action, sustainable cities and communities good health and well being, and poverty. The next most popular relate to gender equality (SDG 5), clean water and sanitation (SDG 6), innovation (SDG 9), decent work and economic growth (SDG 8) and sustainable consumption and production (SDG 12). The interest in SDG 1 is notable in Uganda, as it indicates commitment from the private sector to contribute to meeting the needs of underserved communities. In comparison, global SDG surveys have shown minimal business interest in SDG 1.
The Uganda NDC priority sector with greatest private sector interest was energy at 86 percent. Business interest exists in other NDC sectors but at lower levels. The top three NDC priority actions are: to promote solar energy uptake, increase energy and electricity efficiency, and expand cookstoves and efficient biomass use.
The primary motivations for the private sector to integrate climate and SDG action into their businesses were to save costs and make their operations more efficient, underlining the business case for climate action. Businesses also felt that doing so would open new market opportunities, solidifying them as SDG business leaders and also improving their reputations. Some 57 percent of companies have already set specific targets and initiatives to improve their impact on the SDGs and NDCs.
We cannot tackle climate change without a thriving private sector. Countries have the responsibility to create a climate-friendly business environment for all enterprises. The good news is any country can do this, regardless of its development status.