Climate change is touching all aspects of life and is hindering our ability to achieve the Sustainable Development Goals. Despite commitments made in the Paris Agreements, the necessary paradigm shift is slow to happen. We talked to Richard McNally, Global Sector Coordinator for Climate & Business about the urgent need for climate action and what SNV is doing.
Despite warnings and the climate crisis manifesting itself all around us, change is coming only slowly. What can we do to accelerate action?
There is an urgent need for governments across the world to show far greater commitment to tackle the climate crisis. We also need to catalyse the expertise, innovation capacity and financial leverage of the private sector. In the Paris Agreements, governments agreed to provide US$100 billion per year after 2020, but pledges are falling short. There is a clear investment gap. Governments play a critical role in coordination, planning, building infrastructure, and distributing resources for adaptation, which is needed to crowd in private sector investment. But we are still seeing government policies that run contrary to climate smart practices, for example subsidies on particular crops that are not climate resilient, or subsidised fossil fuel-based energy. Governments need to step up and make greater efforts to support the transition which will help shape investments into the agricultural sector and reduce the overall risks for investors and companies.
At the same time, businesses are still hesitant to make the necessary switch. They may not be fully responsive to the impacts of climate change due to a lack of information, or understanding of their exposure and vulnerabilities. Also, the impacts of climate change can be variable and uncertain. This makes it difficult for firms to plan and invest in change. In addition, capital costs for investment in adaptation technologies are often high. These factors work together and hamper companies’ investment decision to make the necessary switch.
This situation is especially problematic for small and medium size companies in developing countries because they may not have the ability to invest to properly understand and evaluate climate risks or develop climate-resilient solutions.
What is SNV doing to address these issues and close the financing gap?
SNV has always worked in business and market development. We help businesses to bring their innovations to market and scale them. We now use this experience to drive change in regions of the world that are most vulnerable to climate change. We work in four areas to achieve this.
First, we develop markets for climate smart products and services. Where necessary, we stimulate demand and supply, for example by managing results-based financing schemes. For example, in the STAMP (Sustainable Technology Adaptation for Mali's Pastoralists) project in Mali we helped build resilience amongst over 55,000 pastoralists affected by extreme climate events, by developing the capacity of local service providers to supply dedicated information services, allowing access and use of geo-satellite derived data. Under the AgResults Vietnam Greenhouse Gas Emissions Reduction Pilot project (AVERP), we are using a financial incentive to trigger supply. The project uses prize money to stimulate companies to develop and scale climate smart technologies. The prize money is awarded based on the overall agricultural output achieved, as well as greenhouse gas emissions reduced.
Second, we help companies understand and respond to climate impacts. We generate relevant information on the impacts of climate change, such as changes in expected yield for crops due to fluctuations in rainfall or increasing temperatures. One tool that we use for example is the Climate Risk Assessment Tool (CRAT). It is used to help determine what climate risks different actors face, from producers to consumers, and to identify suitable adaptation strategies to lower these risks. Another tool we use for example is the SNV Siting Tool which determines the suitability of a particular target crop for different geographic areas. We use these and other tools, for example in the CRAFT project to generate data on the impacts of climate change on the yields of selected crops. We then use the information to raise awareness with local agri-businesses, incentivising them to adjust their business model.
Third, we attract and leverage financing to enable businesses to scale their climate smart ambitions. Many of our activities are targeted on removing the barriers that businesses face to access loans. We help companies in partnership with financial partners such as Rabobank, to develop climate smart business plans tailored for bank finances. We also work with local financial institutions to develop and offer climate smart financial products. For example, as part of the Smart Water for Agriculture project, the Kenya Union of Savings and Credit Co-operatives launched a Smart Water Loan facility to increase access for farmers to financing for smart water solutions for farmers. We also apply blended finance mechanisms, using seed capital and other financial instruments such as guarantees and Results Based Financing to de-risk commercial investments and leverage private sector capital. Under the CRAFT project, we have set up a Climate Innovation Fund, where companies can access seed capital if they can provide strong climate smart business propositions amenable for bank lending.
Finally, we support the development of a conducive enabling environment that will allow the transition to more climate smart practices to happen. Building on our local knowledge, we identify critical gaps in the enabling environment to support authorities to adopt policies, fiscal measures and budgetary allocations to encourage the shift to climate smart practices. Fiscal or budgetary incentives can serve as a particularly effective tool to mobilise private capital for low carbon and more climate smart practices. Currently, fiscal policies and regulations, such as green credit policies, environmental taxation, tax exemptions, and other interventions, remain limited. We also support local actors to strengthen their advocacy and awareness raising capacity, for example in the Voice for Change project.
All these areas off work, using our extensive experience, have been bundled by SNV in the new Climate and Business product.