COP29 is in full swing in Azerbaijan, but progress on Paris Agreement climate targets – and a corresponding Just Energy Transition – is flagging. Despite a growing recognition of the inexorable link between financing and the achievement of these targets, emerging economies face difficulties generating the financing needed for climate action and investments in renewable energy.
Without capital to invest in national-level action, these global commitments will remain just talking points. But by coming together to transform the global financial architecture, UNDP and its partners are finding innovative ways to help governments overcome critical financing challenges.
Debt is a major barrier: the high cost of borrowing has led many developing countries to devote the bulk of public funds to servicing debt. Already in 2022, UNDP’s analysts had warned against overoptimistic debt projections, showing that five-year forecast errors underestimated the pre-pandemic debt buildup by 10-13 percentage points in emerging markets.
For the Sustainable Development Goals (SDGs) alone, the annual financing gap is approaching US$4.2 trillion. One of the key actions for addressing the debt crisis in many developing economies is increasing access to long-term affordable financing. Climate finance is crucially important: at COP29, parties will attempt to set a more ambitious quantitative target for annual climate finance flows than the current US$100 billion per year.
Building a Sustainable Financial Architecture Requires Systemic Change
Building a more sustainable and equitable financial architecture requires systemic change – not just new finance instruments. UNDP is increasingly requested to bring its experience from working in over 170 countries into global forums focused on recalibrating the global financial system. For example, UNDP supported the Brazilian Presidency of the G20 in developing recommendations to make Nationally Determined Contributions (NDCs) to Paris Agreement commitments more investable. That same support will be provided to South Africa when it assumes the G20 Presidency in December.
UNDP and its partners are putting multilateral action to work at the national level by providing support for Integrated National Financing Frameworks (INFFs). A key outcome of the Addis Ababa Action Agenda, INFFs take a holistic approach to financing that involves both the public and private sectors. Ranging from budget and tax reforms to debt-for-nature swaps and, increasingly, private equity and blended finance, INFFs are key to aligning financing for the SDGs and NDCs.
INFFs promote cohesive financial planning that generates returns, which can be reinvested in climate-focused sectors. By bringing diverse financing tools into a coherent whole, these country-led strategies can generate the resources necessary to address both climate and development imperatives. More than 85 countries have adopted the INFF approach, 13 governments have active financing plans, and more than 50 have initiated finance-related reforms, with around 20 percent of these reforms focused on climate action.
The need to link NDCs with the SDGs
At the heart of the commitment to deliver on the Paris Agreement, the NDCs represent each country's individual commitment to reduce national emissions and adapt to the impacts of climate change. Submitted by parties to the United Nations Framework Convention on Climate Change (UNFCCC), they outline the actions countries intend to take to meet the collective goal of limiting global temperature rise to well below 2°C. Unlike the SDGs, which are universal and include ending poverty and eradicating hunger, NDCs focus specifically on climate action. Their emphasis on reducing emissions links them to targets on sustainable energy. While both NDCs and SDGs contribute to sustainable development, NDCs are set nationally and can be revised over time.
By aligning NDC commitments with SDG targets, countries can enhance their climate strategies while simultaneously advancing broader development objectives. For example, UNDP is testing an "SDG x NDC interlinkages" method in Cambodia, El Salvador, Liberia, Tunisia and Uzbekistan. This initiative focuses on identifying NDC actions that contribute to multiple SDGs, while examining challenges and funding opportunities.
The SDG Finance Academy: Open Access to Training in Sustainable Finance
The SDG Finance Academy is UNDP’s premier tool for sharing its expertise in sustainable finance planning and implementation. The Academy tailors UNDP’s expertise directly to organizations’ needs through live-in-person Academies, and offers online training courses free of charge to everyone.
Launched during COP29, the newest online course Introduction to Sustainable Finance for Climate and Energy introduces a range of innovative financing tools such as sovereign bonds, carbon markets, taxation, sovereign debt and private financing solutions. It is the first open-access course to focus on financing for climate and energy – demonstrating how the knowledge developed through multilateral action can be shared as a global public good.
International Financiers Play a Crucial Role
With many countries struggling to provide basic services to their populations, the burden of financing climate action and a Just Energy Transition cannot be left to developing economies to grapple with alone. International financial institutions (IFIs) play a crucial role in providing the affordable financing countries need. In addition, IFIs act as vital “impact multipliers”, collaborating with investors and insurers to de-risk investments in sustainable energy and climate-smart initiatives.
UNDP and its multilateral partners need to work in harmony with these institutions, offering technical assistance, policy frameworks and other support for establishing enabling investment environments. Throughout COP29 and beyond, we are calling upon IFIs to join in this multilateral, multi-disciplinary commitment to build a sustainable finance architecture that benefits all people and the planet. The UNFCCC renewal process and 4th International Conference on Financing for Development in 2025 will provide critical entry points for these efforts.
In the process of engaging with IFIs and a host of other multilateral partners, UNDP is sharing its expertise in sustainable finance, along with our commitment to propel action toward halting climate change and facilitating Just Energy Transition – one country at a time.
About the authors:
Tom Beloe leads UNDP’s Sustainable Finance Hub, having dedicated 25 years to governance, climate finance and responsible business practices. Previous to UNDP, Tom worked for think tanks, NGOs and the UK government’s Department for International Development (DFID).
Christopher Lilyblad coordinates UNDP’s Joint Agenda for Financing the Paris Agreement and SDGs. Previously, he was a development economist in Guinea Bissau and Cabo Verde. Christopher holds a Doctorate in International Development from the University of Oxford.