South will trial equitable transformation efforts globally

South will trial equitable transformation efforts globally

The global shift towards a net-zero economy is gaining momentum ahead of the COP26 summit in November, with a focus on ensuring that the benefits and opportunities of this transition are shared widely among developing countries.

Stern suggests that North-south climate finance flows need to be doubled to achieve this goal. Central banks in emerging markets will need to incorporate an explicit focus on the just transition, connecting their commitment to financial inclusion with their growing response to the climate crisis.

More than 70 low-income countries are either in debt distress or at high risk of debt distress, making boosting international public finance through grants and concessional mechanisms important. Global investments of $2.6tn-$3.2tn a year will be needed to deliver the required transitions in energy and resilience, with most needed in emerging economies.

A heavy reliance on production for export is another reason why developing countries are increasingly carrying the burden of carbon risks in the global economy. However, President Joe Biden in the US has made clear that solutions to the climate crisis offer opportunities to create well-paying union jobs and deliver an equitable, clean energy future.

Increasing international public and private sector finance to support the just transition in developing countries for net-zero goals and social imperatives involves a combination of coordinated policy, innovative financing mechanisms, and institutional frameworks.

One such approach is the establishment of Just Energy Transition Partnerships (JETPs). These partnerships bring together developing nations, donor countries, multilateral development banks, and private investors to accelerate net-zero targets with an explicit social and rights-based focus.

Blended finance structures and public tools, such as subsidies and tax incentives, help attract private capital by sharing risks and making projects investable. Governments can design transition plans that integrate adaptation and resilience to increase credibility and align investment pipelines with real economy needs.

Institutional coordination and dedicated mechanisms at national and subnational levels are critical to harmonize and optimize financing flows. For example, India's experience shows the need for mechanisms tying together finance, environment, labor, and energy ministries to avoid inefficiencies and maximize the impact of sovereign green bonds, CSR funds, and concessional finance.

Leveraging private capital through clear policy signals and risk mitigation enables commercial investors to participate confidently in social and environmental transition projects. Social impact metrics embedded in ESG frameworks, outcome-based disbursements, and sustainability-linked loans tied to social targets encourage private sector engagement aligned with just transition goals.

Co-investment approaches, where public and private actors pool financing resources, can address both physical infrastructure needs (like renewable energy projects) and socio-economic impacts (such as social protection for affected workers and communities). This reduces dependency on government budgets alone and mobilizes a wider pool of concessional and commercial capital.

Governments in countries like South Africa and Indonesia are demonstrating leadership by developing frameworks reflecting co-investment and strong public facilitation, which build investor confidence and overcome systemic constraints in scaling just transition finance.

In summary, increasing finance requires a multi-stakeholder, multi-instrument strategy combining international partnerships (like JETPs), blended finance, institutional coordination, policy clarity, risk-sharing, and the integration of social impact criteria with climate investment to catalyse private and public capital flows towards just transition priorities in developing countries.

Work is underway in India and South Africa to set out what roadmaps for financing the just transition could contain. The EU has established a Just Transition Mechanism to mobilize €150bn by 2027 to support regions most affected by its Green Deal programme. Increased flows of both international public and private sector finance to developing countries will be essential to address fundamental social imperatives through a just transition.

The European Bank for Reconstruction and Development and the World Bank have introduced dedicated programmes for the just transition, which need to be expanded to all MDBs. This means tapping into domestic pools of capital, not least in the banking sector, and securing international flows of climate finance far larger than the $100bn per year commitment in the Paris agreement.

The UK's carbon emissions peaked in 1973, while China's had reached 7.2t per capita in 2016 and South Africa's 8.5t per capita. The US still had far higher emissions per capita at 15.5t in 2016. Accelerating investments in climate action and nature restoration are seen as drivers of economic recovery, job creation, and innovation.

Governor Yi Gang of the People's Bank of China observed that China will move from carbon peak to net zero in about 30 years, and its financial institutions should begin their green transition right away. Emerging markets and developing countries could be the greatest beneficiaries of this shift, with Africa having potential to be a 'renewables superpower'.

Getting trillions of net-zero investments to flow in emerging markets will require a realignment of the global financial system. Nick Robins, Professor in Practice for Sustainable Finance, suggests that if the EU needs a €150bn mechanism to deliver a just transition in Europe, much more may be required for the developing world. South Africa's President Cyril Ramaphosa has committed to contributing to reducing global emissions in the context of overcoming poverty, inequality, and underdevelopment.

1. The global shift towards a net-zero economy requires doubling North-south climate finance flows, according to Stern.
2. Central banks in emerging markets should focus on the just transition, connecting financial inclusion with their response to the climate crisis.
3. More than 70 low-income countries are at risk of debt distress, making boosting international public finance important.
4. Global investments of $2.6tn-$3.2tn a year are needed to achieve net-zero energy and resilience transitions, with most needed in emerging economies.
5. Solutions to the climate crisis offer opportunities for well-paying union jobs and an equitable, clean energy future, as stated by President Joe Biden.
6. A just transition requires increasing international public and private sector finance, which involves coordinated policy, innovative financing mechanisms, and institutional frameworks.
7. Just Energy Transition Partnerships (JETPs) bring together developing nations, donor countries, multilateral development banks, and private investors to accelerate net-zero targets with an explicit social focus.
8. Blended finance structures and public tools help attract private capital by sharing risks and making projects investable.
9. Transition plans should integrate adaptation and resilience to align investment pipelines with real economy needs.
10. Institutional coordination at national and subnational levels is critical to harmonize and optimize financing flows.
11. Leveraging private capital through clear policy signals and risk mitigation encourages private sector engagement aligned with just transition goals.
12. Co-investment approaches can address both physical infrastructure needs and socio-economic impacts, reducing dependency on government budgets alone.
13. Increased finance requires a multi-stakeholder, multi-instrument strategy, including international partnerships, blended finance, institutional coordination, policy clarity, risk-sharing, and social impact criteria integration with climate investment.

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