Moving Forward: The G20 Bali Global Blended Finance Alliance

Transition financing again featured at COP 28 as an existential and one of the most challenging issues facing global transition. The emerging changes in multilateral development bank-climate finance and proposals for new platforms, such as the Energy Transition Accelerator, featured in discussions. Yet, the voices from the Global South, as well as the archipelagic island states, believe that more is needed and certainly with much greater urgency because dire climate impacts are becoming their daily reality.

The COP 28 Global Blended Finance Alliance roundtable took this agenda forward. Indonesia chaired the meeting and was represented by Alu Dohong, Vice Minister for Environment and

Forestry; Nani Hendiarti, Deputy for Environment and Forestry, Coordinating Ministry of Maritime Affairs and Investment and Cherie Nursalim, Special Advisor on Climate for the Coordinating Ministry of Maritime Affairs and Investment.

Indonesia has been a leader in driving action on transition financing.

• Tri Hita Karana Forum around the 2018 IMF-WB Annual Meeting in Bali catalyzed $10 billion for the SDGs

• Indonesia launched the THK Roadmap for Blended Finance in collaboration with the OECD, UID, and WEF around IMF WB Meetings in 2018. This Roadmap served as the foundation for the OECD to develop the G20 Blended Finance Principles.

• Indonesia established the first blended finance platform, SDG Indonesia One by PT SMI. SDG Indonesia One is a platform with an Investment mandate focused on developing large-scale SDG-linked infrastructure projects through the use of blended finance.

The importance of blended finance to address the funding gap for climate action reflects broad recognition of the role of blended finance. But, much more needs to be done. In welcoming delegates to the COP28 Global Blended Finance Alliance roundtable, Mari Pangestu, Indonesia’s Special Envoy to the G20 Bali Global Blended Finance Alliance, said that capacity-building programs and support networks with the private sector to build bankable and transformative projects are a priority. New partnerships through south-south collaboration and better catalytic partnerships also need stronger handson support. Furthermore, training to improve data and standardization of capital mobilization towards EMDEs would be supportive of transition financing.

G20 Leaders voiced support for blended finance in their 2022 Bali Declaration. G20 Leaders supported strong global climate action, mobilizing financing, and technology transfer. The Leaders committed to help developing countries accelerate and scale investment for climate action. All recognize that there is still a significant financing gap if developing and emerging economies are to tackle climate change. But the financing gap, while significant, is equivalent to just a small fraction of global financial assets. The challenge is thus to incentivize investors to redirect a portion of their financial assets toward investment in climate action.

Reflecting this challenge, Indonesia spearheaded the inclusion of the G20 Bali Global Blended Finance Alliance in the 2022 G20 Leaders’ communique. The emphasis was on scaling up blended finance instruments for developing countries. The G20 Bali Global Blended Finance Alliance is needed to bridge the gap in SDG financing. Indonesia recognized that there remains a lack of coordination on the promotion of blended finance. To promote optimal operationalization and delivery of blended finance in developing countries, including LDCs and SIDS, G20 Leaders said that there is a need “ to engage a wide set of actors and build a global community of support. We acknowledge the proposed initiative of a new global institution by the Government of Indonesia on the Global Blended Finance Alliance that could serve as a global community of support to accelerate investment in climate action and sustainable development.”

The G20 Bali Global Blended Finance Alliance is designed as a platform to develop financial solutions involving public and private stakeholders to address climate and other sustainable development issues. It will welcome partnerships with all stakeholders, including the private sector. Working in partnership with coalitions, the Alliance aims to reduce transaction costs by replicating learnings and building capacity within key institutions.

Unlocking capital for climate action is critical for a country’s ability to capture value from the transition. Yet most developing countries do not have funds allocated to help design and implement the right policies, partnerships, institutional structures and financing solutions for the transition. This means that decision-makers often fail to make the case for transition and are ill-equipped to link financing solutions to national priorities, climate targets, spending programs, budgetary constraints and policies to strengthen the enabling investment environment.

The Alliance aims to respond to this critical gap in institutional capacity by working with decision-makers to tailor and implement transition finance blueprints, best-in-class blended structures and the right enabling policies to ensure it can access the long-term benefits which come from investing in climate action and the SDGs and unlocking transition finance; public, private and philanthropic capital –both domestic & international.

The Alliance aims to reduce the time and transaction costs of providing critical transition finance support. It can be operationalized with outsized impact due to the increasing focus on unlocking climate finance. It plans to work with other country initiatives including GFANZ/CFLI country platforms, the OECD, the WEF’s SDIP, the Blended Finance Taskforce’s Transition Finance Hub. These partnerships will ensure complementarity between the Alliance’s focus on financing sectoral pathways, enabling policy and access to sovereign transition finance and these transactional platforms. →

UNLOCKING CAPITAL FOR CLIMATE ACTION IS CRITICAL FOR A COUNTRY’S ABILITY TO CAPTURE VALUE FROM THE TRANSITION. YET MOST DEVELOPING COUNTRIES DO NOT HAVE FUNDS ALLOCATED TO HELP DESIGN AND IMPLEMENT THE RIGHT POLICIES, PARTNERSHIPS, INSTITUTIONAL STRUCTURES AND FINANCING SOLUTIONS FOR THE TRANSITION.

→ The G20 Bali Global Blended Finance Alliance will have important immediate tasks. These include facilitating policy development to accelerate the use of bilateral donor assistance/MDBs to mobilize funds from the private sector. Building capacity, knowledge sharing and best practices to reduce transaction costs with proven replication, knowledge and financial innovation. Building and supporting networks with the private sector that can accelerate pipeline project development, reduce risk perceptions, simplify transactions and support transparency with a view to enhance private sector involvement and ownership. Employ data and standardization to reduce risk perceptions and undertake more impact-related evaluation.

The Global Blended Finance Alliance roundtable at COP 28 included representatives from United States of America, Republic of Korea, Singapore, United Kingdom, and Denmark. The World Bank, Asian Development Bank OECD and the International Chambers of Commerce.

The Roundtable concluded that the G20 Bali GBFA will bring value add from facilitating policy development, share practices on G20 Principals on Blended Finance, how to accelerate bilateral assistance to design transition pathway, and country-owned design; capacity building – partnership with bilateral partners as well as through the learning process between developed and developing countries.

South-South collaboration, cocreation and acceleration are a key aspect of the G20 Bali Global Blended Finance Alliance. Countries have expressed interest to partner with the Alliance to accelerate South- South collaboration and co-creation to mobilize domestic and international capital to the global south. Examples of south-south of learning are Namibia’s request to Indonesia to help them create their SDG Namibia One Fund. Another is the Trilateral Forest Powers for Climate Partnership (IndonesiaBrazil-DR Congo) group launched last year, not least is the Just Energy Transition Partnership with IPG countries and GFANZ.

Domestic capital mobilization is a critical lever for climate action and South-South collaboration - especially to share policy innovations. EMDEs alone have an estimated ~$17 trillion under management - much of which could be deployed for low-carbon energy, clean transport and other sustainable projects. Creating a strong EMDE domestic capital collaboration could be a differentiator for the G20 Bali Global Blended Finance Alliance.

The Alliance can support South-South collaboration and co-creation but also South-South acceleration - moving faster to replicate success stories.

Uniquely positioned to scale blended finance mechanisms that work and build capacity to execute faster to unlock capital for people and planet, The G20 Bali Global Blended Finance

Alliance is an innovative and effective finance mobilisation accelerator that serves as a platform for private sector, philanthropy, and others. Success will come from focusing on structuring projects that take into account the local situation of the developing countries.

Indonesia is looking for the announcement of the new Secretariat and signing with initial member countries the G20 Bali Global Blended Finance Alliance in May 2024 around the 10th World Water Forum in Bali, Indonesia. ■

H.E. Retno Marsudi, Minister for Foreign Affairs of the Republic of Indonesia

While COP 28 marks significant milestone to unite, act and deliver, with a landmark move on the loss and damage fund, there is still much to be done.

First, climate actions at the national level must be strengthened. Just like Indonesia, to lead by example. We have enhanced our NDC to 31,89% unconditionally and 43,2% with international support.

Furthermore, we are committed to reaching 23% of renewable energy in our national energy mix by 2025. In the forestry sector, deforestation has reached a historic low of 104 thousand hectares in 2022. Moreover, we aim to rehabilitate our mangroves up to 600.000 hectares by the end of 2024.

Second, realizing support for developing countries is a prerequisite. The world cannot stop only at pledge. We are at a crossroads, and it is time to act.

Third, living the spirit of a just transition, which leaves no one behind, acknowledges differences in national circumstances, aligns with economic growth and empowers society.

Indonesia looks forward to collaborating with all parties to deliver a successful global climate agenda.