As set out in the terms of reference launching the group, the diminishing window of opportunity to act defined by the science requires an exceptional push on the scale, quality, and composition of investment and finance, urgently needed by developing countries: to close the adaptation gap, to build resilience and protect the vulnerable from climate change; to drive systemic change and innovation for carbon neutral transformation in the context of just transition; and to protect and restore natural capital. Delay would be deeply dangerous to development and the poorest are hit hardest by climate change.

The report of the IHLEG published just before COP27 set out an integrated debt and financing strategy that can deliver on the finance at the scale, quality and pace that is needed. It sets out an approach and specific proposals on how to utilise the complementary strengths of different pools of finance to ensure the right scale and kind of finance and reduce the cost of capital rather than simply focusing on the aggregate number; on how to align all finance with sustainability, as reflected in the SDGs and climate goals, with enhanced transparency to ensure all can partake in the drive to net zero and foster climate resilience in line with Article 2; and on highlighting the necessary partnerships to deliver concrete results.

The report featured prominently in the discussions at COP27, receiving broad-based support, and has gained traction in the global deliberations on climate finance. The aim of the next phase of the work of the group is to utilise the findings and recommendations of the report to inform the global agenda setting on climate finance and to impart momentum on the implementation of actions set out in the report.

The Sharm El-Sheikh Implementation Plan (SHIP) makes a strong call for “a transformation of the financial system and its structures and processes, engaging governments, central banks, commercial banks, institutional investors and other financial actors” to better serve both climate and development goals. It calls upon the shareholders of multilateral development banks and international financial institutions to “reform multilateral development bank practices and priorities, align and scale up funding, ensure simplified access and mobilize climate finance from various sources” and encourages multilateral development banks to “define a new vision and commensurate operational model, channels and instruments that are fit for the purpose of adequately addressing the global climate emergency, including deploying a full suite of instruments, from grants to guarantees and non-debt instruments, taking into account debt burdens, and to address risk appetite, with a view to substantially increasing climate finance”. Furthermore, SHIP calls on multilateral development banks to “contribute to significantly increasing climate ambition using the breadth of their policy and financial instruments for greater results, including on private capital mobilization, and to ensure higher financial efficiency and maximize use of existing concessional and risk capital vehicles to drive innovation and accelerate impact.

Through proactive and systematic engagement, and in cooperation with the Climate Champions and COP 27/28 Presidencies, the co-chairs and the Executive Secretary, as well as individual members, will continue to inform and shape the ongoing discussions based on the outcomes of COP27 and the findings and recommendations of the first report. The group will distil key insights from these discussions and seek to connect them based on the holistic and integrated financing strategy developed in the report. In turn, this would enable the Group to make a useful input on the discussions on climate finance under the COP27 and COP28 Presidencies, including in the context of the “Sharm el-Sheikh dialogue” that was launched by COP27 between Parties, relevant organizations and stakeholders to exchange views on and enhance understanding of the scope of Article 2.1(c), of the Paris Agreement (making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development ) and its complementarity with Article 9 of the Paris Agreement (developed country Parties shall provide financial resources to assist developing country Parties with respect to both mitigation and adaptation in continuation of their existing obligations under the Convention… ). The Group’s work also comes at an important juncture as the first Global Stocktake (GST), will provide a comprehensive assessment of progress since adopting the Paris Agreement. This will help align efforts on climate action, including forward-looking measures that need to be put in place to bridge the current gaps.

• Assess progress on actions to accelerate implementation of investments and on impediments that need to be tackled to unlock robust programmes and pipelines of projects. This would include lessons on how to accelerate investment strategies and programmes in a purposeful way around projects, plans, the right policy mix, appropriate financial instruments, and finance. Special focus would be given to Africa, in terms of the development of low-carbon growth pathways and the just energy transition, consistent with the Paris Agreement and the need to improve energy access.
• Assess the continuing agenda on strengthening domestic resource mobilization, both public and private. Evaluate the role of country/regional/global platforms and coordination mechanisms in accelerating implementation including the just energy transition and other country partnerships and the follow-up on the project lists presented at the Regional Finance Forums that were convened in 2022 by the COP27 Presidency, UN Regional Commissions and the UN Climate Change High-Level Champions.
• Set out the implications for near and medium-term action and targets for mobilizing all pools of finance commensurate with the scale and urgency of needs. This would include actions needed to tackle the growing pressures on debt; domestic resource mobilization and international tax cooperation; the potential to tap the large pools of private finance; scaling up support from multilateral development banks and other development finance institutions; bilateral and multilateral concessional finance; and new and innovative financing instruments and solutions such as the expanded use of SDRs, voluntary and compliance carbon markets, debt swaps, leveraging private philanthropy, and new options for global green taxes.
• Concessional finance is a critical pillar for external finance given large and growing needs for loss and damage, adaptation and resilience, protecting and restoring nature, fostering just transitions and helping to reduce the cost of capital. This will require at least a doubling of bilateral climate finance commitments by 2025 from their 2019 levels. But as the IHLEG report has underscored, this will not be sufficient, and a wide array of options will have to be pursued to mobilise the necessary scale of concessional finance including the use of SDRs, debt swaps, voluntary carbon markets and leveraging private philanthropy. The IHLEG will review progress and gaps in the delivery of concessional finance and assess options to scale up concessional finance including those being developed under the Bridgetown Initiative and President Macron’s June Summit on a Global Financing Pact. The group will also assess the adequacy of measures to tackle the urgent challenges on debt, especially for climate vulnerable countries.
• The Sharm El-Sheikh Implementation Plan calls on multilateral development banks to “contribute to significantly increasing climate ambition using the breadth of their policy and financial instruments for greater results, including on private capital mobilization, and to ensure higher financial efficiency and maximize use of existing concessional and risk capital vehicles to drive innovation and accelerate impact”. The IHLEG report underscored that multilateral development banks and development financial institutions more broadly, are key to helping countries accelerate implementation of investments, scale up financing directly and catalytically, and bring down the cost of capital. Informed by the ongoing discussions in different fora, and interacting with the MDBs (including the MDB Climate Leaders group) and the Finance in Common network of public development banks, the IHLEG will review both the steps underway and priorities for further action on the part of MDBs and the broader DFI system including a much stronger partnership between MDBs and the private sector. This would include assessment of role and effectiveness of platforms and instruments to foster investments, tackle risks, and reduce cost of capital through blended finance.
• COP27 achieved a breakthrough on matters relating to funding arrangements responding to loss and damage associated with the adverse effects of climate change. The IHLEG will provide recommendations on identifying the most effective ways to provide funding to respond to needs related to addressing loss and damage, including how international financial institutions contribute to such funding arrangements, through new and innovative approaches.
• Mobilising private finance at scale and tackling the cost of capital is the centrepiece for mobilizing the $1 trillion in external climate finance per annum needed by 2030 for developing countries and emerging markets. The IHLEG will assess the initiatives underway to unlock private finance including through tackling impediments to unlocking investment opportunities, improving and expanding risk mitigation and blended finance through deployment of the right instruments, strengthening market foundations of green finance, and building a stronger partnership between the private and public sector. It will set out recommendations on how to build on and integrate these initiatives and what concrete proposals could be taken forward at COP28.

The group has brought together around 30 high level experts drawn from all regions of the world and from both the public and private sector, with high credibility and expertise on the issues to be taken up by the group. The co-chairs will review and finalize the membership of the group for this next phase of the work.

The co-chairs with support of the Executive Secretary and the Secretariat will convene periodic virtual meetings to discuss the key issues and proposals for action based on background papers prepared in advance. The co-chairs and the Executive Secretary will prepare and submit an interim report in August to take stock of ongoing initiatives and proposals and assess progress on implementation. They would submit a final report in advance of COP28 with a focus on priorities for future action. Prior to the finalization of both reports, the co-chairs will convene, in cooperation with the UN Climate Change High Level Champions, high-level roundtables as necessary, under the auspices of the COP Presidencies, that would include the members of the group and relevant stakeholders.

The group would engage with key stakeholders including the COP27 and COP28 Presidencies, the UN Climate Change High Level Champions, UN/UNFCCC, the co- chairs of the new quantified goal process, International Financial Institutions (MDBs, Regional Development Banks, National Development Banks, IMF, OECD, etc), private sector (including the Blended Finance Taskforce, the Glasgow Financial Alliance for Net Zero and Global Investors for Sustainable Development), and private philanthropy. As noted, it would interact with and build on other processes and initiatives.

The work and deliberations of the group would be supported by the Brookings Institution, the Economic Commission of Africa, and the Grantham Research Institute on Climate Change (LSE). The Secretariat would collaborate with institutions in Egypt and the UAE identified by the COP27 and COP28 Presidencies.

The work of the group would be supported by the COP27 and COP28 Presidencies and private philanthropy.