International Development Committee
Oral evidence: The UK’s International Climate Finance, HC 206
Tuesday 2 June 2026
Ordered by the House of Commons to be published on 2 June 2026.
Members present: Sarah Champion (Chair); Janet Daby; Tracy Gilbert; Monica Harding; Noah Law; Brian Mathew; David Mundell; James Naish; Sam Rushworth; David Taylor.
Questions 45 - 101
Witnesses
I: Ms Deborah Sanchez, Indigenous Leader and Director of Community Land Rights and Conservation Finance Initiative, Rights and Resources Initiative; and Silvia Carolina Herrera Hernandez, Coffee Producer and Secretary of the Board of Directors, CLAC Comercio Justo.
II: Professor Nicola Ranger, Executive Director of Earth Capital Nexus and Professor in Practice, Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science; Amar Inamdar, Managing Director, KawiSafi Ventures; and Dharshan Wignarajah, Director, Climate Policy Initiative.
Witnesses: Ms Deborah Sanchez and Silvia Carolina Herrera Hernandez.
Q45 Chair: Thank you all for joining us in the International Development Select Committee’s inquiry into the scale of the climate crisis and its impact. In this session, we are particularly looking at Latin America, and we are really fortunate to be joined by two experts and activists. Could I ask each of you to introduce yourselves and your organisation, and the area that you will share your experience of with us today?
Ms Sanchez: Titan yamni, tutni yamni—I am greeting you in my native language. I am from the Miskito community on the south side of Honduras. My name is Deborah Sanchez and I have been working in my community on supporting land rights, titling and environmental issues since my youth, when I first joined a movement as a youth leader in my community. Now I am the director of the community land rights and conservation finance initiative, which is a funding mechanism. I am here to give my thoughts and experience about my life in my community and how we are doing on vulnerability and resilience in terms of climate change, as well as my expertise in direct access to funding for indigenous people and the local community.
Chair: We really appreciate you joining us and also all the work that you have been doing. Thank you.
Silvia Carolina Herrera Hernandez: Hi, everyone. My name is Silvia Herrera. I am a coffee producer in Mexico and I am also part of the CLAC board, which is a Fairtrade producers’ network in Latin America. I really appreciate this space to bring our thoughts and experience from on the ground. Thank you very much.
Chair: Thank you so much for what you are doing as well and thank you for being here in the room. I will hand over to Janet for the first question.
Q46 Janet Daby: Good afternoon. I will direct my question to Deborah first. It is helpful for us as a Committee to understand the lived experience of climate change. I want to get a sense of how you have personally noticed the climate changing over the years.
Ms Sanchez: I wanted to come with my personal story. When I was a kid, I lived in my community, which is a coastal community. Honduras is very impacted by climate change, specifically by hurricanes. One of the more memorable things that comes to my mind from childhood is getting everyone together in the only building that was cement built, where we could get refuge from the hurricane storms.
Over the years, what I saw in my community was that we were already on the path of vulnerability from weather impacts, but everything has now become massive. Now, within a week, we have had two massive storms and hurricanes hitting the community, which makes people a lot more vulnerable because we cannot recover or repair. Infrastructure is lost; crops are lost. This year, we are preparing for a tremendous drought with the El Niño effect in our community. Everything that was planted and harvested will be lost because we do not have a lot of irrigation systems and technology around agriculture.
Over the years, we have lived in a customary way and understood the weather, the patterns and how things were coming along. We also had resilient systems. But, now, the weather is changing massively and the climate is impacting all the weather around the world. Honduras is on the more vulnerable side of Central America, on the Caribbean, and the Miskito community is on the north coast, where it is very isolated from the rest of the country. That has put us in a spot where more vulnerability happens every time.
Q47 Janet Daby: How often are the hurricanes now, Deborah?
Ms Sanchez: We have a hurricane season that starts early in July and ends around mid-November. Then, in January, we have a little bit of drought, and then it rains again. We have good weather all year round—sun and good temperatures—but the problem is that the droughts in the dry season have been very strong, and then in the wet season things get very violent, with winds, storms and hurricanes. That gives the community a very short window of time, between May and July, to harvest and get food. That has a very strong impact on livelihoods, and specifically on women. That is because, in my community, many of the men are fishermen and they go out and fish, but the agricultural system relies on the women, and it becomes more and more vulnerable every time.
Janet Daby: Thank you. Silvia?
Silvia Carolina Herrera Hernandez: We have the impact of climate change every year. For the last three years, we have had a lot of dry weather, with a lot of fires all around the country, most of them in Veracruz and Chiapas, where most of the agricultural things happen. Last year and this year, we have seen a lot of rain, and the pattern of the rain has changed. For example, when we are expecting rain—not just us, but the plants—it has not rained, so we do not receive the same amount of production we were expecting.
Last year, we lost half of our harvest because the year before it didn’t rain enough and the ripening did not happen at the time it was supposed to, so our cherries were not ready to be cropped. Last year, it rained on time. The problem was that the new blossom was coming, so if we picked those cherries, we would affect the next season. So we decided to lose the most valuable crop and top leave it there, and we hoped the next year would be better.
This has been affecting us for maybe 10 years—the fact that the rain patterns have changed. As people, we can go into our houses if it is hot or cold, but the plants cannot, so they are suffering out there, and we cannot do many things. Right now, we are investing in adaptation programmes so that our farms can be better adapted to this climate change impact. This implies a lot of investment, not just in time, but in resources. Unfortunately, there is not enough investigation or research in Mexico or in other countries. Sometimes we need to do whatever we think would be better, but we need a lot of research.
Q48 Chair: Silvia, you are a second-generation coffee farmer. When you speak to your dad and he looks over his lifespan, is he seeing changes? Are you just seeing a couple of bad years or is it an actual change?
Silvia Carolina Herrera Hernandez: No, we have seen changes for the last 15 years. The president of our co-operative always shares that right now we need to do a lot more activities in our farms than we used to do. Maybe 20 or 30 years ago, they just went and picked the cherries, but they can no longer do that. All year, they have to invest time and money and resources on their coffee trees, and of course, as a commodity, coffee prices are really volatile, even in one day. Right now, we are not covering the cost of production, so it is really hard to invest in something where you are not going to receive payment or to have a living wage or a dignified life. You are not paid even the cost of production. You are paying to produce coffee.
Q49 Chair: Deborah, the same question to you. Not just in your lifetime, but in your family’s experience, are you seeing a change in the climate in more recent times?
Ms Sanchez: Absolutely. My parents’ generation talk a lot about one specific event—a hurricane in 1979—but then there were no more than this huge, massive event. Now, we have seen Hurricane Mitch in 1998, Eta and Iota two years ago, and Sara one year ago. We see that the pattern of how often these events are happening and hitting the community, the territory and the country is shorter and shorter all the time.
The amount of rainfall that that brings to the country and to the community is also double or triple what it was in the past. From my conversation with them, what I see is that the climate is changing, but also that the effects and everything that is happening on the ground have been stronger. With the same infrastructure and readiness, we are facing stronger and more powerful effects from the climate every time and more often. It doesn’t leave us time to reflect and adapt.
As Silvia was talking about, this needs a lot of investment in how we adapt, how we think about it and how the community is prepared. We are a communal system, so we live together in communities that are forest-based and mangrove-based. We depend on the lagoon, the forest and the natural resources. When these events happen, it very much locks us in the house, and we are not able to move and mobilise and do normal life. There is also the wildlife. Everyone is hurt by these events, which happen more often and are stronger every time.
Q50 David Taylor: It is a privilege to speak to you both, particularly you, Silvia. I used to work at Fairtrade directly before I was elected, so I have many experiences of working brilliantly with CLAC, including on climate change. I remember well that a number of your colleagues came over for the Glasgow climate talks when the UK hosted them. Could you talk specifically to the benefits of being in the Fairtrade system in terms of helping you to adapt to climate change?
Silvia Carolina Herrera Hernandez: When you are under the umbrella of Fairtrade—at least this is our experience—you have the chance to think out of the box. You are not just thinking about production, production and production and making the business profitable. Of course, you are receiving a fair price for your production, but you also have the chance with this social premium to invest in many other things that you are interested in. That is the thing right now that is supporting all these projects.
Of course, that is a challenge, and unfortunately we do not often find in the market partners that are willing to support these projects. The producers say, “I am going to invest resources and time in many things. I won’t be receiving any extra payment for that. I am doing something good for the environment.” So we are investing this social premium in projects that in the long term will help us have a sustainable supply chain. This is good for all of us. It is not just about production or having our great cup of coffee or great cocoa. No, it is about people being supported, not just trapped in this market or thinking just about coffee. We have the chance to think about people.
Q51 David Taylor: From a gender perspective, how is the climate crisis affecting you and your colleagues as women producers? How is it affecting women differently?
Silvia Carolina Herrera Hernandez: If there are financing requirements, it is very hard right now to reach that financing. It is even harder for young people and women to reach it and to have room for discussion, because culturally and socially it has been a men’s businesses for decades and centuries. Right now, it is really hard.
Q52 Chair: Why is it harder now?
Silvia Carolina Herrera Hernandez: It has been hard, but right now we are trying to turn the tables.
Chair: You said it is even harder now.
Silvia Carolina Herrera Hernandez: Yes, it is even harder for us as women and young people to reach those programmes and even to have a voice. Normally, it is harder for us to have the legal property of the surface we are working on or even to have the chance to study or work. That is why it is harder for women and young people to reach those programmes.
Chair: Deborah, do you want to come in on this point?
Ms Sanchez: On women’s accessibility and the barriers to resources, we see it through the eyes of how tenure rights are realised at the community level and how people have access to land rights. One of the first barriers is many women in rural areas and communities—what we call our partners—don’t have access to recognised land rights. So that is the first barrier for women to access resources. If you want to produce, if you want to get finance, you have to have something in your hands that will enable you to get finance and so on. That is one piece.
The one solution that we have to that issue is the collective ownership of land. If the community can collectively own the land, we have seen how internal working on the governance system in the community can enable women—wives, daughters and young women—to access land in a customary way. That is one way they can have access to land and then realise their livelihoods, their local economies.
The other thing that I have seen as a barrier is the technical requirements that come with the resources from philanthropy or the market. You always need to have the whole technical background of how to apply, and what are the requirements, and that sometimes becomes a technocratic barrier for women to access these things. We have seen that when we invest in the leadership and capacity strengthening of women, and in the leadership of women-led organisations, they can overcome these barriers and get access to funding.
But that is still limited. From research, we have seen that less than 1% of climate funding reaches communities directly anyway. Within that 1%, if you make structural barriers for women even higher, it is more difficult for them to access funding, leadership and roles. If we are now competing against the weather and this thing climate change, and investment is not realised in the way we expected, the minimal investment that goes to women can be lost in a day of rain—in a two-hour storm. That is the critical situation that we are facing.
Q53 Chair: Deborah, you did an amazing thing. You were part of the group that managed to get 1.6 million hectares of land back to the indigenous community. Were you able to put any gender conditions on that? Were you able to get some of the titles to go to women?
Ms Sanchez: Yes, because we have a collective title in our community. We have 12 territorial councils, and within those each community has a governance system where women have access to land. I was talking to some of the leaders, and they said, “Deborah, why haven’t we seen you acknowledged on your piece of land within the titles?” I was like, “Yes, that is true.” I have been working with everyone to get the collective title, but I forgot about my piece of land.
Those type of things can happen if we do things collectively and if we use the governance system. Sometimes, the governance system can even start at the very traditional level of the community, go beyond that and, in one example, get into national legislation. We have seen that at different levels in different communities, where these examples can grow. In our community, we have the customary tradition, and then we have the Honduran law as the Government. The customary tradition recognises women’s land rights. That is how customary tradition can support the broader land tenure rights of women and youth.
Chair: That is very impressive. Thank you.
Q54 Brian Mathew: Deborah, many years ago I was working in Honduras, but I was a little further over, working with some communities with the Save the Children Fund. It was working with coffee on big plantations. The men would work for maybe three months of the year to pick the coffee and then, if they were lucky, they would get work down on the coast in the banana plantations, but in those days they were making about $1 a day. I was very interested, because down in Costa Rica you found the same campesinos making $19 to $25 a day. So there was major exploitation. I don’t know, but with the change in climate, those people are probably suffering even worse now than they were then. I am interested to hear your reflections on other parts of the country. It sounds like you are doing quite well where you are.
Ms Sanchez: Yes, maybe because we have the land rights realised, but then there is another layer: you have land, but land for what? Land for life—land to have economic life and development in your community. That is the other layer that comes with it.
People are struggling now. We have seen data that 60% of the Honduras population still work for that amount of money per day, so the struggles are still there. Now, as you mention, climate change is making it worse, because if coffee production goes down, you don’t have a lot of work to do any more. The harvest was bad this year, so a lot of people will be without any source of work and employment, and that makes the situation even worse.
Around 1.7 million people in Honduras are suffering some food insecurity, and among those are my community. Yes, we have natural resources, but the impact is so heavy, and what you see there is inaccessible in some way because we cannot realise the rights generally. Funding needs to reach those communities to develop the minimal infrastructure and the minimal enabling conditions for us to be able to realise rights.
The system is not different. The industry and the crops have changed slightly, in terms of how a new harvest happens in Honduras, but the situation facing the majority of people on the ground is similar or even worse than before due to the impact of climate change.
Q55 Noah Law: You have both spoken significantly about the challenges facing women and young people farming. Coming to smallholders more generally and perhaps the more operational side, what challenges do smallholder farmers face in having realistic options to implement adaptation measures?
Silvia Carolina Herrera Hernandez: It is very hard. When I was listening, I was thinking that workers, hired labour, are under really difficult conditions. Sometimes we feel, as smallholders, that we are spreading poverty, because we are not receiving enough money for our cost of production, yet we are forced to pay an amount to hire labour. If they are going to pick our cherries, they say, “This is the price I am charging you,” and we have to find a way to pay them. That is why we feel sometimes like we are spreading poverty, because even if we don’t have enough money to survive, we need to pay this amount. It is not enough for them as well; it is not that they are taking all of our money. No, it is also an amount that is tiny, that is not enough for them to live on, but of course we don’t have enough money as well.
So we are now trying to invest in adaptation programmes, making our farms sustainable and adapted to climate change. If someone doesn’t want to invest in these projects in the short term, their farms will no longer be suitable in the long term—they are not going to produce anything. There is a high risk that, at some point, this is not well addressed; if people have to choose between eating something at least once a day, but for the full week, rather than investing in adapting their farm, of course they will choose food. We need to make hard decisions sometimes, but at least that is something we are able to do because we are organised. That is the difference: when you are organised, and you do the work in the community, it is easier. We see these risks and challenges and we have the chance to think all together about what we can do and what we need to invest in.
We invest in a project. We take some of the producers that want to invest with us and try to help as much as possible. For example, we bring them plans to make green barriers, so that when there is a lot of rain in just one day and there are landslides, they can adapt their farms. They won’t be affected by the landslides, because there are green barriers that prevent this from happening.
We are growing some other things, not just coffee; we are trying to diversify. If you have a biodiverse farm, it will be harder for you to lose your crop; even if you lose coffee, maybe you can have something else out of your farm. Right now, it is really difficult for us to live from just one product, which right now for us is coffee. It can be whatever you need to diversify your farm so that you can adapt better, but that requires a lot of time and money.
Q56 Chair: Silvia, you have outlined some very practical adaptations that you can make. Are they things the UK Government could help with, or are they things that you are able to do on your own?
Silvia Carolina Herrera Hernandez: No, not really. We have some projects with customers or with international co-operation where we are developing adaptation programmes. After that we need to invest our own money, not just on activities but also on consciousness, because this is something else. Some producers don’t believe that it will be a good thing for them if they have to take out some coffee trees and instead plant bananas or citrus, because they are going to lose a surface that is dedicated to coffee. We are trying to prove that maybe you are not going to produce more coffee, but you are going to produce coffee for many more years. You have to think in the long term, and maybe if you are not going to produce more coffee, you are going to produce many other things. The thing is that the farm has to be sustainable.
Q57 Chair: Would support to future-proof the research be helpful?
Silvia Carolina Herrera Hernandez: Yes, of course. That is not happening, at least not in Mexico. We have seen so many other good examples in Latin America—in Costa Rica, Colombia and, of course, Brazil, and even work in Guatemala and Honduras, but not in Mexico. They are not investing enough in research. We have support from some other places. That is what we are trying to change, from coffee plantations to other plants, in our funds.
Q58 Noah Law: You said you are working with the private sector quite a bit—your buyers, for example. What costs does that entail, and how do you help the smallholder farmers absorb some of that cost?
Silvia Carolina Herrera Hernandez: We are receiving resources from just one customer all around the world, and then this project guy is coming from the German Government to our co-operative. We are investing more than $20,000 a year on this. Of course it is not enough, but the thing is that we have to grow other plants, not just coffee—innovation programmes for better adapted varieties.
Q59 Chair: What percentage is $20,000 of your turnover and your profits?
Silvia Carolina Herrera Hernandez: I would say that 15% of our profit is going there, because we are thinking about the long term. It is really hard to make somebody conscious about how important it is to invest now if we want to keep growing coffee for the future. So that is the thing.
Q60 Noah Law: It must be a huge pressure on your cash flows.
Silvia Carolina Herrera Hernandez: Yes, it is.
Q61 Noah Law: As you alluded to earlier, that is feeding through to the cash that your farmers take home at the end of the day. You said there is even a sense of guilt there about the pressure that is being exerted on people’s incomes. Similarly, Deborah alluded to that. Why is it that there is a sense of guilt—if I am describing it correctly—or is it a sense of responsibility to your farmers that their incomes are under so much pressure? Do they have other options?
Silvia Carolina Herrera Hernandez: Not really. You can save money and try to invest that, but at the end of the day there is going to be a point where your land will not be suitable for coffee any more. That is why, right now, we are trying to convince them with a pilot. There are 100 of our producers working on this and updating everything on their farm. We deliver them organic biofertilisers that we our producing. We are investing a lot to prove that that might be the alternative we have if we see the future as us growing coffee. Otherwise you can keep doing things like you are right now, and at some point you and your family will not be able to live on coffee any more.
Ms Sanchez: I want to come in on the long-term vision. Funding should go to the more cost-effective measure in the long term. How can we make the funding more effective in scale? With the climate change that we are facing right now, the scale of measures going to the community is key. One cost-effective measure of adaptation is when communities have realised their rights and can manage their territories. For example, we have seen how deforestation rates have can lower three times when territories are well funded and communities can self-determine and realise livelihoods.
How can we then see this beyond the traditional donor-recipient model and more as a partnership and a future investment in long-term adaptation measures for the communities? We have seen some models internationally. What we are calling the TFFF—the Tropical Forest Forever Facility—has dedicated 20% of the funding for indigenous people and local communities. They have direct access to those funds to develop the design of how that is going to be. The funding coming from Governments like the UK can inspire those mechanisms internally, in a way that indigenous and community-led infrastructure and mechanisms are embedded in the system. What we need to have is the skill to create impact overall in what we are doing.
The guilt that you are seeing in Silvia is, “How can I, as a person, commit to do something meaningful to change or to adapt to the climate change and to face the crisis that my people have today?” There should be a common, shared commitment all across the board, from everyone: “In my situation, how can I put myself there in my best capacity to adapt?” We can only do that if we do it at scale. That is what we want to see. How can the funding reach at scale, and how can solutions come in from the communities?
We can see that solutions are embedded in our communities. Communities have been in long-term stewardship of these lands. They know the lands, the territories, the trees, the birds and everything that is there. It is just a matter of how we can leave room for communities to take a breath, take stock of what is happening and revitalise traditional knowledge, invest in it and combine it with new technologies and adaptation measures and make it a skill.
Chair: Deborah, you have made your case very powerfully and very well. Thank you very much.
Q62 Janet Daby: Thank you so much for everything you have been saying, Deborah and Silvia. The next set of questions are around trying to understand how the climate crisis and climate shocks are affecting the indigenous population in terms of basic needs. Deborah, you have alluded to this before, but could you speak about how this is affecting areas to do with healthcare, transport, schooling and any other services, and how that is impacting local people, the indigenous population and local communities?
Ms Sanchez: Indigenous peoples are the one of the most vulnerable groups, being marginalised historically within the territories. While we don’t have the normal or minimal infrastructure to access health, education and basic needs, the climate crisis makes it even worse. For example, if there is investment in a school or healthcare facility for a community and then something comes and hits the community, those funds are going to be used to mitigate the crisis in the moment. There is no way for thinking of long-term investment; there is no room for thinking how the population can access education and healthcare. That is in one sense.
The other sense is how this impact is making a lot of people migrate from communities because we do not see the minimum needs met at the community level. People need to migrate to different areas, but they face a lot of traumatic situations outside the community, because you do not know the language or how to live in the city, and there is no access to a job. Myself, I had to leave my community when I was 12 years old in order to study; if I had not, I would not be able to talk to you in English today. No girl in the world needs to face that in order to access education. It is completely unfair to be seeing those types of cases in today’s world, but they are still there. The climate crisis is making it even worse.
The other part on migration is when the people leave their territories, those territories become empty places. The traditional knowledge of plants and of the territory itself starts to disappear over time. We can come to the risk of losing a lot of that knowledge, which has helped humanity in many discoveries in health. A lot of things had been held traditionally in the knowledge of the people. The language is being lost.
So there are a lot of intersections between the basic needs of indigenous people, marginalised over time, the need for new investment and competing demand on all of this, with the need to tackle and mitigate the climate crisis in real time.
Q63 Janet Daby: Anything around transport? How is that affected?
Ms Sanchez: On transport, at least in my community, it affects us a lot because we transport by boat on the rivers. Every time it gets flooded, the transport is stopped. We don’t have roads to connect my community with the rest of the country. When there is a health emergency, we don’t have a hospital in our community that would tackle a big health emergency, like an operation and similar things. If the weather does not allow us, people cannot leave the territory; they have to struggle in the territory with the illness, because you can only leave by aeroplane, and the cost of airplane fuel is so expensive now. It gets very isolated and very inaccessible. Transport is an issue, because if the rivers, the most common and cost-effective transportation, don’t allow travel, you have to do it by air and that is expensive. It is inaccessible in some ways for many people.
Q64 Chair: Deborah, how big is your community—how many people?
Ms Sanchez: We are 150,000 people, but we live in a large area—around 1.5 million hectares of land. It holds the biggest rainforest of Honduras.
Silvia Carolina Herrera Hernandez: The thing about the impact of climate change with indigenous communities, for example, as Deborah was saying, is that it takes decades for the Government to invest in roads, schools or hospitals; we don’t call them hospitals, because it is not a hospital—it is like a house where the doctor comes and does some checks for the community. If something happens—maybe landslides took the roads—things would be attempted, but many years after. There are some communities where it took decades for them to have a road; then something like this happens and it takes many more years, again, to be attended to. Sometimes they don’t always have ways to bring food to their homes or to go to the hospital and so on. It takes a lot of time for the Government to attend to those situations.
Q65 Chair: Presumably it is very difficult to get crops out?
Silvia Carolina Herrera Hernandez: Yes. For example, sometimes we invest our social premium on better roads so people can bring the coffee to our collection warehouse. That is something that helps everyone in the community, because it is not just coffee coming out to the community; it is people coming out of the community, to the school as well, and it is food. That is the sort of thing we got the chance to invest in.
Q66 David Mundell: Deborah, how is the climate crisis particularly affecting indigenous people’s ability to control their food systems and livelihoods?
Ms Sanchez: It is a long-standing issue. One barrier is the inaccessibility of land rights. When it comes to land rights, only 18% of the indigenous peoples’ and local community land is recognised. That is the first and most limited barrier.
On top of that, climate change is coming and there are competing priorities at the country level. Communities sometimes have difficulties accessing the forest, rivers or land for crops. We might have been using some traditional measures that worked in the beginning, but because of climate change they are not working any more. Traditionally in Honduras everyone planted on 3 May, because in May we had the first rain coming. That is not true any more. We don’t know when the first rains are going to come; maybe it could be in that week, maybe it could be two months later. Everything we knew that was true to produce crops is not true any more. We have to depend a lot on technology and on new variables to make things happen. If the communities are struggling to get basic needs, imagine the struggle to get technology and investment that can make their crops viable. That is one thing.
At least in our community, many people still do food for a living. We are not engaging at the commercial level. We would love to start working on some ways to do more investment and connection with private companies, but still we do not have roads, for example, between our communities and the rest of the country. The products that are sometimes produced are very locally eaten and very well rooted in our traditional knowledge.
One thing that we do is fishing, and fishing is a commercial thing. Fishing depends a lot on climate. One of our premium products was lobster, but because the seas are warming up, the lobster are now going deeper and deeper, so our fishermen need to go deeper to harvest those lobsters. The health issues come again, because they are diving and can get some health issues when they are doing that activity. So the activity is creating scarcity, but at the same time it is creating more risks for the health of people, because we are seeing this effect coming.
We are part of the Mesoamerican coral reef and we see how the coral reef is also being affected. Most of the things that we had traditionally lived with are now scarcer. In front of our eyes, we are seeing how the coral reef is dying. We are not doing anything to make it die; it is just climate change impacting the things that we have lived with for generations.
Chair: Ladies, we could talk to you all day, but we are getting quite pushed on time. For the next few questions, could I ask you to focus on the real points that you want to leave us with, please?
Q67 David Mundell: You touched on land tenure before and the control over natural resources that indigenous people have and how that affects local communities’ climate vulnerability.
Ms Sanchez: For us, studies show that land rights are the most cost-effective measure. Only 1% of the whole ecosystem benefits is the cost of securing those lands; the rest is all benefits. We have seen how the deforestation rates are lower and biodiversity is higher in the ecosystem, and all those conditions also regulate climate. All those conditions allow the communities to have better production, a better sense of living and better security in production.
We are facing a crisis and it is a struggle, and those episodes are coming in strong, but at the same time the fact that the communities are holding the forest and the ecosystem, creating ecosystem services that regulate and mitigate things locally, but also giving ecosystem service to the world, is the one thing that is allowing the communities to still access food today.
Q68 Tracy Gilbert: Most of my questions have been answered in your response and in some of what Silvia has said, so I want to move on to talk more about improvements on how the UK approaches international climate finance. What barriers do smallholders, farmers and indigenous peoples encounter when they are trying to access UK climate finance?
Ms Sanchez: One of the things that can be promoted is the accessibility of this funding. We see that more of the UK funding goes to multilateral agencies, but within that frame or ecosystem, a lot of accreditation and things need to happen in order to access those funds. How can we make some room for flexibility within those ecosystems? With the indigenous and community-led infrastructure now, we are seeing this funding mechanism clarify. We are re-granting directly to communities on the ground, getting the burden from the community and on us, so that the community can have flexible models. It is about how those models can be embedded within the broader ecosystem. So one thing is how we can flexibilise accreditation within multilateral funding.
It would also be amazing if we could start seeing some targets around monitoring the funds and how much of that funding is reaching communities directly. It would be amazing to see that discussion going on about how much of this climate funding is directly reaching the communities and the women there on the frontline. That would be a second measure that would be very impactful.
Third is how the UK can inspire those new funding models that include indigenous peoples and local communities, not just so they are designed in that way, but in the implementation phase. Where we see the bottleneck is when we go to implementation. How can the UK inspire those systems to implement in a proper way that is accessible for the local community?
Q69 Chair: Deborah, can I push you on the implementation? Do you mean you want the indigenous people to be the project delivery people, or do you think that the indigenous people should be involved in how the project is delivered?
Ms Sanchez: It is both. It depends on the level of involvement the communities want to determine themselves and how they see themselves. There will be some communities where they see themselves implementing and where it is in their capacity to deliver and implement. The most important thing is who is making the decision of how the funding is being implemented and in what things on the ground. It is about the governance and the decision making, shifting that power relationship so that communities are not just seen as a beneficiary of something but are co-creating and designing within the community—“What are the solutions that we are going to move forward with this initiative?” It is about being part of that dialogue.
It is about giving funding to the dialogue, to the construction, because sometimes the design is made at some desk, but the reality the communities are facing on the ground is completely different. Then we say, “Why is this failing?” No, it is not failing; it was designed in a way that was not the correct way with the community. The decision-making part, the governance part, is crucial.
Q70 Chair: You talk about the community. The community can often be a couple of people who play golf with the right people, who have the right connections, and say that they represent the community. How do you engage with the actual community?
Ms Sanchez: One of the main things where the right actors come together is when we start talking about land rights, because land is a collective action point and gives a lot of dialogue and dispute resolution, and brings community, leadership, ancestral authorities, women and the youth together. There is a point of discussion where it comes to the whole community and gives room for the community to be engaged on consultation. We have to see more than just safeguards, more than just what is required at a minimum. Go beyond and see how FPIC is implemented and how communities are participating.
Those are some of the indicators that can be measured on the way. How many consultations happened on the ground? How many people have been consulted? In that way, transparency can go across, but we are also inspiring collaboration and community leadership, and inspiring the people to come together and resolve conflict. Sometimes organisations don’t want to go down that road because there are many conflicts between communities, boundaries and families, but that is life. That is the opportunity to come together and manage. We have to sit for hours with our neighbours to solve problems when we work tightly.
Chair: Let me stop you there and hand you back to Tracy.
Q71 Tracy Gilbert: Silvia, on a similar point, how does that access to financing work for women-led projects and organisations among smallholder farmers and indigenous people?
Silvia Carolina Herrera Hernandez: While I was listening, I was thinking that it is important to bring farmers, smallholders and indigenous people to the designing. Sometimes it is easier to design and think at your desk, but it is important to bring our thoughts and experiences. There are good intentions and requirements to make sure that this money is going to impact whatever our goals are, but if we don’t know the experience on the ground—the difficulties—sometimes, even with good intentions, people not able to reach that financing. It is hard for anyone in our countries to reach that financing, but it is even harder for women, young people and indigenous people, because of these land rights. It is harder for us to have those documents or even the safe room to participate and bring our thoughts. That is why it is important to integrate at the designing moment, not just at the end of it.
How can we make this budget and these resources reachable for people on the ground? It would be great to bring those people to share their experience of how hard it would be. Not just that, but we should also have the commitment to monitoring after that. Sometimes there is a budget there and we just say, “We couldn’t deliver that budget. It was not possible.” But it wasn't, because, at the moment, we decide whatever actor is chosen on the ground and make all this list of requirements. It is impossible for us to reach that. There are many projects. We have some from the Development Bank of Jamaica that we are not able to reach.
On the other hand, we also have this thing with really high rates of financing. If someone is going to invest in something that will not bring any profit in terms of money, it is hard for us to convince them to invest in that, receive enough finance and then have to pay high rates. How can we do this and support this, knowing that it is not just about coffee production and having this great cup of coffee, or whatever you are thinking of? It is also about people and human rights. Otherwise, most of our people are going to have no choice but to leave our country, leave our community and go and work in the city or in the United States and have a life, even with more marginalisation. How can we all support the thinking that this is not just an environment thing, but also a social thing that would impact other territories?
Q72 Tracy Gilbert: Both Deborah and yourself have said quite clearly that you require more flexibility in systems, less bureaucracy, and monitoring of projects. Is there anything else that you can think of that would make access to the money more efficient and effective, other than what you have already covered off?
Ms Sanchez: I would add the skill. A lot of the time we only think about the smaller projects. Everything that goes to the community has to be a very small investment. It is all about risk. I would invite you to think about this and how we can see this as a partnership together, where the communities are the partners. You can be the investors in that partnership and we can scale the funding that is reaching the community. We have seen how communities do amazing with small money, but the level of the crisis that we are facing is the level of investment needed on the ground. We cannot tackle all these things that we have been describing today with the small $1,000 funding that reaches the communities.
Silvia Carolina Herrera Hernandez: I was thinking about what Deborah was saying. Of course, if we are just focusing the money on this community and then the other and then the other, we are not able to share experiences. Maybe everyone is making the same mistakes and we are not taking advantage if everything is coming from one side. Maybe we can take advantage of the experience of one of those communities, and then we all try to focus the other efforts and not just spread efforts everywhere.
Tracy Gilbert: Sharing skills and knowledge at scale.
Q73 Chair: Is there a forum where you share knowledge?
Silvia Carolina Herrera Hernandez: Yes. For example, there are Fairtrade forums where, I don’t know, maybe coffee producers—
Q74 Chair: Indeed, but is there one for people who are not members of Fairtrade? Is there a website where indigenous farmers share their knowledge and experience, and what works and what does not?
Silvia Carolina Herrera Hernandez: Yes, we do share our experiences. It is just something that you need to go into, yes.
Q75 Chair: It is done informally, rather than in a formal setting?
Silvia Carolina Herrera Hernandez: Yes, it is formal, but you are all invited to check the information. Sometimes there are not enough hours during the day to see what else someone is doing.
Chair: Ladies, you have both been fantastic, and provided incredibly powerful evidence for us. Thank you so much for sharing your knowledge and experience, but most of all your passion. I wish you both real success. Your communities are lucky to have such warrior women fighting on their behalf. Thank you very much for the time you have given to us. You are very welcome to stay for the second panel.
Witnesses: Professor Nicola Ranger, Amar Inamdar and Dharshan Wignarajah.
Q76 Chair: On our second panel, we are looking at leveraging the private sector and private finance. This is something that the Government are very keen on. I am very interested to see if it is something that is possible when it comes to climate adaptation and mitigation, and also if nature is protected within that. Apologies that we are running over, and thank you for bearing with us. Could I ask you to rattle down the chain and introduce yourselves and the organisation you represent? Amar, I will start with you, please.
Amar Inamdar: Thank you so much for having us here today. I really enjoyed the last two speakers. I am Amar Inamdar. I am the managing director of a venture fund. We invest in impact, predominantly in Africa. I am delighted to be here today to have this conversation.
Professor Ranger: I am Nicola Ranger. I am a professor in practice at the London School of Economics, focused on mobilising finance for adaptation in nature, particularly in emerging and developing economies, but also globally. I have a background at DFID and at the World Bank. I have spent about half my career in academia and half in development, finance and government.
Dharshan Wignarajah: Echoing Amar’s words, it was fascinating to listen to the earlier panel. My name is Dharshan Wignarajah. I am a director at the Climate Policy Initiative. My background is primarily private sector, but I then had a stint in the UK Government as a civil servant. That’s me.
Q77 Noah Law: Professor Ranger, how important is climate finance? In climate finance do we get private sector investment on top of Government public finance?
Professor Ranger: It is very important. Looking at it from a finance gap perspective, the needs of developing countries are very significant. We heard from the last two excellent speakers about the risks that countries are facing and the enormous need for investment in the transition, but also in adaptation and in environmental protection.
However, I would say that the way we frame that may focus too much on how we mobilise new finance, versus how we ensure that the finance that is already flowing in is actually supporting sustainability goals. For example, if we look at adaptation, often we focus on how we bring in finance for infrastructure resilience, which is obviously very important. But if we look at some of Dharshan’s numbers on the 2.9 trillion that is going into infrastructure investment around the world anyway, making that resilient is probably a priority, certainly in an area like nature, for example, where we also see significant investment gaps and, again, and urgent need from a climate perspective as well. You have 7 trillion going into things that damage nature versus 220 billion going into things that are supporting nature. So, yes, we need to bring more finance into nature, but we need to shift that balance as well to ensure that the existing finance going in is not damaging.
Q78 Noah Law: That is interesting. You think that the financing gap is a bit of a myth then?
Professor Ranger: There is a financing gap, but it often puts the focus in the wrong areas. There needs to be an equal balance between financing more activities and looking at where finance is flowing at the moment and ensuring that that is sustainable and resilient.
Q79 Noah Law: Turning to you on this topic, Dharshan, the Government’s stated shift from donor to investor places that increasing weight on private finance to meet those commitments. What do you think is the Government’s role in maximising the potential of that private sector investment?
Dharshan Wignarajah: As I see it, the role of the Government is very much mobilisation, and there are tracks of how you define mobilisation. In my understanding and experience, the Government has already been involved as an investor through some of its critical instruments, like BII and the Private Infrastructure Development Group, both of which are significant UK aid-funded initiatives that act as quasi-investors in this space. The Government already has experience of operating in this space. There is a critical role for not just the UK Government, but global Governments, particularly the advanced economies, to play in encouraging this flow of capital.
I would agree with Nicola that there is capital available. The scale of private wealth markets suggests that there are capital pools that could be deployed against both the mitigation and resilience needs we see. However, there is a very clear and defined gap between today’s flows and what we need to see in order for us globally to meet our obligations under the Paris agreement and avoid the worst impacts of climate change.
Q80 Noah Law: Do you think it is possible for the Government to encourage that private capital that is already at work to take that correct form, consider those adaptation and mitigation requirements, and make those interventions?
Dharshan Wignarajah: My brief answer would be yes, it is possible for the Government to do that. It is important for them to exercise sound judgment. The reason some of those investment vehicles were created was to draw together the right finance and investment talent that can liaise between the private sector and the public sector and make the most effective use of what are increasingly scarce public resources. Yes, if done judiciously and with enough consideration of the evidence of what is working and what is driving mobilisation, there are routes where the Government can play an important and critical role moving forward.
Professor Ranger: I would agree. There are a number of examples where the Government have taken action that has had significant impact. Where it has been most impactful is where it has not just been about an investment—not just about a transaction—but looking at how you change a whole system to mobilise more investment into it.
We should note that when we are talking about investment, it is not just about capital mobilisation from the UK to developing countries or internationally, but also about how you build local capital markets. Where that has been successful, we have often seen a mixture of getting the enabling environment right. For example, the EMDE Investor Taskforce talks about the market infrastructure being one of the biggest barriers to investment. It is about getting that right, and looking at investible projects. Everyone talks about building a pipeline, but how do you build businesses that you can invest in, and how do you support this with other enablers that are needed—for example, data and expertise? So the UK can be, and has been, successful, but it is about looking at this in a holistic way.
Q81 Noah Law: You have more of less answered my next question, on whether it is realistic to expect the private sector to step up and fill those gaps. Do you feel that, with the right support, the Government can encourage that sufficiently?
Professor Ranger: Yes, I do. There are a number of successful examples there. It is where the public and private sector are working together, and it is more than just about blended finance. For example, let’s take FSDA, Financial Sector Deepening Africa, which I am sure is a programme you have looked at, and which has been supported by the UK since 2002. This is about market development in Africa. It works with regulators. It provides data. It works with central banks to get the market infrastructure ready. It also provides accelerator funding for small projects and supports capacity building with CEOs. So it looks at the whole picture. Where there are programmes like that, which have been successful over a long period, it is because they are looking at this integrated approach.
Q82 Noah Law: Very briefly, we are familiar with the term “mobilisation” at this point. In a word or a term, how would you describe the Government’s role in providing those services you have described?
Professor Ranger: It is providing the enabling environment.
Noah Law: I am sure the Committee would love to hear more examples, if you could write to us with some of the greatest hits in terms of providing the enabling environment, and the impact and capacity that that has built, and perhaps figures as well, if you have them. Thank you.
Dharshan Wignarajah: If I could just complement that, Nicola is right to point to the enabling environment. In the written submissions, there are a number of additional elements that can be considered within the mobilisation arena. The application of grant or high-risk capital is critical in creating a financial structure that allows private players to participate, build experience of a market and then, over time, take on more of the quantum, ideally over a time-bound horizon, whereby any provision at below cost or below market expectations supported by the public purse can be wound down.
If you take a market like Germany or the UK, where there were many subsidies in place for the growth of their solar industries, those worked very effectively during that period and created the ability to produce, manufacture and market those things, and then the public subsidy stepped out. Some important figures here are that 80% of the climate finance we track is domestic. The role of international private finance is crucial, but it is to often act as a trigger for domestic resources to flow into the regions that we want.
The other comment I would like to make is, let us not shy away from the timing issue. The timing of the climate and the nature loss challenges is absolutely mission-critical. That is where there is an even deeper opportunity for the Government to play a timely but very focused role in unlocking greater investment.
Q83 Chair: Dharshan, I wonder if you could say a little bit more. You talked about the range of tools that the Government have, or rather had. How well do they use them to give the reassurance to private capital?
Dharshan Wignarajah: The way I would approach it is that the range of tools, from a financial instrument perspective, takes you across grant, the deployment of equity, debt. Some 96% of the finance that we track is provided with the expectation of a return of some description, which is something that developing countries, particularly, find very challenging, and arguably not in line with the Paris agreement’s intentions, which we are legally obliged to respond to.
The Government has experimented and continues to think of pioneering ways that it can use its full range of tools. There is an opportunity to do more in the equity space or with tools like guarantees, but all of these have nuanced impacts on the accounting methodologies and how that then relates to ICF budget amounts.
The UK has a good record at trying to explore innovation through some of the instruments that Nicola and I have mentioned. But, as we heard in the earlier session, there is a real imperative for the UK and the G7 to continue to find instruments that provide quicker access and that start to consider which the market sectors are that are lagging. It is not the roll-out of PV in India. It is more, is there enough grid transmission and distribution capacity in a market like Nigeria? That might be a more pressing requirement for constrained capital resources. The systems of the UK, or any other system, do not move quickly enough in response to what the markets are able to fund commercially themselves, but would continue to need help with elsewhere.
My last very quick point on this is that adaptation and mitigation are often talked about in different spheres. I believe that they are quite interconnected in some ways. As we see more climate impacts—again as referenced in the earlier panel—the need for grant support in an adaptive resilience context is far higher than the opportunity to drive forward with drawing in private markets, particularly in fragile, conflict-affected states, where those markets simply do not exist.
Professor Ranger: I agree with Dharshan. There are two areas where I think the UK can potentially do more. I agree that the UK has been very effective at experimenting with a whole range of tools, and I can give a number of examples of those. Where there is opportunity to do more is looking at how to use those together in a more strategic way. That would be my first point.
A related point would be looking at how to address a specific challenge. What would be very good to see more of is working in very close partnership with a country and saying, “We want to work together to address this particular challenge. How can we bring all of the tools in the toolkit together in a co-ordinated way to do that?” That is not something that I have seen, but it is something where the UK could make significant progress, particularly in a more constrained environment.
Q84 James Naish: To take you back about 15 minutes, Dharshan, you talked about today’s flows being insufficient for us to meet the Paris agreement. I just wanted an articulation of how big you saw the gap being, how insufficient those flows are and what would need to happen to get to the point where we might be on track with that.
Dharshan Wignarajah: That is a great question, James. I passionately believe that understanding the numbers gives us a source of hope, because I think the transition is financeable, but it also makes you pretty clear-eyed on the magnitude of the challenge. Last year, our numbers were 1.9 trillion global climate finance. That is across public, private, international and domestic.
There are a couple of points there. I think the latest estimates of what the gap is—which we don’t do, as Climate Policy Initiative—show that by 2030 you are looking at a range of 6.5 trillion to 7.8 trillion a year in need. That is across all types of need, so mitigative, adaptation and dual benefits. That is a kind of tripling that we need to see. Four years ago, when I started my current role, we needed seven times, so the gap is closing.
So I would encourage the Committee to recognise, first, that it is possible and, secondly, that time is of the essence. If we can bend that curve quicker and get to the levels of investment we need to see, it drives two things. The first is the ability to hold the carbon budget as low as we can keep it, because whether you go through 1.5° or 2° , it is still very material how long you spend above that trajectory. Secondly, it allows us to build resilience quicker, and that is of course about a very diversified set of needs across different regions. The UK has taken that very seriously, and has been conscious of LDCs, SIDS and Africa and what it is that supporting those regions requires.
Q85 Noah Law: Nicola, you mentioned examples of not just creating an enabling environment, but setting out with an objective of building something, whether it is a grid in XYZ country, co-ordinating that end to end and bringing this full toolkit together. You said there may not be any good examples out there, but can you think of any exceptions and best practices that we could draw on?
Professor Ranger: Yes, there a number. One is from my own experience in my time working at DFID. I used to lead on their work on insurance and closing the financial protection gap that low-income communities face. There, in partnership with others—particularly Germany and the World Bank, as well as with the private sector, and particularly the City of London insurance market—we looked at how could we work together to close that gap. An example there would be that we established a facility through the World Bank that still exists—the Global Shield Financing Facility—which provided up-front technical assistance to countries to get them to the point where they could purchase insurance or access contingent financing tools from the World Bank, for example, to provide protection from disasters.
For countries that were a bit further ahead and able to access private markets, we supported them through technical assistance programmes, including FSDA, which I mentioned, on insurance market development and private market development in-country. We also provided them with training. We worked with City of London insurers and some of the big global reinsurers to provide technical assistance between global insurers and domestic insurers. This was a partnership that still exists, the Global Shield partnership, which provided among a set of donors and multilaterals a whole set of support that could support different countries at different stages of development. That was a particular challenge; it was initially set out by the G7 in 2015 as a challenge to close the financial protection gap, and there was a focused effort among a number of partners to do that.
Q86 James Naish: We have talked a lot about the UK, but thinking about multilateral climate fund options, what role do you see them playing in financing climate initiatives moving forwards?
Amar Inamdar: We work with a range of multilateral institutions. One is the Green Climate Fund, which the UK supports deeply. It plays a critical role. The aggregation role that the multilaterals play in bringing together pools of capital that might not otherwise reach the scale that any single bilateral might be able to deploy is crucial, as is the development of expertise. The pooling of experience across multilaterals that allows for learning and improvement around development outcomes is also critical.
In all of this discussion, we have not touched on what the impact and outcome of these billions—if not trillions—is that we all need to see happening on the ground. That is sometimes one of the challenges with the multilateral lens: we create too many filters before we get out to the ground. Your last two speakers were really eloquent about helping and challenging us to think about what is the outcome for us on the ground and how we make a difference in that space.
Having said that, we are not going to pass away from multilateralism. It is the flow that will happen. How do we challenge ourselves to be more flexible, less bureaucratic, and more responsive to local institutions and local needs, so that the flow of funds can be applied—to the points that both of the other members of this panel have made excellently well—not just to project transactions, but to tackling systems-level improvement in markets that drives to outcomes that allow the local private sector to participate and step up to the challenge of delivering goods and services against climate challenges?
In the kind of work we do, we ask the question, “Are there local entrepreneurs that we can deploy capital to that are trying to address the clean cooking stove challenge—the cooking challenge—and the energy access challenge?” You asked earlier whether there are examples of where this has already happened. The energy access challenge is one where pools of multilaterals have got together with domestic capital, worked with domestic energy companies, running renewables in countries like Nigeria. We have thought hard about how that system piece works; we are not simply playing into an unlevel playing field of subsidies into the fossil fuel sector that are undoing all of the hard work that local entrepreneurs are doing.
That is where the multilaterals can play a crucial role in sewing together the tapestry that is needed for all of these different pieces to work together better. We have seen real results from that. In that Nigeria example, diesel subsidies are the one thing that keep most generators running. When we took away those subsidies, you got 65 MW of green power, renewable power, being installed in the country in the subsequent 18 months. It is an extraordinary impact that happens at system level, of public and private working together to create outcomes.
Q87 James Naish: Do you have anything to add on the role that multilateral climate funds can play in mobilising that private finance?
Professor Ranger: As Amar said, the issue of scale, expertise and trust among countries is critical. More broadly with multilaterals—from my own experience of working with them over a few decades—it is about the relationship with countries and the ability through policy-based lending to countries as well to support them in policy reforms that are needed for these wider system changes. Those are some of the key advantages.
Q88 James Naish: Do you think that the FCDO has prioritised these multilateral channels sufficiently when it comes to private finance for climate initiatives?
Dharshan Wignarajah: What you would sensibly have is a portfolio, in part because it is an ecosystem and your activity in one can influence and impact the others. The way I think about it is the multilateral development banks; the bilateral DFIs, which for the UK is CDC; the national development banks, which are the likes of the Development Bank of South Africa or the equivalent in many of the emerging markets; and then the vertical climate environment funds, which you referred to as the multilateral climate funds, and which are very specifically targeted on climate finance. Those are the key international public finance sources.
Some 60% of the finance that goes towards climate is provided by the multilateral development banks. They have an aggregation of talent, capacity and capability that you would not match in a bilateral context. However, they need checks and balances. If you just hand them your hard-earned taxpayer contributions, ask a few questions and do not hold them to account, it would be unsurprising if they do not do exactly what you think might be the most appropriate way forward. That is why it is good that FCDO retain a set of individuals who can act as that integrity function and who can help those institutions, be they MDBs, bilateral development finance institutions or the vertical climate funds, to think about what innovation looks like or to course-correct when they are not channelling enough money to, for example, the likes of the LDCs.
Q89 Chair: Nicola, it was almost a throwaway line at the beginning about building in resilience in any infrastructure projects. From both your time in government and from sitting on the outside, do you see that resilience being conditional when states are putting forward infrastructure funding? For example, FCDO is rightly very proud that in the Caribbean, where it had built hospitals, they were all still standing after the hurricanes. They had not been purposely built as hurricane hospitals, but it is in a hurricane area, so of course, when you were speccing up, you were building for that resilience. You were talking, almost from a value for money point of view, about the scrutiny that goes on these schemes, but would you also see that it should be conditional that they are resilient to face climate changes wherever funding is being put?
Dharshan Wignarajah: If I understand the question correctly, I will have a quick go and then hand to others. Are enough of the investments that are being made that are seeking to mobilise private capital building sufficient resilience at a project level or encouraging it at a systemic level?
Q90 Chair: If there was funding being raised for a factory in Indonesia, and the World Bank was putting money in, and there was private capital going in alongside it, would the UK, sitting on the World Bank board, be arguing that that factory needed to be resilient for the likely climate impacts that are going to be coming over the next 10 years or it would not fund it?
Dharshan Wignarajah: My impression, although I am not deep in this, is that they would. Our executive director at the bank has the opportunity to say, “Do the World Bank Group investment standards—I think they are known as performance standards—and environmental evaluations currently factor in the appropriate climate resilience that that investment is going to require over the forward look?” I think the bank is doing more work in this space towards that.
Q91 Chair: Amar, do you recognise that approach?
Amar Inamdar: There are a couple of things that I do not recognise in the conversation. I think we should be a little bit open about this.
Chair: Go wild.
Amar Inamdar: I have less optimism than my colleagues sitting at the table about the flow of capital to climate-smart investments that are required for the kinds of outcomes that we predict to see in the next 10 years or 100 years. Are they built to the resilience and tolerance that we need to see? I think expedience cuts over that most of the time. I think there is a world that we would like and there is a world that there is, and very often we find ourselves in the world that is.
Our ability to influence those conversations comes from our collective track record as a country. I think the UK is held in incredibly high regard and punches well above its weight, given the professionalism of its people in many of these institutions. However, these challenges play out in a very difficult way most of the time, and I would not be able to stand behind the statement that we think every investment is built to the tolerance we would like to see.
If I expand the conversation a little bit, I am struggling a bit with one of the messages that is coming across, which is that we think there is sufficient capital to deploy in to drive the kinds of climate outcomes that we would like to see across emerging markets, as well as in developed markets. That capital is not being deployed. The commitments are often being made, but is that capital translating into projects and deployable capital? Are there “bankable projects” that will pick up this capital and then drive to the outcomes that ordinary people on the ground, like your last two conversants, would like to see? I think that is where there is a big gap.
For me, that big gap comes—in finance speak—at the investment committee level. We say that we really would like to do climate investments, but there is insufficient liquidity in the market for us to get our money back. The capital markets are not deep enough. The risk-adjusted returns just do not stack up against what we would expect if this was a Norwegian wind farm, versus a Honduran power plant. Those sorts of factors still preclude us from making those investments. So the commitment is there, but there is still some internal wiring that happens across the financial services, much of it very fiduciary—we need to protect the interests of our shareholders, which might be insurance funds or pension funds, and we recognise that.
We need to get under the skin of that a little bit more to push on how we build the systems, as Nicola and Dharshan have both talked about. How do we push on the systems piece, but in a very practical way to get this capital to be deployed in the places where it will make most difference? I struggle with capital being applied into, for example, many adaptation-type investments, because there is not the purchasing power or the return cash flows for the private sector to say, “I can bank on this.” That is where public and private, playing together very smartly, makes all the difference. We run the risk of either being too dark, and saying this is really impossible and we are never going to get anywhere, or too glossy, and saying we have plenty of capital and it is all going to get deployed.
I do think we have lots of capital that is deployable, and there have been very significant commitments. We still have a journey to take to unlock some of that plumbing that allows for these systems to actually deploy to the things that are needed the most. Again, as your last two conversants said, there are massive gender asymmetries. The ability for this capital to reach those that are more vulnerable from an income perspective is still a huge challenge. Those are the communities that have internal displacement and migration. Those are the communities who are under-served by ordinary things that we all take for granted. I think that still remains a challenge.
James Naish: There always needs to be someone who is slightly less optimistic.
Amar Inamdar: I am very optimistic as a human being. I work in venture capital, so I have to be optimistic, by nature.
Sam Rushworth: It is realism.
Q92 James Naish: Realistic, yes. On the Green Climate Fund, we are hearing reports of an impending 50% cut to the UK’s contribution. Especially in light of what you have just said, what would the impact of that be on the frontline?
Amar Inamdar: If I could jump in with a very quick, pragmatic answer, we have worked very closely with the Green Climate Fund, and a series of funds, and it has been the anchor investor in our product. What it does is come in and say, “We are able to take a little bit more risk than others in the market and stand up a product that many in the market might think is marginal from a purely economic perspective.” There is higher risk and it has significant impact, but the returns are more difficult to justify. The GCF has been one of the very few larger institutions that is capable of deploying capital at scale and that has been able to stand up those kinds of higher-risk products, because it will take a risk on making that impact for all our futures on climate. There are very few institutions that can match it in that risk appetite, and there are very good reasons for that. The Green Climate Fund does not necessarily have a balance sheet that it needs to justify to its shareholders and to lend money on the capital markets, whereas many of the other DFIs do. So there are very good reasons for that.
That would be a big hit, from where we sit, in markets that are seen as a little bit more vulnerable, a little bit more difficult to deploy capital into. I am sure there are markets—India, Argentina and so on—where it is not going to make a huge difference, but for us I think it would. For the kinds of stakeholders that we serve, and the kinds of markets that we are working in, it would make a very big difference.
Professor Ranger: I would agree. I think the impacts of a potential reduction or potential halving of commitments—I do not think it has been confirmed yet—are about more than just what it does in terms of the finances; it is about what it does in terms of trust in a whole system and architecture that has been built. It would be a large hole in an ecosystem of actors.
Dharshan Wignarajah: I think the cuts in this space are going to have dramatic effects. I think the written evidence, the papers that I scanned, do a good job of highlighting what the consequences are. Many institutions will be able to do numerically less. They will spend less time working out the quality and the effectiveness of what they are doing and they will be more constrained in the countries and regions they can be active in. I would apply all that to the GCF.
The UK has clearly played a flagship role in standing up and supporting the GCF. The fund sits at the very core of the climate negotiations because it is a UNFCCC-mandated fund, and it has a board that reflects joint steerage by developed and developing countries, unlike any of the multilateral development banks. It is absolutely crucial, and I think it is the wrong move for the UK to make such a significant cut. It sends a signal to other key contributors that we, as one of the longest-standing countries that is willing to hold to its commitments, are willing in this set of circumstances to back out on them.
Q93 David Mundell: Amar, can I ask you first what you think the limitations are of the private sector when it comes to climate finance?
Amar Inamdar: I think there are plenty. There is no magic bullet here, and the private sector is not going to solve all our problems. As we alluded to earlier in the conversation, private capital has its own constraints, predominantly fiduciary, and it will flow to where it feels the best risk-adjusted returns will come to it—the lowest risk and the highest returns.
Having said that, private enterprise and the entrepreneurial capacity of ordinary people can build businesses, drive those businesses and achieve real outcomes for people that create value on the whole climate spectrum, be it mitigation or adaptation. On the mitigation side, think of all the renewables deployment; on the adaptation side, think of, for example, agricultural cooling or solar irrigation. In all those spaces, private businesses are stepping up to the challenge and delivering, often in a cheaper, faster and more value-creating way than the alternatives.
There is a huge role for the private sector to make a difference here at the project level, and for that to work at the systems level. But we must not kid ourselves that there is a panacea here, and that, if we step back, the private sector will flood in. Most of the private capital that we dance with in our markets is rather precarious: it is quite flighty, it needs a lot of support and it is looking for allies, predominantly in the public sector, to hold its hand to deliver the kinds of outcomes that we would like to see. When it does that, it can be incredibly efficient and very fast moving, and deliver for people on the ground, but it is by no means a panacea.
Professor Ranger: To come back to the optimistic versus pessimistic view on this, beyond its capital, the private sector brings expertise and innovation, so there are many positive things about the private sector.
In terms of the discussion around mobilising capital, the key argument that I was trying to make in my introductory comments was that if moving from donor to investor means putting money in a big investment vehicle, that is not a solution to the problem; that is a failure of an approach. If it means looking at how to build an ecosystem that is intelligently thinking about how we mobilise the private sector and how we overcome all these barriers at different levels, that can be a really good strategy. It requires very nuanced approaches.
There is capital, but one of the things we have not talked about yet is domestic capital mobilisation. The issue is that many developing countries, where they have capital, are putting it in developed markets because it is safer. How can we make it safer for local people to keep their money in their own markets? How do we build local banks so that they can support SMEs in-country? There are a lot of things that the UK has done and can do more of there. How do we support public development banks?
So there is the development of an architecture that costs less than putting money in a big investment vehicle. It requires more expertise and understanding of the system, but I think the impact can be significantly greater.
Q94 Noah Law: You have started to answer the question I was coming to, which is that you seem to be suggesting that we need to move not just from donor to investor, but almost to investor, co-ordinator and, not even a merchant banking model, where you are pooling the capital together and using public finance resource to do that, but also public development finance resource to craft projects and do what IFC calls “upstream work”. Is that essentially what you are advocating for—more of that? Do you get a better bang for your buck if you do that?
Amar Inamdar: Nicola makes a really great point. When you think of insurance, healthcare and pensions, all those funds are growing in emerging economies, whereas in the rich world they are all shrinking. This is a pool of capital that is expanding, and its risk appetite is shifting in favour of deployment. There is a real role for organisations like ours, looking into countries like ours, looking into reduced deployment of capital on our part, to ask the question, “What can we do to catalyse and create vehicles that will open up and address some of the risk aversion that sits in those spaces?”
Nicola makes a great point. If you are a pension fund in South Africa, Nigeria or Ghana, putting your money in US dollars and sitting on it, you can earn 6% or 8% return, with sovereign risk covered. Why would you bother going into your own private sector, which presents you with potentially high returns, but much more significant risk? That is where thoughtful, intelligent use of some development capital that might say, “We can buy some of that risk, take a punt in your domestic market and see the returns that will come in the short term” will start to open up the incentives for that capital to flow in a much more profound way. So I think there are very effective channels for these kinds of experiments to flow out, which I think will make a big difference over time.
To go back to the core point, there is a real role to build up national systems where markets work better. In effect, can people take their money out if they put their money in? It is not a Hotel California investment, where you can go in, but you can never leave. There has to be a way to have that recycling of capital that builds the capital market. Forex challenges for foreign investors are often very significant, but it is not something that I think a domestic investor would be so concerned about.
So there are alternatives here that I think will really merit thinking about the scale potential in terms of our ability to catalyse. It is about stepping away from purely being the investor—I like the idea of putting together investment products—and stepping away from being a grant provider, but thinking, “How does our pound make a significant multiplier in terms of the impact that we want to achieve?” The answer to that, I think, is staring at us.
Professor Ranger: I was very inspired by listening to Silvia and Deborah, and Silvia, in particular, was talking about coffee farmers. One of the great things that the UK has done in the past is focus on those value chains. How can the UK use its convening power to work with those big global companies, many of which will be based in the UK, to support farmers like Silvia and her colleagues?
Alongside that, she mentioned research. It might not be that we need to provide equity or debt. It might be that we need to work with the coffee companies and provide some research support for them. She mentioned research in different varieties, which the UK has done a lot in the past. Again, it is a smaller support, but it is strategically done alongside the private sector, which can then mobilise that capital into those farms.
Q95 David Mundell: Building on that, Amar, what are the areas that could be most effectively addressed by development institutions?
Amar Inamdar: It is probably best to focus the answer on the systems-level interventions that we could have, as opposed to going down to specific sectors. We could talk about energy, for example, or agriculture, and we could dig in and get quite specific quite quickly about particular interventions that we could get to. I encourage us to take a little bit of a step up from that and say, “What do markets need to perform better?”
There is genuine expertise and real credibility in the UK around this particular set of questions. I think we have done a very good job of our influencing role in the multilaterals, as well as in bilateral relationships. For example, we were just talking about getting private capital to participate in some of the instruments that would address bigger risk issues in many of the emerging markets we play in. Securitisation of capital is one of those areas. It is an area where—and everyone’s eyes glaze over when we start talking about securitisation, and I am conscious of that.
David Mundell: What is it?
Amar Inamdar: It is a way of, effectively, buying out some of the risk and using some financial engineering to manage collateral that will lower the risk and therefore lower the cost of capital. Again, we as a nation and our colleagues at BII and PIDG have shown some genuine expertise here in combining public capital, foreign capital and local capital to build products that are hundreds of millions of dollars-worth of receivables financing—in effect, financing that makes products much more affordable to people in emerging markets who might have lower purchasing power—and using those kinds of instruments to pool impact and the delivery of access to solar lighting or to agricultural goods and products that improve adaptation.
There are some very specific things like that that can happen, but this is really about stepping back up and saying, “How does the market function, and what are the instruments that we might be able to support being built at the level of the market that will shift a whole ecosystem?” All boats are floating, rather than we have just picked one or two that we want to go up higher in a little lock. We want boats to float on the ocean, and I think there are ways for us to do that through some of these market instruments.
Q96 David Mundell: Nicola, how effectively do you think the Government factor in nature and biodiversity loss in their approach to mobilising private finance?
Professor Ranger: I think it is nascent at the moment. There is a lot more that can be done in that area. I know that a number of the existing vehicles that the UK funds do support nature-related projects. For example, PIDG, the private infrastructure guarantee fund, does invest in green infrastructure, but it is very nascent. There are significant opportunities, but there is also a need for the UK to do much more in that area. We should put our precious pound in things that the private sector will not do by itself. That should be the priority.
Looking at how we can build markets in these areas that are more difficult, and similarly for adaptation, is where we can bring real benefit. Again, there are some examples of where this is working well—for example, leveraging carbon markets to make nature more investable. If you look across the existing nature funds, there is a lot of that going into sustainable agriculture—for example, sustainable timber—or carbon markets. So there are markets there that are ready to scale.
Q97 David Mundell: Finally, Amar, can I ask you about how the FCDO could encourage private investors to channel sufficient funds towards countries that are most in need? Within the Committee, on a whole range of issues, we often find that some countries are more “fashionable” than others for investment, but they are not necessarily those that are in the most need.
Amar Inamdar: Yes, David, that is a great point. One of those truths that we have to speak is that it is harder to invest in some countries than others, the investment climate is better in some countries than in others, and not all countries will be treated equally from an investment perspective. I think there is a bit of a hard edge here, from a private sector perspective, and we, collectively, should not look to the private sector simply to solve some of the most pressing social challenges we have on the planet.
I will come at it from a little microcosm and then scale up a tiny bit. In the energy sector, which I know particularly well, many countries across emerging markets will privatise the hardest bits of their country for electricity provisions. For example, they will say, “If you can develop a private mini-grid, do it in the far north-west of the country, where there are very few people. It is desert, and we will never reach there. We, as the Government, will hold on to the central business district, where we have plenty of customers.”
There is a solution to that. I think there are extraordinary entrepreneurs who will want to take a crack at that problem. The question then becomes, what can we build that allows for some risk that can be taken by additional capital, but that allows for buying out some of that risk to enable some of those folks to step into that space and deliver on the product that makes a difference to people on the ground? You can take that example and then apply it to, for example, eastern DRC, which is a very challenging context to work in. Very few globally credible, recognised businesses are not going to say, “The HSE risks alone, the fiduciary risks, the Government risks are so high. We cannot play there.” It will be a very big lift for public capital to step in and attract private capital to that space. I don’t think there is a way to sugar-coat that. It is about being thoughtful about how our intervention pound makes that difference and being honest about that debate. I would rather us do that than sugar-coat it and say we are going to do these things everywhere and it is going to solve all our problems.
Chair: We have two final questions. I am very aware we have run massively over.
Q98 Tracy Gilbert: What impact does an overly debt-focused investment portfolio have on the most fragile nations?
Professor Ranger: Well, they cannot afford it.
Q99 Tracy Gilbert: What are the practical impacts? What does that look like in real time?
Professor Ranger: An overly focused debt portfolio would mean that many fragile countries, the poorest communities and the smallest businesses would not be able to access that. Looking more at the sovereign scale, we do a lot of work on debt sustainability issues as well, which I think is an important part of this. The way that debt sustainability is even assessed at the moment does not necessarily reward countries for some of the positive investments that they are making. For example, in adaptation or nature, it tends to reward them for things that are extractive. To solve the problem that you raised, part of it is about the instruments that we deploy, but it is also about rethinking how we assess credit ratings, at project level, but also at country level.
Tracy Gilbert: Amar, did you want to add something?
Amar Inamdar: No, I thought that was a great answer.
Q100 Brian Mathew: I have spent quite a lot of my life as an aid worker. What I found, working with communities that had the biggest need, was that they also had the biggest desire to solve the problem, if you could hook into that, empower them and make it real that they could solve those problems. That, of course, rather flies in the face of saying, “We will invest with these guys because we know we will get a good return, but they might be able to solve their own problems on their own anyway.” This is just a reflection to throw at you.
Amar Inamdar: I think it is horses for courses, Brian. I don’t think that there is one magic bullet that is going to solve all this or that the private sector is the white horse that saves everybody and we are done here. In terms of community-based organisations and the whole gamut of social enterprise, for want of a better word, there is a broad sway there. That diversity of response is important, and there is no one way to do things.
What we have seen is businesses being built from the ground up that create employment through local sales agents—for example, around coffee, agricultural products or even the distribution of solar irrigation—tapping into local communities, entrepreneurial individuals and their understanding of their market and their customer, and reflecting on what value creation means for these folks. That is exciting to me and to many entrepreneurs in our space, and that is where we think about how we deploy capital against solving for big climate challenges at that local scale.
But I would never be dismissive of alternatives to achieve those outcomes that give folks a sense of dignity and a sense of pride in their communities to do the things that they want to do—so kudos to them.
Professor Ranger: I wanted to give an example—I worry about being accused of being too positive. Just a few weeks ago, supported by DEFRA and UK aid, we had 20 entrepreneurs from Africa come over as part of a training program. They were looking mainly at how we invest in nature and coming up with so many innovative ways of how we make that work, how we scale it, how we bring in private capital. To your point, there is this huge energy and entrepreneurialness—if that is a word—that we need to leverage. In that case, they are supported through that journey from initial capacity building. There are accelerator funds through FSDA that I mentioned—
Q101 Chair: I am sorry, but because of time, can you tell us how seriously the UK Government are taking biodiversity and nature loss when it comes to their climate finance? You were going to tell us how these people could do it, but how seriously are our Government doing it?
Professor Ranger: I do not think we are doing enough—definitely not. The fact that the recent commitment to investment in that through the ICF to forests and nature was removed was a significant negative signal of the importance that the Government are placing on this. It is in all our interests to solve this problem. Our whole economy is dependent on nature around the world, so it is not just a development issue; it is in our own economic benefit to do this. Certainly, the uncertainty around whether the UK would invest in TFFF at the last COP—
Chair: I am very concerned about that.
Professor Ranger: It is not just the fact that we did not, but the process, uncertainty and lack of trust that results from that. This is an area where the UK can do so much more. We have a lot of expertise in this area, and there is a lot of opportunity. I do not think we are doing as much as we should.
Chair: On that note, thank you so much. As with the first panel, we could have gone on for the rest of the day. Thank you for all that you are doing. I have a feeling we might come back to you for a bit more information as well. I am sorry to cut you short on some of the examples. It is too interesting. Thank you all very much.