Elements for monitoring private sector climate finance - The ICAT experience in Peru

On Wednesday, June 2, the peer-to-peer exchange session ".Elements for monitoring private sector climate finance - The experience of the ICAT project in Peru". organized by the LEDS LAC platform together with the UNEP DTU Partnership (UDP) in the framework of the Climate Action Transparency Initiative (ICAT) and with the participation of the Ministry of Environment of Peru (MINAM). The objective of the session was to show the progress to date in the design of a reporting and monitoring system for domestic private finance and the elements that could be part of a roadmap for implementation that is being developed by the government of Peru, with financial and technical support from ICAT and UDP. This presentation was followed by a collective reflection on the topic with the experience of participants from other countries in the region. The session included introductory remarks by Rosa Morales Saravia, General Director of the General Directorate of Climate Change and Desertification (DGCCD) of MINAM and Ivana Audia, technical advisor on climate change at UDP and the keynote presentation was given by Roberto Piselli, climate finance specialist at the DGCCD of MINAM. Participants came from Peru, Uruguay, Mexico, Colombia, Honduras and Argentina. The main messages of the session are shared below.

Peru is in the process of building a Monitoring System for Adaptation and Mitigation Measures, as mandated by the Framework Law on Climate Change and its regulations, and which responds to the Enhanced Framework compliance of Transparency of the Paris Agreement. This system has three essential pillars: adaptation, mitigation and financing, which in turn considers public, private, international climate funds and international cooperation resources. Recognizing the importance of the private sector in achieving transformational change, one of the elements included in the third pillar of the system seeks to follow up on private climate finance. 

Since 2018, the ICAT project in Peru has provided support to MINAM in strengthening the transparency system. This support has focused on two main activities: (1) Capacity building for the development of the national greenhouse gas inventory, and (2) Development of a methodology for the design of the Financing Registry. This second activity includes the analysis of international experiences on methodologies for monitoring and reporting private sector investment in climate change and the development of a proposed methodology for monitoring the financial flow of the private sector in climate change in the country.

With respect to the international experiences that served as input for the proposal, on the one hand, initiatives were mentioned that provide a general framework for the design of the system, such as the "....rulebook"The Paris Agreement and the requirements for biannual reporting of financial flows, the Rio Markers, the recommendations of the Latin American and Caribbean Finance Group (GFLAC) and the International Finance Corporation (IFC). On the other hand, there are several international initiatives that promote the mobilization, transparency and/or disclosure of information from the private sector, such as the Network of Central Banks and Supervisors for Greening the Financial System (NGFSThe United Nations Environment Programme (UNEP) Finance Initiative (UNEP FIThe Climate Disclosure Standards Board (CDSB), the Climate Disclosure Standards (CDSB among others. As for similar experiences in countries of the region, the monitoring initiatives of Colombia and Costa Rica were taken as a reference. These countries use existing information or reports and identify actions that contribute to mitigation, adaptation or both.

In addition to international experiences, a review was made of existing initiatives in Peru that contribute to the design of the monitoring of private sector financing and investment, under the consideration that the proposed scheme should be based on existing national systems and from them propose improvements or new elements that may be required. As a result, the Superintendence of Banking, Insurance and AFP (SBS) - with a monthly reporting obligation and a reporting platform already implemented, the Superintendence of the Securities Market (SMV) - incorporates the Corporate Sustainability Report in its annual report, the Responsible Investment Program (Programa de Inversión Responsable (PIR) - promotes responsible investment among the country's financial stakeholders, the program Carbon Footprint Peru - voluntary participation tool to recognize the GHG emission reduction effort of public or private entities, or the Green ProtocolThe voluntary agreement between the national government and the financial system that seeks to facilitate the development of sustainable finance. All these initiatives already underway coincide in encouraging private sector reporting and transparency.

With these inputs, elements have been identified to contribute to the discussion on the design of the monitoring proposal, which include a focus on regulatory and another volunteer. It was mentioned that the regulatory approach, which takes information from financial regulators such as SBS and SMV, ensures greater coverage and reliable, verifiable and standardized information, but at the same time implies training, awareness and prior coordination. This would make it possible, for example, to monitor the climate funds that companies obtain from third parties. On the other hand, it was stated that the voluntary approach, which would capture the financing of actions with their own resources, is a valuable option for committed companies that wish to make their investments in climate change visible and be recognized. 

Based on the proposal, some identified elements were presented that could eventually integrate the roadmap for the development of the Registry of Private Finance for Climate Change, which has five stages:

1. To fit the implementation of the Registry for Private Climate Finance (RFPCC) into systemic processes.
2. Identify the detailed map of actors providing private climate change finance
3. Design and implement a capacity building program.
4. Analysis of reporting and verification systems
5. Development and implementation of normative, regulatory and institutional mechanisms for the progressive implementation of the RFPCCC.

For each of the stages, the operational feasibility and regulatory/institutional feasibility were analyzed on a scale that evaluates the complexity or difficulty of implementation. This analysis identified that the feasibility of implementing the roadmap would have a medium-high level of complexity. The difficulty is related to the fact that although the private sector has a good level of approach and awareness of the issue, the issue is seen as important but not urgent, the costs related to climate action are perceived more than the opportunities, and reporting is not mandatory. 

To assess the feasibility of implementing the elements identified, a pilot exercise was carried out involving four stakeholders. Excel formats, an orientation guide and a questionnaire were developed to gather the experience of applying the methodology. The exercise made it possible to identify the usefulness of the formats as well as the difficulties in collecting the information and the adjustments that would be necessary in the existing systems in terms of periodicity and type of stakeholder.