Climate change
Climate change presents a major challenge for countries, communities, companies and citizens. According to the United Nations Framework Convention on Climate Change, “Climate change" means a change of climate which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and which is in addition to natural climate variability observed over comparable time periods. Including anything from shifting weather patterns that threaten food production, to rising sea levels that increase the risk of catastrophic flooding, the impacts of climate change are global in scope and unprecedented in scale. Without drastic action today, adapting to these impacts in the future will be more difficult and costly.
Climate change is a business risk
Climate change is a business risk. Climate risks will have major implications for most sectors of our economies. They impact revenues, cash flows and operating costs, asset values and financing cost, and ultimately the competitiveness and profitability of firms and financial institutions. The physical effects of climate risk tend to materially impact industries with physical assets in risk-prone areas (e.g., real estate in coastal areas or wildfire-prone areas); industries where infrastructure resiliency and business continuity are societal necessities (e.g., health care delivery, telecommunications / Internet, utilities); and industries dependent on natural capital (e.g., those that rely on productive land and availability of water, such as agriculture, meat, poultry, and dairy).Given that businesses face these risks, rational self-interest of businesses should be a major driver of adaptation actions.
Mitigation vs Adaptation projects
Mitigation vs Adaptation projects. Looking at most of the proposals by private sector approved through fund such as the private sector facility of GCF, most companies have largely focused on Mitigation project, though still having projects that are both cross-cutting or focused solely on Adaptation activities. In addition, also considering the general global trends, most projects have been focusing on energy transitions and alternative energy sources – be this through wind, solar or hydro power. These investments are oftentimes linked to other closely associated sectors, ranging from agriculture to transport, also simply dealing with the provision clean energy to urban and rural areas. In projects like these, a strong component of innovation is involved, as the projects usual entail an ample shift in business models, thereby matching the climate-tag that most of these concessional funding streams seek to achieve and trigger. This argument is therefore valid for all other productive sectors that seek to reduce their environmental impact, whilst defining and pursuing alternative and economically viable and innovative options.
Nationally Determined Contributions (NDCs). Nationally Determined Contributions, or NDCs, are the expressions of efforts to be made by countries in reducing national emissions and adapt to the impact of climate change. (NDCs) are at the heart of the Paris Agreement and the achievement of these long-term goals. NDCs embody efforts by each country to reduce national emissions and adapt to the impacts of climate change. The Paris Agreement requires each party to outline and communicate the NDCs that it intends to achieve. The UNFCCC receives and records NDCs in a public registry. Guided by the principle of country ownership, GCF investments support developing countries’ own aspirations for low-emission, climate-resilient development, in order to help attain their NDC objectives.

National Adaptation Plans (NAPs). National Adaptation Plans are plans made to identify a country's medium- and long-term climate adaptation needs, as well as strategies and programmes that need to be developed and implemented to address those needs. The development of NAPs is a continuous, progressive and iterative process, following a country-driven, participatory and transparent approach. These planning processes are intended to catalyse action and finance to generate systemic change that addresses climate impacts and vulnerabilities. Taking effective climate action requires countries to work out what kinds of adaptation measures will be effective. That is why the proper planning and formulation of National Adaptation Plans (NAPs) and/or other planning processes are so important, and why GCF works to support these efforts.
a) The private sector adapts to climate change

Climate change poses a threat not only to individuals, households, and the public sector, but also to the private sector, both in developed and in developing countries. Slow onset climate change (e.g. temperature increase and sea level rise) and extreme weather events (such as increasingly intense and frequent storms or heat waves) can:
•   directly affect companies, e.g. by damaging their buildings, disturbing production processes and reducing the productivity of their employees; and
•   indirectly affect companies, e.g. if critical transport infrastructure is destroyed, a government issues a new regulation to reduce vulnerability of its citizens, or if (financial) markets change.

It is important that private entities adapt to climate change simply to ensure their survival. Adapting operations and business models to climate change can also be an opportunity for companies – it can make them more resilient to shocks than their competitors and allow them to tap new markets for adaptation products and services. Hence, adaptation is also a driver of business growth.

In addition, private sector adaptation also has wider effects for societies and economies. The private sector is a key contributor to job creation, economic growth and poverty reduction. In some countries, more than 80 percent of critical infrastructures (e.g. energy, water, transport, food supply, etc.) are delivered by private actors. By investing in its own adaptation, the private sector can increase resilience of its stakeholders, including employees, clients, surrounding communities and local governments.

b) The private sector finances climate change adaptation of others

Private financial institutions and investors such as banks, pension funds, insurance companies or impact investors can invest in climate resilience or provide funding for climate change adaptation of others, e.g. through (micro) loans, bonds or venture capital.

Increasing awareness and disclosure of the risks of climate change already today incentivizes financial institutions to shift investments away from companies and activities, which are vulnerable to the physical, transitional and liability risks of climate change, towards those that have a sound business case under changing climatic conditions.

While conceptual and practical issues make it difficult to track how much the private sector already invests in adaptation today, it is clear that significantly more finance from the private sector is needed in order to meet the financing needs for climate change adaptation

c) Private entities support others through products and services for climate resilience

Besides critical infrastructure, jobs and financing, private entities can develop and provide specific products or services that help others become more resilient and cope with the risks of climate change. For example, in agricultural value chains this may include providing micro irrigation and heat-resistant crop species to small-scale farmers.

Table 3 proposes potential different roles of different actors and summarizes which of the three roles each type of company/private player could focus on in order to lever its strength for resilience building.

Gender Action Plan and UNFCCC
A first-ever Gender Action Plan to support gender-responsive climate action is the first UNFCCC Gender Action Plan (COP23, 2017), which aims to integrate gender equality principle around climate change (nationally and internationally) through five priority areas.
Enhanced Lima Work Programme on Gender (LWPG) (COP 25, 2019)
The Enhanced Lima Work Programme on Gender (LWPG) (COP 25, 2019) and the Gender Action Plan (GAP) set five priority areas to advance the development of gender-responsive climate actions, which will lead towards increased effectiveness, fairness and sustainability of climate policy and action. The enhanced five-year GAP is focused on implementation of gender-related activities and affirms that action by all stakeholders - public and private - towards gender-responsiveness is critical.
Areas for private sector involvement include:

• Stimulation of the domestic economy with local job opportunities connected to energy efficiency;

• Investment in continuous reduction of losses in the energy distribution network;

• New measures for households and the commercial sector for energy efficiency (EE);

• Investment in EE in transport and industry sectors as the biggest contributors in the final energy consumption, especially after 2025;

• Systematic reconstructions of the energy distribution network;

• Socially responsible transition programs to mitigate negative effects of associated job losses

• Increased cross-border exchange, and need for investments in the transmission network for meeting the growing demand for domestic needs and transit;

• Enhanced availability of infrastructure for stock keeping;

• Private and public lighting;

• Heating, ventilation and air conditioning (HVAC);

• Energy efficient insulation, windows and doors;

• Research and innovation and competitiveness;

• Streamlining energy transition technologies into national Research and Innovation (R&I) priorities, and stimulating cooperation among policy makers, industry, utilities, municipalities and associations;

• Developing and adjusting energy related curricula at all educational levels as well as stimulating researchers’ geographical and inter-sectoral mobility;

• Proper maintenance and use of existing motors;

• Motors replacement;

• Air compressors replacement;

• Pumps replacement;

• Steam systems

• Solar rooftops;

• Construction of new hydro power plants;

• Construction of new small hydro power plants and introduction of flexible feed-in premium tariffs to stimulate the construction;

• Construction of wind power plants and introduction of flexible feed-in premium tariffs to stimulate the construction;

• Construction of biogas power plants and introduction of flexible feed-in premium tariffs to stimulate the construction;

• Labeling of electric appliances and equipment to provide relevant information on the energy consumption of the products, in line with the EU regulations;

• Phasing out heating devices with resistive heaters and their replacement with heat pumps in compliance with EU Climate and Energy Policy;

• Energy-efficient reconstruction of residential buildings;

• Energy-efficient reconstruction of commercial buildings;

• Construction of new buildings in compliance with the directive of energy performance in buildings;

• Obtaining sanitary hot water by combining district heating with solar collectors.

TOOLKIT FOR PRIVATE SECTOR
ENGAGEMENT IN CLIMATE ACTION

Take me to the toolkit




Climate change, why is it relevant for private sector?

Private Sector

Climate action in the Republic of North Macedonia

Climate finance

Green Climate Fund

National Policy Framework enabling private climate

Climate technologies and innovation

Ensuring gender equality in private climate financing
INFO SHEET NO. 1

CLIMATE CHANGE –
WHY IT IS RELEVANT FOR THE PRIVATE SECTOR



In this info sheet you will read:
Implications of climate change for doing business.
Global response to the climate challenge.
Climate Change Adaptation and Mitigation.
How can private sector participate/contribute to strengthening climate governance? A global perspective
Exemplary cases of private sector engagement around the world



Implications of climate change for doing business



Climate change Climate change is a business risk



Climate risks for private sector can be divided into
direct and indirect risks :


Direct Risks Indirect Risks



x Increasing water scarcity and changes in the availability of natural resources
x Physical impacts of extreme weather events and sea-level rise on utilities and infrastructure
x Energy or commodity price volatility
x Changing demand for consumer and intermediary goods and services
x Health issues affecting workers and consumers (e.g., heat waves or infectious diseases)
x Regulatory uncertainty as governments prepare to cope with climate impacts (e.g., new water regulations and changes to zoning laws due to expanding flood zones)
x Reputational consequences for companies that are seen as failing to support their communities
Figure 1 Risks of catastrophic events increases with temperature (Adopted from World Resource Institute and CCA report 2019)
Accelerated investment


Accelerated investment in climate change resilience is urgently needed to ensure the well-being of economies, companies and people. According to the Global Commission on adaptation report published in 2019, investing $1.8 trillion globally in five areas: strengthening early warning systems, making new infrastructure resilient, improving dryland agriculture crop production, protecting mangroves and making water resources management more resilient from 2020 to 2030 could generate $7.1 trillion in total net benefits. Thus, the overall rate of return on investments in improved resilience is very high, with benefit-cost ratios ranging from 2:1 to 10:1, and in some cases even higher (Figure 2).

Figure 2 Benefit cost ratio of climate investment in adaptation


Global response to the climate challenge

United Nations Framework Convention on Climate Change

The United Nations Framework Convention on Climate Change (UNFCCC) entered into force on 21 March 1994. Today, it has near-universal membership. The 197 countries that have ratified the Convention are called Parties to the Convention. Preventing “dangerous” human interference with the climate system is the ultimate aim of the UNFCCC.

Paris Agreement

The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 Parties at COP 21 in Paris, on 12 December 2015 and entered into force on 4 November 2016. Its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. To achieve this long-term temperature goal, countries aim to reach global peaking of greenhouse gas emissions as soon as possible to achieve a climate neutral world by mid-century. The Paris Agreement is a landmark in the multilateral climate change process because, for the first time, a binding agreement brings all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects.
Implementation of the Paris Agreement requires economic and social transformation, based on the best available science. The Paris Agreement works on a five-year cycle of increasingly ambitious climate action carried out by countries. By 2020, countries submit their plans for climate action known as Nationally Determined Contributions (NDCs).

International agreements

International agreements, such as the 2030 Agenda for Sustainable Development, the Addis Ababa Action Agenda and the Paris Agreement on climate change all strongly emphasise the critical role for the private sector in achieving development outcomes, both as a source of finance as well as know-how. There is also clear recognition across the development co-operation community of the central position private sector actors can play in supporting the implementation of Nationally Determined Contributions (NDCs) – as drivers of green growth in developing countries, promoters of green supply chains, as a source of investment in low-carbon, climate-resilient infrastructure, and as leaders in innovation in clean technologies and resource efficiency. In recognition of this, the OECD Development Assistance Committee is looking at the lessons learned and best practice experiences from efforts to engage the private sector for development outcomes, more broadly, and in relation to green growth and climate change, in particular.

Nationally Determined Contributions (NDCs)

Nationally Determined Contributions (NDCs) are the expressions of efforts made by countries in reducing national emissions and adapting to the impact of climate change. NDCs are at the heart of the Paris Agreement and the achievement of these long-term goals. The Paris Agreement requires each party to outline and communicate the NDCs that it intends to achieve. The UNFCCC receives and records NDCs in a public registry.

National Adaptation Plans (NAPs)

National Adaptation Plans (NAPs) are plans made to identify a country's medium- and long-term climate adaptation needs, as well as strategies and programmes that need to be developed and implemented to address those needs. The development of NAPs is a continuous, progressive and iterative process, following a country-driven, participatory and transparent approach. These planning processes are intended to catalyse action and finance to generate systemic change that addresses climate impacts and vulnerabilities. Taking effective climate action requires countries to work out what kinds of adaptation measures will be effective. That is why the proper planning and formulation of National Adaptation Plans (NAPs) and/or other planning processes are so important.


Climate Change Adaptation and Mitigation

What is Climate Adaptation?

Adaptation refers to adjustments in ecological, social, or economic systems in response to actual or expected climatic stimuli and their effects or impacts. It refers to changes in processes, practices, and structures to moderate potential damages or to benefit from opportunities associated with climate change. In simple terms, countries and communities need to develop adaptation solution and implement action to respond to the impacts of climate change that are already happening, as well as prepare for future impacts. (UNFCCC)

What is Climate Mitigation?

As there is a direct relation between global average temperatures and the concentration of greenhouse gases in the atmosphere, the key for the solution to the climate change problem rests in decreasing the amount of emissions released into the atmosphere and in reducing the current concentration of carbon dioxide (CO2) by enhancing sinks (e.g. increasing the area of forests). Efforts to reduce emissions and enhance sinks are referred to as “mitigation”. (UNFCCC)

What is the difference Mitigation and Adaptation?

The difference between climate change mitigation and climate change adaptation is that mitigation is aimed at tackling the causes and minimising the possible impacts of climate change, whereas adaptation looks at how to reduce the negative effects it has and how to take advantage of any opportunities that arise. Where mitigation strategies fail to reach emissions containment targets, climate resilience will be key to lessen the impacts of climate change and pave the way for as more sustainable and environmentally sound development.


How can private sector participate/contribute to strengthening climate governance?
Global perspective


There is no single blueprint of private sector engagement in climate governance and climate action, and the engagement of private sector is country and region specific. Yet, some of the approaches for state-business partnerships for sustainable development can include: ensuring additionality of private sector efforts (i.e. going beyond what business would have invested in anyway); financial sustainability of approaches; mutual transformation (i.e. changing of attitudes and business models); and risk-sharing, all within a transparent manner without market distortion (Garside et al (2016).
Over the course of Green Climate Fund (GCF) engagement in various countries, a couple of roles of private sector potential engagement have been identified, including:

Capital Providers:

Private sector actors who make direct investments—whether in the form of debt or equity—in projects. These actors include institutional investors (including sovereign wealth funds, endowments, pension funds, mutual funds, insurance companies, hedge funds, and private equity firms), commercial banks, and corporations making internal capital allocation decisions. Some capital providers may also act as project developers or market facilitators.

Market Facilitators:

Private sector actors who provide critical financial services. Examples include insurance companies (who offer products that can reduce project and market risks), financial institutions (who provide underwriting, advisory, and other financial services), liquidity providers (who provide short- term loans and/or currency exchange services), rating agencies (who evaluate a project's ability to repay its debt), and data providers (providing market information). “Market Facilitators” are critical to market creation and growth.

Project Developers:

Entities (ranging from small and medium enterprises to larger corporations) undertaking projects and seeking financing. Project developers often act as “Capital Providers” since they typically provide a portion of a project's financing through their own capital contribution (also known as an “equity stake”). In the case of low-carbon development, projects can range from wind and solar installations, to energy efficiency retrofits, to biomass and waste-to- energy conversion facilities.

Institutional investors

have an important role at the refinancing stage of projects and in investing in corporate issues, which is critical for recycling capital. The institutional investors' amount we capture is just a small portion of their involvement in low-carbon and climate resilient projects.

Private households:

are also essential for climate finance projects; but in the context of GCF projects, they may be considered primarily as beneficiaries.

Exemplary cases of private sector engagement around the world

Around the world, companies are putting in place measures to anticipate for and adapt to climate impacts, otherwise known as ‘’adaptation’’. Companies recognize that their ability to grow and prosper cannot be disconnected from community well-being. Companies view building community climate resilience as an imperative for strategic business action that must go beyond the realm of corporate philanthropy.

Two examples of commitments made

by companies at COP 21 include the Science Based Targets initiative, which saw 144 companies commit to set targets in line with the overarching 2C temperature goal of the Paris Agreement, and the Paris Pledge for Action or ‘L’Appel de Paris’, which united 400 businesses and 120 investors with other non-state actors in committing to support the delivery of the Paris Agreement (Science Based Targets, n.d.; COP 21, 2015). The Global Commission on Business and Sustainable Development, headed by Unilever, highlights why companies need to engage in delivering the SDGs: economic benefits from new markets and innovation, risks to business performance and stability, and the necessity to work closer with the government and other stakeholders in the future (Business and Sustainable Development Commission, n.d.).

Climate Action 100+

is an investor initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change. The companies include 100 ‘systemically important emitters’, accounting for two-thirds of annual global industrial emissions, alongside more than 60 others with significant opportunity to drive the clean energy transition. Launched in December 2017 at the One Planet Summit, Climate Action 100+ garnered worldwide attention as it was highlighted as one of 12 key global initiatives to tackle climate change.
INFO SHEET NO. 2

PRIVATE SECTOR



In this info sheet you will read:
What is the private sector?
Climate risks for the private sector.
What is the role of private sector in addressing climate change?
Reducing climate related risks to private sector core business operations (adaptation).
How exactly can the private sector contribute to climate change adaptation?
Promoting green and efficient private sector development (mitigation).
Drivers of – and barriers to – company action on climate change and green growth in developing countries.




2.1 What is the private sector?


    To understand the current and potential contribution of the private sector to the delivery of the climate agenda, it is important to highlight what we mean by ‘private sector’ . The term ‘private sector’ refers to a broad range of individual professionals and companies interacting with each other within diverse associations, public-private partnerships and the community, such as:


• Investors, land- and business- owners. These include individuals and companies, private financial institutions, pension funds, as well as public estate companies acting as private bodies and blurring the line between ‘public’ and ‘private’;


• Developers and contractors;


• Architects, engineers, landscape and urban design/planning practitioners;


• Consultants to the public or private actors involved in research and development and capacity building (knowledge providers);


• Service managers facilitating interaction between local authorities and private contractors/ communities;


• Service providers, for example, transport, energy, and waste companies.


• Businesses involved in the production of climate technology, hereunder-renewable energies, such as windmills, solar cells, etc.



2.2 Climate risks for the private sector


Today it is generally accepted that climate risks are also common risks that trigger private sector investments. The potential impacts of climate change on the private sector is not only physical and do not only manifest in the long term. Climate related risks are created by a range of weather hazards. Some are slow in their onset (such as changes in temperature and precipitation leading to droughts, or agricultural losses), while others happen more suddenly (such as tropical storms and floods). There is scientific evidence for the expected climate impacts, but uncertainty regarding the magnitude of the impacts, such as due to increasing temperature and sea level rise is expected. The profile of private sector actors operating under the “risk-return” scheme and subject to climate risks may change significantly, since such organizations may be more susceptible to the physical effects of climate change, climate policy and new technologies. These climate risks include:






2.3 What is the role of private sector in addressing climate change?


Generally, the private sector has an important role in delivering climate goals, typically based on a partnership or collaborative approach involving all sectors and emphasizing the role of cities, public agencies, and civil society. There is a growing reliance on the private sector’s contributing role, suggesting that governments cannot singularly manage development and drawing attention to benefits related to private-sector involvement in development.


Clearly, involving the private sector can help in terms of capacities as no local or national government can mobilize necessary capital and political consensus to make effective investments in infrastructures leading to sustainability. There is an ‘unrecognized opportunity for the private sector to engage in selective investments that can help cities limit the effects of these trends (meeting the need of urbanizations and shortage of resources, energy, clean air)’. A related idea is that private parties can be incentivized to mobilize their capacities, so they can deliver verifiable climate outcomes and make a material contribution to closing the emissions gap’. At the same time, these contributions would be broad ranged. Emissions-reduction and adaptation projects also deliver other benefits than climate adaptation and mitigation, such as health improvements and biodiversity conservation, and can be part of more holistic plans contributing to social, environmental, and economic benefits.


Private sector can engage with various climate adaptation activities to reduce climate related risks to core business operations, and in climate mitigation activities to promote green and efficient development. These actions not only reduce risks for private sector entities, but also contribute to national and global efforts to address climate change. ;


Private actors involved in sustainability practice, whether occupying a space, involved in industrial production, in construction or service delivery (water, waste) ought to be committed to reducing CO₂ emissions through internal and external processes in compliance with national and local regulations. They should be committed to designing products and processes to limit CO₂ emissions.


It should be noted that the degree of private sector involvement in climate finance directly depends on the level of development of the sector and is largely determined by the national development context of countries.





2.3.1 Reducing climate related risks to private sector core business operations (adaptation)


According to the Global Commission on Adaptation (GCA) report, without adaptation to climate change, the following losses are envisioned globally:

• Depressed growth in global agriculture yields up to 30% by 2050. About 500 million small farms around the world will be most affected.

• The number of people who may lack sufficient water, at least one month per year, will soar from 3.6 billion today to more than 5 billion by 2050.;

• Rising seas and greater storm surges could force hundreds of millions of people in coastal cities away from their homes, with a total cost to coastal urban areas of more than $1 trillion each year by 2050.

• Climate change could push more than 100 million people within developing countries below the poverty line by 2030.

Thus, the GCA initiative proposes a triple dividend approach to private sector adaptation to climate change: avoiding losses, economic benefits and social and environmental benefits:


Yields for private sector of investing in climate change adaptation


Challenges and opportunities for adaptation (GCA examples)

Agriculture Nature Water Cities and urban areas
Challenges/Opportunities Actions Examples
50 percent increase in global demand for food between 2010 and 2050 R&D investment is crucial to address climate stresses on crops from increasing heat, drought, and disease. In Zimbabwe, farmers using drought-tolerant maize were able to harvest up to 600 kilograms more maize per hectare than farmers using conventional maize.
70% increase of demand for meat, dairy, and fish by people in developing countries. Private finance models that works for small-scale producers and cooperatives, including microfinance. Investments in basic and applied research in both national and internationally oriented research agencies as well as extension services have high rates of return.
Depressed growth in global yields by 5–30 percent by 2050. Equal property rights for women to advance gender justice for female farmers.
Increased variability and extremes in temperature and rainfall will lead to production shocks that will worsen food insecurity. Development of new marketing and export networks.
Increased food prices (by 20%), reduce food availability, and reduce the incomes and food production of smallholder farmers. Exploit digital technology, better weather information, and farmer to-farmer education.
Challenges/Opportunities Actions Examples
Lack of private sector investment in nature-based solutions Public private partnerships with national and local governments to reorient policies, subsidies and investments, including developing programs to better mobilize private sector support Costa Rica has successfully deployed PES schemes to conserve natural assets, while Washington, DC, has attracted private capital to reduce flooding by restoring wetlands.
Examples include payments for ecosystem services (PES), green bonds, resilience bonds, insurance schemes, and water user fees.
Challenges/Opportunities Actions Examples
Crucial water supplies, like aquifers and lakes, are shrinking or increasingly polluted. Floods and droughts cause damages in the billions of dollars and take a huge human toll, in particular on women and girls Irrigation modernization, including using new techniques such as just-in-time irrigation, coupled with climate-appropriate agricultural policies, can slash the amount of water needed in agriculture, which now accounts for about 70 percent of global water use. This can be done while also increasing yields. In response to poor water supplies, system leaks and financial mismanagement of utilities in Karnataka, India, a water use efficiency scheme was developed, with reduction of leakages as a main climate adaptation strategy. With public-private partnership (PPP) contracting planning support from Public Private Infrastructure Advisory Facility (PPIAF), a pioneering design, build, operate (DBO) contract for privately operated water service in the North Karnataka cities of Hubballi Dharwad, Belgaum, and Kalaburagi was implemented. Service and availability of water jumped from 10 hours a week to 24 hours a day. To boot, the volume of water lost to leakages was reduced by 2 500 m3/day proving that 24/7 water service was possible in India while improving water resource resilience to droughts.
Challenges/Opportunities Actions Examples
While spreading and growing, many cities have been relentlessly stripping away or building over floodplains, forests, and wetlands that could have absorbed stormwater or offered respite and precious water during heat waves and droughts. Knowledge providers to make the latest modeling technologies and credible data on climate risks available to cities and communities. Cities can select safer ground for neighborhoods or factories, for instance, as Surat, India, did by relocating key industry clusters away from flood-prone zones.
Need for updated topographic maps, along with weather and climate information, satellite, and remote sensing data; models that reveal risks of climate impacts to local areas; and assessments of the vulnerabilities for specific population groups, such as women and people living in poverty City governments and private actors to build capacity to use this information in order to drive integrated urban planning, investments, and operations and reduce climate risks.

International financial institutions, donors, and the private sector to step up finance for urban adaptation, and to prioritize valuing and incentivizing such investments.

2.3.2 How exactly can the private sector contribute to climate change adaptation?




The private sector can play three roles in and for climate change adaptation:



Figure 3. Three key functions of the private sector in climate change adaptation
Source:
EXPLAINER The roles of the private sector in climate change adaptation - adelphi.pdf

Table 3. Overview of roles and activities of the private sector in climate change adaptation, divided by type of entity[1]

Farmers, entrepreneurs, micro, small-and medium-sized enterprises (MSMEs)

Activities Examples Possible focus of adaptation efforts
Adapt to climate change Implementing adaptation measures to protect own assets and operations Tire manufacturer improves water efficiency of production process Several food stall owners jointly invest in installation of sun blinds to protect themselves from direct sunlight Small-scale, local private entities have to focus, first and foremost, on protecting their immediate operations and assets. Given low financial resources, financing climate change adaptation of others does not seem to be a priority for these actors. Yet, considering how difficult it is for many of the smaller, informal companies, to access funding from financial institutions (IFC 2010), their role in financing each other’s adaptation through peer-to-peer lending might have to be reconsidered.

Adaptation products and services can open up new opportunities for those who have the resources and flexibility to adapt their business models accordingly.
Provide finance Providing small-scale financing for business partners Roaster pays in advance to allow coffee farmer to purchase irrigation equipment
Offer products & services Offer products & services Offering products or services that can help clients adapt to climate change Gardening company builds green spaces in urban heat trapped areas.
Individual business development consultant integrates resilience into advisory for agricultural processing companies.

Large enterprises and multinational corporations

Activities Examples Possible focus of adaptation efforts
Adapt to climate change Implementing adaptation measures to protect own assets and operations Car manufacturer improves storm resistance of headquarter offices. Large and multinational companies need to make their own operations and assets resilient but should also support their suppliers and business partners – financially and through other inputs, e. g. organizational help for local adaptation – in order to avoid business interruption. Adaptation can potentially be a large business opportunity for companies that already have clients, which are increasingly vulnerable or want to access new markets (see, for example, UN Global Compact and UNEP 2012).
Provide finance Providing finance for adaptation of companies in the value chain Food company pays higher per-unit price to finance adaptation of small-scale farmers who supply raw goods
Offer products & services Otherwise supporting adaptation of suppliers or business partners Textile company helps organize local adaptation round tables with companies and government .
Offer products & services Offering products or services that can help clients adapt to climate change Solar panel manufacturer sells solar panels to improve access to energy
Large rating agency develops rating methodology for adaptation bonds
[1] Annica Cochu, Tobias Hausotter., Mikael Henzler., The Roles of The Private Sector In Climate Change Adaptation – An Introduction, adelphi research gemeinnützige GmbH, July 2019, p. 5-6


2.3.3 Promoting green and efficient private sector development (mitigation)



As public finances become increasingly constrained, there is a clear need to find resources from elsewhere to support the move to a low carbon, resilient society with private sector engagement. Clearly, the private sector has an important role to play in building a low-carbon, climate resilient future for the planet.

Some companies are already hard at work developing weather-based insurance products that provide financial payouts to farmers in the event of a drought or a flood, for example, allowing farmers to hedge against the risks that are becoming more acute due to the impacts of climate change. Other companies are co-financing infrastructure projects, while others are making their own supply chains and business operations more climate resilient.

New international and national policies aim at encouraging these private actors. Examples include the UN Framework Convention on Climate Change, which has a Private Sector Initiative to catalyse the role of the private sector in climate adaptation, and forms of climate finance, such as the Climate Investment Funds, which place a special emphasis on involving the private sector in climate resilience

However, the private sector has generally focused on climate mitigation by, for example, reducing emissions through developing renewable energy and energy efficient technologies. Financing adaptation has been less of a strong point and risks being left out. For example, solar lanterns may be sold to communities without access to electricity by private companies. The lanterns are low carbon (as they are a renewable source of energy) and can increase the resilience of families to the impacts of climate change by offering them a cheaper and reliable source of light, and don’t create the health problems caused by burning wood or charcoal, which is a major cause of disease. This allows families to save money, stay healthy and allows children to study and do better at school. All of these factors will make a family more climate resilient and so recover more quickly to any unexpected shocks, such as a flood or a drought.




2.3.4 Drivers of – and barriers to – company action on climate change and green growth in developing countries


The context and challenges faced by companies, investors and businesses in acting on climate change and green growth is the first step to designing effective private sector engagement approaches and tools. These challenges vary widely and depend largely on the size of the company as well as the context within which it operates.


Climate change and the environment are featuring more prominently on the agenda of businesses. The scale and extent of private sector involvement in and support for the Paris Agreement is a recent illustration of this. Two examples of commitments made by companies at COP 21 include the Science Based Targets initiative, which saw 144 companies commit to set targets in line with the overarching 2 °C temperature goal of the Paris Agreement, and the Paris Pledge for Action (or ‘L’Appel de Paris’), which united 400 businesses and 120 investors with other non-state actors in committing to support the delivery of the Paris Agreement (Science Based Targets, n.d.; COP 21, 2015). The Global Commission on Business and Sustainable Development, headed by Unilever, highlights why companies need to engage in delivering the SDGs: economic benefits from new markets and innovation, risks to business performance and stability, and the necessity to work closer with the government and other stakeholders in the future (Business and Sustainable Development Commission, n.d.).

Addressing global environmental challenges is being seen as key to managing business and investment risks and ensuring stable growth. In a well-publicised speech before COP 21, the Governor of the Bank of England identified three categories of risks to financial stability from climate change: physical risks, liability risks and transitions risks. Physical risks are risks to companies and insurance providers from damages to property (e.g. companies in vulnerable areas) and disruption to trade (e.g. non-resilient value chains). Liability risks are risks to high carbon emitters if they are made to compensate in the future for emissions produced today or to companies that have failed to adapt to physical risks that threaten to disrupt their supply chain. Transition risks are risks arising from changes in policy and regulation as a result of the transition to a greener economy that could affect the profitability of carbon-intensive industries.

Promoting green growth is in the business interest of companies by reducing costs and diversifying business and investment opportunities. Reducing resource use and measuring environmental performance is an opportunity to streamline operations, increase efficiency and competitiveness. The need for innovation and new green and inclusive business models also provides an opportunity for companies to contribute to green growth and climate action on a profitable basis, by developing new products and services, diversifying their business streams, as well as reaching new targets. A survey of the heads of ‘Caring for Climate’ members, a coalition of businesses under the UN Global Compact, found that over half viewed climate change as a driver of growth and innovation in their companies over the next five years (UN Global Compact/Accenture, 2015). Furthermore, green sectors have experienced higher-than-average growth rates over the last few years; for example, the ‘green and renewable energy’ sector ranks first globally in compounded annual growth rates (CAGR) in revenues by sectors over 2012-2017, as shown by NYU Stern which tracks historical CAGR in revenues and net income by sectors. In the same time span, the total global market CAGR in revenues was 6.45% for comparison.

A lack of access to finance hinders efforts to investing in clean technologies and environmental solutions among businesses in developing countries. According to data from the World Bank Enterprise Surveys from 2010-2017 in developing countries, access to finance is the foremost barrier to firm development (World Bank, 2017). These financial constraints are exacerbated for green growth and climate action in which the private sector is sometimes reluctant to invest, in part due to a lack of proven and readily available business models or a failure to understand the business case. Development cooperation can address both, the demand side and offer side of the access to finance equation. On the one hand, it can stimulate demand for clean technologies, for example, by raising awareness and demonstrating the business case. On the other hand, it can also address the offer side of the problem by increasing capital availability and adequacy for private sector projects dealing with green growth and climate action (e.g. small-scale adaptation-related projects, innovative green growth projects), through direct financing (e.g. grants, challenge funds), risk sharing mechanisms which improve the risk-return profile of investments (e.g. guarantees), provision of medium to long-term finance to cover the longer payback of relatively new green technologies, etc.

Figure 4. Top business environment obstacle to private sector operation and growth in developing countries

Source: World Bank (2017), “Enterprise surveys”, database, www.enterprisesurveys.org

Small businesses are often not sufficiently aware of the impacts of climate change and environmental degradation, lack the knowledge and capacity to tackle these impacts, or sometimes seem unwilling to hedge against the risks they represent. Development cooperation can assist the private sector in identifying risks and opportunities presented by green growth and the transition to a low-carbon, climate-resilient economy, as well as disseminate knowledge and stimulate preparedness on these topics.

INFO SHEET NO. 3

CLIMATE ACTION
IN THE REPUBLIC OF NORTH MACEDONIA



In this info sheet you will read:
What is the climate change expected impact for the Republic of North Macedonia?
Climate response and governance in the Republic of North Macedonia?
Relevant institutions and bodies with responsibilities regarding climate change.
Engagement with the Green Climate Fund (GCF).
How can private sector participate/contribute to strengthening climate governance in the Republic of North Macedonia?



3.1 What is the climate change expected impact for the Republic of North Macedonia?


The Republic of North Macedonia is an upper middle-income country that is particularly vulnerable to climate change. The country’s economic growth is dependent on climate-sensitive natural resources, including land, forestry and water, leading to relatively high adaptation and mitigation costs. North Macedonia is characterized by a variable climate, which, combined with rising temperatures and more extreme weather events, such as floods and drought, due to climate change, put particularly the country’s agriculture sector at risk. Forests cover about 40 percent of the country’s land, and higher temperatures combined with drought increase the risk of wildfires.

Climate projections for the country include:

• Increase in the annual average temperature of 1.0 – 3.3°C by 2050. Increases are expected to be higher in summer months.

• Increase in the number of hot days/nights and heat waves.

• Projected 5 percent decrease in annual average precipitation by 2050, with 17 percent decrease expected in the summer periods.

• Likely increase in precipitation variability.

• Likely increase in frequency and intensity of droughts, with the probability of projected change in annual severe drought likelihood increasing by between 0.23 and 0.37 by 2060.


According to North Macedonia’s Nationally Determined Contribution (NDC) to the Framework Convention on Climate Change (UNFCCC), almost 80 percent of the total emissions are CO₂ emissions, originating from fossil fuels combustion, with dominant share of the sectors: energy supply, buildings and transport.



3.2 Climate response and governance in Republic of North Macedonia


The Republic of North Macedonia ratified the United Nations Framework Convention on Climate Change (UNFCCC) on December 4, 1997, and the Kyoto Protocol in July 2004. The Ministry of Environment and Physical Planning (MoEPP) is the institution responsible for climate change policymaking, it is the UNFCCC Focal Point and responsible for implementing the Kyoto Protocol. The MoEPP coordinated all activities related to ratification of the Convention and Protocol including activities on raising public awareness.

National Climate Change Committee

In January 2000, the Climate Change Project Office was set up within the MoEPP. Furthermore, a National Climate Change Committee (NCCC) was established as an advisory body for policymaking related to climate change issues. It is composed of representatives of key governmental agencies, non-governmental organizations, private entities and the academia. The Committee is chaired by a representative of the Macedonian Academy of Science and Arts.

European Union and the Republic of North Macedonia

As a candidate country for European Union (EU) membership, and a contractual party to the European Energy Community, the country should report all its climate change mitigation activities with the common reporting format, which is usually used by the EU. These reporting requirements are more advanced than the requirements for North Macedonia and other countries which are non-Annex 1 countries of the United Nations Framework Convention on Climate Change (UNFCCC). The UNFCCC entered into force on 21 March 1994. Today, it has near-universal membership. The 197 countries that have ratified the Convention are called Parties to the Convention. Preventing “dangerous” human interference with the climate system is the ultimate aim of the UNFCCC.

North Macedonia and the Paris Agreement

The National Assembly of the Republic of North Macedonia ratified the Paris Agreement in November 2017 (Official Gazette of the Republic of Macedonia no. 161/17), which confirmed the commitments to join the global climate change mitigation efforts. Under the Paris Agreement, the country became the twenty-third in the world to submit its Intended Nationally Determined Contributions for Climate Change (INDC) as per the Decision of the Government No. 42-17/91 of 28 July 2015.

North Macedonia and the Agenda 2030 for Sustainable Development

The country has also adopted the Agenda 2030 for Sustainable Development and established a multi-stakeholder process, chaired by the Cabinet of the Deputy President of the Government in charge for Economic Affairs, to mainstream the 2030 Agenda at national and local development frameworks.

3.3 Relevant institutions and bodies with responsibilities regarding climate change

Ministry of Environment and Physical planning (MoEPP)

The leading institution for climate action in North Macedonia is the Ministry of Environment and Physical Planning (MoEPP), which has a Unit for Climate Change under the Department for Sustainable Development and Investments. The MoEPP is the institution responsible for policies, legislation preparation, planning, regulatory action, and reporting on the climate situation and climate action. The Ministry is also designated as the main institution responsible for coordinating inter-institutional cooperation for the preparation of the national plans on climate change and climate action, including the preparation of the GHG inventories and reporting obligations towards the UNFCCC.

Ministry of Economy

The Ministry of Economy is responsible for the energy sector, among other matters, and as such is closely involved with climate-relevant issues. It oversees energy policy, including measures to improve energy efficiency and renewable energy. Two additional institutions that support these initiatives are the Energy Agency (EA) and Energy Regulatory Commission (ERC). The Energy Agency is responsible for awareness campaigns, programme development, planning, training and coordinating financial resources to support clean energy initiatives. The Energy Regulatory Commission oversees prices and tariffs for electricity, gas, water services and heating.

According to the Strategy for Energy Development of the Republic of North Macedonia until 2040, the Government will aims to modernize and transform the overall energy sector in line with the EU energy trends, contributing to increased access, integration and affordability of energy services, reduction in local and global pollution, and increased private sector participation. A main objective in the coming years is the reduction of GHG emissions by strengthening the enforcement of environmental regulations. Also, measures for energy efficiency of residential buildings and measures that will contribute to reduce pollution from vehicles will be taken. The Government will also work to reduce dependence on coal and promote renewable sources of energy. The Government plans to establish an energy efficiency fund to save energy, create jobs, preserve natural resources and reduce environmental pollution. One of the main aims of the fund will be to invest in public infrastructures – such as schools, hospitals and municipal buildings – to achieve greater energy efficiency outcomes. It is estimated that 6,200 jobs will be created by 2035 by implementing energy efficient measures in the building sector.

Ministry of Agriculture, Forestry and Water Economy

The Ministry of Agriculture, Forestry and Water Management (MAFWE) is responsible for setting and implementing the goals, policies and measures for agriculture and rural development, forestry and water management in the Republic of North Macedonia. Agriculture is an important economic sector in North Macedonia, contributing 12 % to GDP and accounting for some 22 % of employment. About half of the country’s territory is arable agricultural land and 44 % is forestland. Agriculture, forestry and water resources are highly vulnerable to the adverse effects of climate change, leading to high adaptation and mitigation costs. MAFWE is the responsible institution in charge of the management of agricultural land, soil, forests, fisheries and other natural resources. The MAFWE through the Department of Forestry and Hunting carries out forestry policies, as well as legislative, normative, administrative legal and other matters related to development of the forestry sector. MAFWE is responsible for protection of cattle and plants from diseases and pests. It is also overseeing the situation of waters, maintenance and improvement of water regimes, hydro-meliorative systems, as well as meteorological, hydrological and bio-meteorological processes. Improving the competitiveness and income sustainability of agricultural holdings, applying environmental practices in agricultural production that lead to mitigating and adapting to climate change, and ensuring sustainable rural development are the main goals of the newest Strategy for Agriculture, Forestry and Water Economy for the period 2021-2027.

Ministry of Transport and Communications

The Ministry of Transport and Communication (MTC) is responsible for supervision of communal infrastructure of municipalities, being mostly water supply and sewerage networks. Consequently, MTC is to a large extent involved in the construction of water supply and sewerage networks, thus supporting particular municipalities in rural or less developed areas. Support for water supply and sewerage network projects is provided by granting state subsidies to municipalities applying for such assistance. The Ministry has also been managing several water infrastructure programmes supported by international donors.

Ministry of Health

Within the Ministry of Health, the Commission for Monitoring Heat Health Consequences has been functional since 2007 and the Committee on Climate Change and Health has been functional since 2009. The Ministry of Health is represented on the National Climate Change Committee. The general goal of the strategy is to plan climate change adaptation measures for the health system in order to prevent and/or overcome both, existing and future risks, and to respond promptly to the risks and problems for people’s health and well-being that are expected due to climate change in North Macedonia.

Ministry of Finance

The Ministry of Finance (MoF) is in charge of preparing regulations for extended liability of manufacturers (packaging, electrical equipment, batteries, etc.). It prepares economic instruments and provides funds to encourage sustainable waste management, especially in terms of defining fees, taxes and fees, asset management and mechanisms for reimbursing investment and processing costs.

The Republic of North Macedonia is a member of the Open Government Partnership (OGP) and a participant in its Open Climate Working Group, which involves ten countries and many civil society organizations. As a working group member, the country is expected to develop clear, concrete and ambitious commitments to addressing climate change in consultation with civil society.

Deputy President of the Government of the Republic of North Macedonia, in charge of economic affairs, coordination of economic sectors and investments

The Deputy President in charge of economic affairs, coordination of economic sectors and investments is responsible for coordination of the implementation of the Agenda 2030 and the Sustainable Development Goals at national level and serves as the National Designed Authority for the Green Climate Fund and for chairing the National Council on Sustainable Development.

3.4 Engagement with the Green Climate Fund (GCF)


The Office of the Deputy President of the Government in charge of Economic Affairs is responsible for achieving the Sustainable Development Goals at national level and serves as the National Designed Authority (NDA) for Green Climate Fund (GCF). By Government Decision, the NDA has а mandate and coordinates institutions working on economic policy and development, planning, climate change, energy, sustainable development and environmental resource management priorities and strategies, and plans appropriate coordination and direction of action. The NDA has a leading role in coordinating the climate financing process according to procedures for country engagement with the GCF.

The main responsibilities of the NDA are the following:

• Acting as Point of contact for the GCF in the Republic of North Macedonia;

• Managing stakeholder coordination and engagement;

• Developing/updating the Country Work Programme and pipelining projects to be submitted to the GCF;

• Overseeing national priorities on proposal development and accreditation;

• Announcing open calls for project ideas;

• Performing administrative checks of project ideas;

• Ensuring commitment and close coordination with AEs in developing full project proposals;

• Submitting project co-financing proposals to Government;

• Issuing No-objection letters for project/programs for submission to the GCF;

• Issuing Direct Access Entities (DAEs) nomination letters to GCF;

• Disseminating information and raising awareness of all stakeholders on climate finance and GCF matters;

• Approving proposals under the Readiness and Preparatory Support Programme, in coordination with the Strategic Advisory Committee (SAC) for the GCF.

The NDA is responsible for organizing consultations with all national stakeholders (local self-governments, state authorities, business sector, civil society organizations, academia etc.) in order to inform on the GCF-related opportunities and to build capacities for developing country project/programme proposals for GCF funding.

Source: www.fao.org/3/ca7336en/CA7336EN.pdf p.6

The principle of Country Ownership is at the heart of the work that the Green Climate Fund conducts in the developing world. The GCF recognizes that country ownership is a continual process, and that National Designated Authorities (NDAs) have a key role in driving institutional development and stakeholder engagement for establishing effective mechanism that addresses climate-related issues. The No-Objection procedure in North Macedonia, is exercised by the NDA to ensure that financing through the GCF will be transparent, consistent with national climate priorities, strategies, plans, is country-driven, effective and leaves no one behind.

The different processes of engagement with the GCF are organized around four key phases, as described in Figure 6 below:

Source: www.fao.org/3/ca7327en/ca7327en.pdf p.21

These phases are intended to provide clarity to different stakeholders about GCF/climate finance processes in the country and can be conducted in parallel or consecutively depending on country context and needs, and progress achieved in accessing GCF resources. Each phase will include different steps to support the NDA and stakeholders to make progress towards the goal of advancing climate action in the Republic of North Macedonia, by accessing climate finance, particularly from the GCF.

Strategic Advisory Committee (NDA-SAC)

The role of the Strategic Advisory Committee (NDA-SAC) is to assist the NDA in coordinating and engaging stakeholders, in overseeing and aligning national priorities for developing funding proposals and in accrediting potential Direct Access Entities (DAEs) in the Republic of North Macedonia.

The responsibilities of the NDA-SAC in the national coordination process related to the GCF include:

a) Contributing to evaluating projects’ eligibility for GCF funding, by providing specific expertise on financial and climate change issues, performing impartial prioritization of the projects, and reviewing all aspects of the GCF project proposals;

b) Ensuring there is no-overlap with other climate change related activities/projects and assisting in donor climate change coordination;

c) Supporting the NDA in performing general monitoring of the financial and technical aspects during project implementation phase, including aspects of ensuring equal opportunities;

d) Supporting the NDA in assessing DAEs.

The Strategic Advisory Committee (NDA-SAC) is composed of experts in the areas of climate change, project management and financing.

Along with four members of the NDA staff, six representatives of the three institutions participate in the NDA-SAC:

- Ministry of Finance (MoF) - two (2) persons, including the State Secretary and State Counselor from the Budgeting Sector

- Secretariat of European Affairs (SEA) – two (2) persons, including the Head of Sector for EU funds coordination and other foreign assistance and one representative from the Sector for integration

- Ministry of Environment and Physical Planning (MoEPP) - two (2) persons, including the State Secretary and State Counselor on Climate Change.

If needed, the NDA-SAC may initiate meetings of the Sectoral Working Group (SWG) for specific project proposals for the specific project/sector.

Sectoral Working Groups (SWG)

The Sectoral Working Groups (SWG) may be created on request of the NDA-SAC, at an ad-hoc basis and depending on the sectoral focus. The SWG will include sector experts from the line ministries and public bodies.

The main SWG responsibilities are to:

• Contribute to the technical discussions and project assessments, on request of the NDA-SAC, by providing relevant information (at an ad-hoc basis);

• Advise NDA-SAC on technical and operational issues in specific sectors (transport, energy, water management, waste management, agriculture, forestry, nature & biodiversity, land management, health, cultural heritage, gender aspects and vulnerable groups` perspectives etc.)

For those sectors where ad-hoc working groups have already been established in the context of the National Council for Sustainable Development (NCSD), the NDA SAC will, where possible, cooperate with the existing working groups.

National Council for Sustainable Development (NCSD)

The National Council for Sustainable Development (NCSD) creates a broad platform that provides an opportunity to review all aspects of a given investment to be proposed to the GCF and make decisions with consideration of the needs and expectations of all stakeholders. An added value of the NCSD is its being a platform for climate change and Sustainable Development Goals (SDGs) awareness raising.

The National Council for Sustainable Development (NCSD) will:

• Verify the prioritization process within the Country Work Programme;

• Assist NDA in stakeholder coordination;

• Assist the NDA in CC and SDGs awareness raising.

Additionally, the NCSD has established the Technical Working Group (TWG), which is a multi-sectoral body created to support the NCSD with technical advice and expert knowledge on certain issues. The TWG has representatives from line ministries, who represent the work of their respective institutions with regard to sustainable development.
To cover all relevant topics for discussion on GCF/climate finance-related matters, the NCSD membership is recommended to be extended to include the following high-level representatives:

• The Governor of the National Bank of North Macedonia

• The President of the Development Bank of North Macedonia

• The President of the Steering Committee of the Association of Local Self Government Units

• CSO representatives

The Government

The Government of the Republic of North Macedonia represents the highest decision-making body in the country and concretely on the GCF and climate finance matters. It is represented by the President of the Government and all the Ministers of the Government of North Macedonia.

The Government of the Republic of North Macedonia will:

• Approve the final GCF Country Work Programme;

• Approve final project proposals for GCF funding by issuing a No-objection letter;

• Provide a final approval of the recommended Direct Access Entities (DAEs) by issuing a DAE Nomination Letter.


3.5 How can private sector participate/contribute to strengthening climate governance in the Republic of North Macedonia?


The global challenges of modern societies that are also covered by the Sustainable Development Goals (SDGs) are quite complex and require the involvement of all social actors. Although the states are primarily responsible through policies and measures to work towards the achievement of the SDGs, active involvement is required from the business sector. The involvement of the business community is of particular importance because its impact is crucial in areas such as economic development, environmental protection, labor market, energy, standard of living, etc. Without their direct involvement, progress in these areas is impossible. Additionally, it is generally accepted that for a business to be successful in the long run, it must take care of its environmental and social impacts and develop principles of sustainable business.
Private sector entities in North Macedonia can utilize the following mechanisms for dialogue and joint action with the Government, related to climate change:

The Economic and Social Council

The Economic and Social Council is an advisory body to the Government on issues in the economic and social sphere. The Council, within its competence, submits opinions and conclusions to the Government on policies in the economic and social field, and which policies are closely related to the interests of workers and employers. The Economic and Social Council is a tripartite body composed of 12 members, in a parity with representatives of the Government, the representative associations of employers and the representative trade unions. Since its inception, through this tripartite body, tripartite consultations have been conducted on a regular basis, primarily on labor sector policies and financial policies related to the labor sector. The legal framework governing the functioning of the Council is constantly being upgraded, in order to promote the visibility further, independence and role of this body in the implementation of the national social dialogue.

The Platform for public-private dialogue

In May 2018, a memorandum was signed on the establishment of a public-private dialogue between the four chambers of commerce and the Government. The memorandum is an important step in the process of building cooperation between the public and private sectors, as a means of directly sending the joint views of the chambers in the form of positional documents related to Government policies affecting the business community.

INFO SHEET NO. 4

CLIMATE FINANCE


In this info sheet you will read:


What is climate finance
UN Framework Convention on Climate Change (UNFCCC) context for climate finance
Key climate finance terms
Key climate finance actors and sources
Public climate finance
Multilateral channels for climate finance
Bilateral channels for climate finance
Regional and national channels and climate change funds
Private climate finance
Climate finance in North Macedonia
UNFCCC commitments and reporting requirements
Sources of climate finance in North Macedonia
International support for climate investments
Domestic assets
Domestic sources for climate finance for private sector in North Macedonia
Commercial Banks
Development Bank of North Macedonia
EU Instrument for Pre-Accession Assistance for Rural Development
What role can private sector play in promoting climate finance in North Macedonia

4.1 What is Climate finance

Climate finance refers to local, national or transnational financing—drawn from public, private and alternative sources of financing—that seeks to support mitigation and adaptation actions that will address climate change.

The Standing Committee on Finance of the UNFCCC (United Nations Framework Convention on Climate Change - UNFCCC) has proposed activity-based definition of climate finance that covers both, mitigation and adaptation actions: “Climate finance aims at reducing emissions, and enhancing sinks of greenhouse gases and aims at reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts”.


4.2 United Nations Framework Convention on Climate Change context for climate finance

The United Nations Framework Convention on Climate Change (UNFCCC) underlines that climate change is one of the greatest challenges of our time. It emphasizes strong political will to urgently combat climate change in accordance with the principle of common but differentiated responsibilities and respective capabilities. To achieve the ultimate objective of the Convention to stabilize greenhouse gas (GHG) concentration in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system, recognizing the scientific view that the increase in global temperature should be below 2 degrees Celsius, the Parties shall, on the basis of equity and in the context of sustainable development, enhance their long-term cooperative action to combat climate change. They recognize the critical impacts of climate change and the potential impacts of response measures on countries particularly vulnerable to its adverse effects and stress the need to establish a comprehensive adaptation programme including international support.

The UNFCCC, the Kyoto Protocol and the Paris Agreement call for financial assistance from parties with more financial resources to those that are less endowed and more vulnerable. Climate finance is needed for mitigation, because large-scale investments are required to significantly reduce or sequester GHG emissions. Climate finance is equally important for adaptation, as significant financial resources are needed to adapt to the adverse effects and reduce the impacts of a changing climate.

The second Biennial Assessment and Overview of Climate Finance Flows of the UNFCCC, released in November 2016, recorded USD 41 billion of public international finance flowing to developing countries in 2013-14. In 2018, the third Biennial Assessment recorded that this had reached USD 56 billion annually in the period 2015-2016 (UNFCCC, 2018). These figures remain relatively small, however, compared to global climate finance estimates, taking into account all countries and both private and public finance, of USD 579 billion a year in the 2017-2018 period (CPI, 2019).


4.3 Key climate finance terms

Key climate finance terms are:

• Accredited Entity. An Accredited Entity is a national, regional or multilateral institution that meets a fund’s standards and achieves a given accreditation status. It can be private, public or non-governmental entity. Entities can become accredited as implementing, delivery or executing entities (depending on the funds, see “Implementing Entity” below).

• Additionality. Additionality refers to the use of development funding to achieve climate-related objectives besides regular, business-as-usual development. Some funds (like the Green Climate Fund (GCF) or the Global Environmental Facility (GEF) Special Climate Change Fund) will not fund projects that are development projects with a climate change adaptation or mitigation co-benefit. Instead, the core focus of the project needs to be on climate change, and the fund’s money will be spent in addition to other development funding. Additionality is an important and politically-sensitive concept that is still being debated on the international stage.

• Annex I Parties. Industrialized countries listed in the United Nations Framework Convention on Climate Change (UNFCCC) Annex I and committed to reducing their greenhouse gas emissions. Most of these Parties signed the Kyoto Protocol and the Paris Agreement. See the list HERE.

• Annex II Parties Annex II Parties consist of the OECD members of Annex I, but not the EIT Parties. They are required to provide financial resources to enable developing countries to undertake emissions reduction activities under the Convention and to help them adapt to adverse effects of climate change. In addition, they have to “take all practicable steps” to promote the development and transfer of environmentally friendly technologies to Economy in Transition (EIT) Parties and developing countries. Funding provided by Annex II Parties is channeled mostly through the UNFCCC’s financial mechanism.

• Clean Development Mechanism. “Clean Development Mechanism’’ (CDM) is a mechanism under the Kyoto Protocol through which developed countries may finance projects on reduction or removal of greenhouse gas emissions in developing countries, and, in return, receive carbon credits for doing so which they may apply to meeting mandatory limits on their own emissions.

• Climate Action Plan. A Climate Action Plan (CAP) is a detailed and strategic framework for measuring, planning, and reducing greenhouse gas (GHG) emissions and related climatic impacts. Local governments design and utilize climate action plans as customized roadmaps for making informed decisions and understanding where and how to achieve the largest and most cost-effective emissions reductions that are in alignment with other municipal goals. Climate action plans, at a minimum, include an inventory of existing emissions, reduction goals or targets, and analyzed and prioritized reduction actions. Ideally, a climate action plan also includes an implementation strategy that identifies required resources and funding mechanisms.

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• Development Finance Institutions. National and international development finance institutions (DFIs) are specialized development banks or subsidiaries set up to support development projects and programmes in developing countries. They are usually majority-owned by national governments and source their capital from national or international development funds or benefit from government guarantees. This ensures their creditworthiness, which enables them to raise large amounts of money on international capital markets and provide financing on very competitive terms.

• Direct Access Entities. A mechanism in which national accredited entities (direct access entities) of developing countries gain direct access to funding provided by an international fund to implement the selected projects and/or programmes. These entities may wish to choose other executing entities to carry out the work.

• Financing Mechanism. Developed country Parties shall provide financial resources to assist developing country Parties in implementing the UNFCCC Convention. To facilitate this, the Convention established a Financial Mechanism to provide funds to developing country Parties. The operation of the Financial Mechanism is entrusted to the Global Environment Facility (GEF) and the Green Climate Fund (GCF).

• Implementing Entity. Generally, an “Implementing Entity” (IE) is responsible for vetting and endorsing project and programme proposals, and for disbursing funding from a fund when proposals are successful. The term IE can vary slightly depending on the Fund.
o The Adaptation Fund accredits national, regional or multilateral IE. The IE works with an Executing Entity, in charge of the day-to-day management and on-the-ground interventions.
o The equivalent of IE for GEF is called “Implementing Agency” (IA). IAs can be national (e.g. Development Bank of South Africa), regional (e.g. West African Development Bank) or multilateral (e.g. United Nations Environment             Programme). NGOs can also become accredited as IAs (e.g. World Wildlife Fund). Like with the AF, a GEF Implementing Agency works with an Executing Entity.
o The equivalent of IE for GCF is called “Delivery Partner”. The Delivery Partner may work with an “Executing Entity”.

• Multilateral Development Bank (MDB). Multilateral development banks (MDBs) can be categorized in many ways. The two biggest groups are “main” and “sub-regional” multilateral development banks:
a) Main: created by a group of countries to provide financing and professional advising for development purposes. For example: World Bank, the Asian Development Bank, the Inter-American Development Bank Group etc.
b) Sub-regional: for a better deal, banks lend to their members, borrowing from the international capital markets. Because there is effectively shared responsibility for repayment, the banks can often borrow more cheaply than           could any one member nation. For example: Caribbean Development Bank, West African Development Bank

• National Adaptation Plan (NAP). A process established under the Cancun Adaptation Framework (CAF). It enables Parties to formulate and implement national adaptation plans (NAPs) as a means of identifying medium- and long-term adaptation needs and developing and implementing strategies and programmes to address those needs. It is a continuous, progressive and iterative process which follows a country-driven, gender-sensitive, participatory and fully transparent approach.”

• Nationally Determined Contributions (NDCs). “The Paris Agreement requires each Party to prepare, communicate and maintain successive nationally determined contributions (NDCs) that it intends to achieve in order to reduce national emissions and adapt to the impacts of climate change. Parties shall pursue domestic mitigation measures, with the aim of achieving the objectives of such contributions.”

• Non-Annex I Parties. Non-Annex I Parties are mostly developing countries. Certain groups of developing countries are recognized by the UNFCCC Convention as being especially vulnerable to the adverse impacts of climate change, including countries with low-lying coastal areas and those prone to desertification and drought. Others (such as countries that rely heavily on income from fossil fuel production and commerce) feel more vulnerable to the potential economic impacts of climate change response measures. The Convention emphasizes activities that promise to answer the special needs and concerns of these vulnerable countries, such as investment, insurance and technology transfer.

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• Official Development Assistance (ODA) refers to financial assistance provided to developing countries and the multilateral institutions by official agencies, including state and local governments of developed countries for promotion of their economic development and welfare. In 1970, it was agreed that developed countries would provide 0.7 per cent of their Gross National Income (GNI) as ODA to developing countries. ODA is also known as foreign aid.”

• Climate finance. The 2016 Biennial Assessment and Overview of Climate Finance Flows (UNFCCC), refers to climate finance as financial resources dedicated to adapting and mitigating climate change globally, aiming at reducing GFG emissions, reducing vulnerability, and maintaining and increasing the resilience of human and ecological systems to the negative climate change impacts.

• Climate Public Expenditure and Institutional Review. (CPEIR) is a methodological tool to analyze, how climate change related expenditure is being integrated into national and sub-national budgetary processes. It has three key pillars: Policy Analysis, Institutional Analysis and Climate Public Expenditure Analysis. It supports to identify and track climate related expenditure in the national budget.

• Co-financing refers to conditions that recipient entities need to fulfil to receive financial support from funds. These conditions may include earmarking funds to certain sectors, co-financing, procurement design, fulfilling certain criteria under social and environmental context, etc.

• Conditionality refers to conditions that recipient entities need to fulfil to receive financial support from funds. These conditions may include earmarking funds to certain sectors, co-financing, procurement design, fulfilling certain criteria under social and environmental context, etc.

• Leverage is used in the context of climate finance in which it refers to public finance (e.g. from international finance institutions) that is used to encourage private investors to back the same project. This can be in the form of loans, risk guarantees and insurance or private equity. This is also intended to reduce the perceived risk for the private sector. Financial institutions apply the terminology ‘leveraging’ to understand how their core contributions (for example, money provided by donor governments to a multilateral development bank) can be invested in capital markets to create an internal multiplier effect.

• On-lending. An entity accredited under specialized fiduciary standards can receive money from a fund with the intention of lending it to other executing entities for the implementation of selected programmes and/or projects. This can also include providing equity or guarantees to other entities.

• Project Preparation Facility (PPF) is used as means of developing bankable, investment-ready projects. A PPF may provide both technical and/or financial support to project owners/concessionaires. Such supports can cover a wide range of activities including: undertaking project feasibility studies including value for money analysis; developing procurement documents and project concessional agreements; undertaking social and environmental studies; and creating awareness among the stakeholders.

• Technical assistance is non-financial assistance provided by local or international specialists. It can take the form of sharing information and expertise, instruction, skills training, transmission of working knowledge, and consulting services and may also involve the transfer of technical data.

4.4 Key climate finance actors and sources

Public finance flows are those carried out by central, state or local governments and their agencies at their own risk and responsibility. Public finance actors include:

• Governments through their ministries, departments and aid agencies.

• Development finance institutions – either national or multilateral; development bank or export-credit agency.

• Climate funds - predominantly multilateral climate funds established under international environmental agreements.

Private finance flows are financial flows at market terms financed out of private sector resources (changes in holdings of private, long-term assets held by residents of the reporting country) and private grants (grants by non-government organisations, net of subsidies received from the official sector). Private finance actors include:

• Private companies

• Local, regional and global commercial banks

• Non-bank financial institutions

• Leasing companies

• Private equity investors

• Institutional investors

• Households – family-level economic entities, high net-worth individuals (HNWI), and their intermediaries (e.g. family offices investing on their behalf).

4.5 Public climate finance

Climate finance globally provided by public sources increased 18% from USD 215 billion annually in 2015/2016 to USD 253 billion in 2017/2018, and the overall share of tracked climate finance provided by public sources fell by two percentage points, to 44% of the total.

4.5.1 Multilateral channels for climate finance

Multilateral financial institutions and funds have multiple governing members, including both borrowing developing countries and developed donor countries. These channels include multilateral (MDBs) and national development banks (NDBs), the financial institutions that have been created within the framework of the United Nations Framework Convention (UNFCCC) itself and United Nations (UN) agencies.

Multilateral Development banks (MDBs)

Multilateral development banks (MDBs) are broadly defined as development institutions with a banking business model. In addition to their lending activities, they can also provide development research and advisory services. They play a prominent role in delivering multilateral climate finance, with climate finance commitments of USD 43.1 billion made in 2018 alone (EBRD et al., 2019). Many have incorporated climate change considerations into their core lending and operations, and most MDBs now also administer climate finance initiatives with a regional or thematic scope.

World Bank Group (WB)

The World Bank Group (WB) consists of the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) and was founded in 1944. Originally aimed at supporting the reconstruction of countries that were devastated in World War II, the focus shifted to supporting development in the Global South. The World Bank’s carbon finance unit has established the Forest Carbon Partnership Facility (FCPF) to explore how carbon market revenues could be harnessed to reduce emissions from deforestation and forest degradation, forest conservation, sustainable forest management and the enhancement of forest carbon stocks (REDD+). It also manages the Partnership for Market Readiness, aimed at helping developing countries establish market based mechanisms to respond to climate change and the BioCarbon Fund, which is a public-private partnership that mobilizes finance for sequestration or conservation of carbon in the land use sector.

European Investment Bank (EIB)

The European Investment Bank (EIB) administers the EU Global Energy Efficiency and Renewable Energy Fund ( GEEREF).

European Bank for Reconstruction and Development (EBRD)

The European Bank for Reconstruction and Development (EBRD) is a development bank, which has signaled explicitly that it focuses its portfolio on the Green Economy Transition (GET) 2021-25 - the Bank’s new approach for helping countries where the EBRD works, to build green, low carbon and resilient economies. Through the new GET approach, the EBRD will increase green financing to more than 50 percent of its annual business volume by 2025. It also aims to reach net annual GHG emissions reductions of at least 25 million tons over the five-year period. This ambition, announced at the latest annual meetings in London, October 2020 clearly shows that the EBRD is becoming even more relevant lender for North Macedonian public and private sector.
EBRR has been very active in providing opportunities to private firms for climate finance. Currently an SMEs Competitiveness support scheme is active for companies willing to invest in their competitiveness, including product and process improvements, procurement of equipment and improving energy efficiency. For investments of up to EUR 1 million, the EBRD is offering a 15% grant upon successful performance. This scheme emphasizes that SMEs could use the loan for energy consumption and should use technologies that contribute to a green economy by reducing pollutants such as greenhouse gas emissions. Beyond this specific scheme, the EBRD can also directly lend to private sector for investments over EUR 3 million.

National Development Banks (NDBs)

National Development Banks (NDBs) are government-backed, sponsored, or supported financial institutions that have a specific public policy mandate. NDBs come in many different shapes and sizes, and there is no one single or typical operating model. NDBs can differ in terms of ownership structure, financial objectives, policy objectives (special purpose or multifunctional), supervisory requirements, and financial instruments.

Multilateral climate Funds

UNFCC Convention established a financial mechanism to provide financial resources to developing country Parties. The financial mechanism also serves the Kyoto Protocol and the Paris Agreement. At COP 16, the Standing Committee on Finance was established under the UNFCCC to assist the COP in meeting the objectives of the Financial Mechanism of the Convention. The Convention states that the operation of the financial mechanism can be entrusted to one or more existing international entities.
UNFCCC climate funds include the UN Adaptation Fund (AF), the Least Developed Country Fund (LDCF), the Special Climate Change Fund (SCCF), and the Green Climate Fund (GCF).

The Global Environment Facility (GEF)

The Global Environment Facility (GEF) established in 1991, is an operating entity of the financial mechanism of the UNFCCC, serving in the same function for the Paris Agreement, with a long track record in environmental funding. GEF aims to help developing countries and economies in transition contribute to the overall objective of the United Nations Framework Convention on Climate Change (UNFCCC) to mitigate climate change, while enabling sustainable economic development. It also serves as financial mechanism for several other conventions, including on biodiversity and desertification. Resources are allocated targeting multiple focal areas, including climate change, according to the impact of dollars spent on environmental outcomes, but ensuring all developing countries have a share of the funding. For the 7th replenishment period (2019-2022), close to 30 countries pledged USD 4.1 billion for all five focal areas, with an increase in funding for biodiversity and land degradation neutrality, but a reduction in funding for climate change to USD 654 million, reflecting the growing role of the GCF. As of December 2019, through the fourth, fifth, six and seventh Trust Fund, GEF had approved over 750 projects in the focal area of climate change amounting to USD 2.8 billion.

Least Developed Countries Fund (LDCF) and the Special Climate Change Fund (SCCF)

The GEF also administers the Least Developed Countries Fund (LDCF) and the Special Climate Change Fund (SCCF) under the guidance of the UNFCCC Conference of Parties (COP). These funds support national adaptation plan development and implementation, although largely through smaller scale projects (with a country ceiling for funding of USD 20 million). As of December 2019, the LDCF has made cash transfers to projects of USD 534 million and the SCCF has made cash transfers of USD 181 million, both since their inception in 2001 in close to 100 countries.

Adaptation Fund (AF)

Formally linked to the UNFCCC, the Adaptation Fund (AF) is financed largely by government and private donors, and also from a two percent levy on the sale of emission credits from the Clean Development Mechanism projects under the Kyoto Protocol. Now mandated to serve the Paris Agreement, a similar automated funding source from a new carbon market mechanism to be developed under the Paris Agreement is under consideration. However, in times of low carbon prices, the AF is increasingly reliant on developed country grant contributions to stay afloat. Operational since 2009, total financial inputs amount to USD 957 million, with total cash transfers to projects of USD 362 million. The AF pioneered direct access to climate finance for developing countries through accredited National Implementing Entities that are able to meet agreed fiduciary as well as environmental, social and gender standards, as opposed to working solely through UN agencies or Multilateral Development Banks (MDBs) as multilateral implementing agencies. The sectors financed through the AF include agriculture, rural development, water management, forestry, food security, disaster risk reduction, coastal risk reduction and urban development. The Fund also provides readiness and capacity-building support through its Readiness Programme for Climate Finance, established in 2014.

Green Climate Fund (GCF)

The Green Climate Fund (GCF) of the UNFCCC was agreed at the Durban COP and became fully operational with its first projects approved at the end of 2015. Like the GEF, it serves as an operating entity of the financial mechanism of both, the UNFCCC and the Paris Agreement and receives guidance by the COP. It is expected to become the primary channel through which international public climate finance will flow over time and is intended to fund the paradigm shift toward climate-resilient and low-carbon development in developing countries with a country-driven approach, and a commitment to a 50:50 balanced allocation of finance to adaptation and mitigation.

To receive money directly from the Green Climate Fund, entities need to be accredited as an “Accredited Entity” (AE). AEs can be international (like the World Bank), regional (like the Secretariat of the Pacific Regional Environment Program or SPREP) or national (like a country’s environment ministry). A list of currently accredited entities for the GCF can be found on the GCF’s website. Entities that prefer not to apply for accreditation have the option of partnering with an institution that is already accredited. The Republic of North Macedonia accessed resources from the Green Climate Fund through the GCF Readiness and Preparatory Support Programme. Two readiness projects have were approved with the Food and Agriculture Organization of the United Nations (FAO) serving as the implementing partner, under the leadership and guidance of the Cabinet of the Deputy President of the Government in charge of economic affairs, coordination of economic departments and investments, as National Designated Authority for the GCF. More information about the GCF Readiness and Preparatory Support Programme implementation in North Macedonia can be found on the dedicated NDA webpage: www.greendevelopment.mk

United Nation Agencies

Like MDBs, UN agencies commonly take on the role of administrator and/or intermediary of climate finance. The UN-REDD Programme , made operational in 2008, brings together UNDP, UNEP and FAO to support REDD+ activities, with the governance structure giving representatives of civil society and Indigenous People’s organisations a formal voice.

The International Fund for Agriculture and Development (IFAD) administers the Adaptation for Smallholder Agriculture Programme (ASAP) that supports smallholder farmers in scaling up climate change adaptation in rural development programmes.

Both MDBs and UN Agencies act as implementing entities for the GEF, SCCF, LDCF, AF and the GCF.

Export credit agency guarantees

Export credit agencies (ECAs) provide funds (direct loans) or guarantees to facilitate exports. ECAs can remove the risk and uncertainty of payments to exporters by shifting it to themselves in return for a premium. They can also underwrite the commercial and political risks of investments in overseas markets. In recent years, the majority of medium and long term official export credit flows that go from OECD governments to developing countries have supported GHG emitting sectors: transport (37%) and industry (26%), followed by energy projects (11%), of which about 1% is estimated to go to renewable energy and energy efficiency in the power sector . Special liberalized rules governing the provision of ECA support for renewable energy and water projects were agreed by several OECD countries, who are also engaged in negotiations to further strengthen the ability of export credit arrangements to support action against climate change.

4.5.2 Bilateral channels for climate finance


A significant share of public climate finance is spent bilaterally, administered largely through existing development agencies although a number of countries have also set up special bilateral climate funds. However, there is limited transparency and consistency in reporting of bilateral finance for climate change, with countries self-classifying and self-reporting climate-relevant financial flows without a common reporting format or independent verification. The 2018 Biennial Assessment and Overview of Climate Finance Flows reported that USD 31.7 billion annually in 2015-2016 was provided by developed to developing countries bilaterally, in addition to that spent through climate funds and development finance institutions. An annual average of USD 30.3 billion in climate related ODA was reported to the Organization for Economic Cooperation and Development – Development Assistance Committee (OECD DAC ) in the same year.

4.5.3 Regional and national channels and climate change funds


Several developing countries have established regional and national channels and funds with a variety of forms and functions, resourced through international finance and/ or domestic budget allocations and the domestic private sector. The Indonesian Climate Change Trust Fund was one of the first of these institutions to be established. Brazil’s Amazon Fund, administered by the Brazilian National Development Bank (BNDES), is the largest national climate fund, with a commitment of more than USD 1.5 billion from Norway and Germany.
There are also national climate change funds in Bangladesh, Benin, Cambodia, Ethiopia, Guyana, the Maldives, Mali, Mexico, the Philippines, Rwanda, and South Africa.

Additional countries have proposed national climate funds in their climate change strategies and action plans. In many cases UNDP acted as the initial administrator of national funds, increasing donor trust that good fiduciary standards will be met, but many countries are now passing these tasks on to national institutions.

National climate change funds attracted early interest, largely because they were established with independent governance structures that met high levels of transparency and inclusiveness and could channel finance quickly to projects suited to national circumstances that were aligned with national priorities. Working through coordinated national systems could also improve transaction efficiency.
At the same time, many developing countries are beginning to incorporate climate risk into their national fiscal frameworks, and monitoring climate related expenditure.

4.6 Private climate finance


A wide range of private sources can be tapped for the financing of private investment, as long as risk-return expectations are met. These include the private companies themselves, local, regional and global commercial banks, non-bank financial institutions, leasing companies, private equity investors and institutional investors (Climate Finance-Engaging the Private Sector-G20Report).

Private finance may be domestic or international. Some countries have mature capital markets, while others may not be able to provide private equity or long tenor debt or even take the non-recourse project financing structures upon which much privately financed infrastructure depends. In mature markets, international agencies can focus on addressing risk perception to catalyze private financing, while nascent markets may require a strengthening of the local financial sector and capacity building in order to do so.

Private climate finance reached a record high of USD 330 billion in 2017, representing an increase of USD 99 billion from 2016, or 43% year-on-year growth. However, financing fell slightly in 2018 to USD 323 billion, in response to macroeconomic trends resulting in a dampened global investment environment, as well as continued decreases in global renewable energy capital costs.


Commercial financial institutions

Commercial financial institutions are entities such as banks and other financial institution that provide financial services to non-financial institutions, households and governments. They also invest in physical facilities, such as buildings, using funds raised domestically or from foreign sources. They are responsible for one to seven percent of the investment in new physical assets.

Private equity

Private equity capital usually involves later stages of investment and is often sourced from pooled funds. The key actors are private equity firms, which can range from very small to very large (both with respect to the number of people involved and the assets under management). Since these investments tend to be made at a more mature stage in a project or company development, they involve lower risks and the expected return is also likely to be lower than that of angel investors or venture capitalists. Nevertheless, the risk-return profile associated with private equity is still likely to be higher than that associated with public equity finance. Forms of private equity finance include:

o Angel capital

Angel capital is private equity finance provided to companies, technologies, or projects that are particularly small, new, and hence, risky. Such early stage investments are usually very high risk and experience high failure rates. However, if they succeed, they expect very high returns. The key actors tend to be wealthy individuals, whose investment are sometimes facilitated by family offices or groups of individuals)

o Venture capital

Venture capital is another form of private equity finance for early-stage investment, although it is usually in a more organised form than angel capital. The key actors tend to be groups of wealthy individuals and specialized teams of venture capitalists who target returns that are multiples of their original investment. The high returns are seen as compensation for the high risk of investing at an early stage.

o Corporations

Business can finance climate investment projects by using either on-balance sheet financing or borrowing funds from a bank in the form of a loan, or through equity capital from selling a stake in the business itself. The borrowing capacity of power utilities is large. With a current market capitalization of the global electricity market estimated at USD 1.5 to USD 2 trillion, power utilities could potentially raise USD 3 trillion to USD 6 trillion in debt to fund clean energy projects.

Institutional Investors

Given their pivotal importance for green investment, institutional investors have a long-term investment horizon, which matches the long-term financing requirements of climate investment such as wind power or timber forestry. The term ‘institutional investors’ may be described as organizations that pool and manage the savings of small investors by investing on their behalf. They include pension funds, insurance companies, investment companies (e.g. mutual funds), endowments and foundations. Individual investors or retail investors on the other hand can be described as those who invest on their own behalf either directly or through financial intermediaries, such as investment advisers/financial planners. Investment management, also known as asset management or fund management, refers to the process whereby assets collected by institutional investors are actually invested in capital markets in the form of equities, bonds, commodities, real estate, etc., depending on the investors’ investment objectives.

Households

Households are individuals. They invest in housing, farms, vehicles and facilities for small businesses. Households are responsible for 15 – 35 percent of total global investment, all of which is assumed to come from domestic sources. However, remittances by family members working in foreign countries are substantial for some countries and could help fund household investment in the recipient countries.

4.7 Climate finance in the Republic of North Macedonia

4.7.1 UNFCC commitments and reporting requirements

The Republic of North Macedonia is a non-Annex I party to the UNFCCC, with no quantified commitments for reducing the GHG emissions nor quantified commitments for climate investments.
As a non-Annex I country, North Macedonia is obliged to report over two-year periods to the UNFCCC on the following:

• International support for climate activities obtained from bilateral and multilateral sources.
• Domestic resources spent on climate activities.

However, as a candidate country for European Union (EU) membership, North Macedonia must adhere to EU Climate and Energy Policy, which includes the quantified commitments of Annex I parties. North Macedonia sets its UNFCCC and EU requirements and targets on a voluntary basis in the National Determined Contributions (NDC) and its national climate change reporting (Biennial Update Reports on Climate Change).

4.7.2 Sources of climate finance in the Republic of North Macedonia

Climate finance sources for North Macedonia can be classified into four different categories:

• Bilateral finance - which comes from one donor country in different forms: through individual donors, through donor agencies, directly in the form of Official Development Assistance (ODA) and through bilateral finance institutions.
• Multilateral finance - which refers to the support provided by more than one country/entity and is channeled through a single donor agency.
• Domestic public finance
• Private sector finance

The Third Biennial Update Report on Climate Change, section “Finance, technology and capacity building needs and support received” (2019), provides an overview of the support received in 2018 and 2019 including the channels through which it has been received (bilateral, multilateral or other), the type of funding (grant, credit, capital, etc.), the sectoral structure in which the assistance is targeted, the purpose of funding (mitigation, adaptation or mixing), and how much is climate-specific (CS) or climate-relevant (CR). CS refers to projects that exist specifically to address climate change. CR refers to projects that are not labeled as climate projects, but which result in significant climate benefits either for mitigation or adaptation.

4.7.3 International support for climate investments

Overall, most support that has been received has been used to finance mitigation projects, and the total amount of support received is far from sufficient to meet the needs of undertaking the mitigation and adaptation activities necessary to address climate change. An analysis on financial, technological, technical and capacity building support obtained from international sources shows that in the period 2018 and 2019 there were a total of 38 climate related projects funded with international support. Support to the North Macedonia committed / received in the two-year period 2018 - 2019 is estimated at USD 25.14 million. From these, 21 are climate-specific (CS) projects and account for as much as USD 15.6 million, which is 62 % of the total. The remaining 17 projects totaling USD 9.5 million or 38 % are climate change relevant (CR). The country has also received non-monetary support in the form of technical support, technological support and capacity building support. There are 14 projects registered in this category.

Most support has been received from the European Union

The largest share (54%) comes from the EU Instrument for Pre-Accession Assistance (IPA) cross-border cooperation funds. This funding has enabled many municipalities, NGOs and ministries to implement projects, especially in the field of energy efficiency, and thus contribute to the global fight to reduce greenhouse gas emissions and mitigate the adverse effects of climate change on people's lives. The second largest support provider is the Global Environment Facility (19%).

Nearly all support (98.8%) is grant support, with only 1.2% (USD 0.3 million) in the form of loans. Loan-based support will increase in the near future, as JSC Power Plants of North Macedonia has obtained two large loans with the German KfW Bank to finance two major energy projects with mitigation benefits: district heating investments in Bitola, Mogila and Novaci (EUR 39 million from KfW and EUR 7.3 million in-house financing); and an expansion of the Bogdanci Wind Park (EUR 18 million from KfW and EUR 3 million in-house financing).

4.7.4 Domestic assets

At the national level, adequate data are still missing, which makes it difficult to carry out a precise and relevant climate finance assessment.
On local level, City of Skopje is the only example of municipality that allocates climate finance in its budget, indicating strong commitment of the City of Skopje in dealing with climate change. Their budget allocations related to climate change increase every year, reaching USD 3 305 869 in 2019, which represents 5.17 % of total spending of their budget.

4.8 Domestic sources for climate finance for private sector in the Republic of North Macedonia

4.8.1 Commercial Banks

Concerning the Commercial banking sector in North Macedonia, as of 2020, there have been 35 loans and lines of credit launched in the last decade in the field of green investment typically with a grace period up to 12 months. The highest maximum amount (in EUR) of loan per person/company/household is EUR 25 million. The lowest amount of loan per person/company/household is EUR 4 861. Out of 35 types of support, nine types have an unknown interest rate; 12 types have ≤ 5 % interest rate; 14 types have 5 – 10 % interest rate (one type has two different interest rates under the same type).

Private banks green loans in the Republic of North Macedonia

4.8.2 Development Bank of North Macedonia (DBNM)

Тhe Development Bank of North Macedonia has provided resources – concessional (subsidized) loans in the past decade for companies that want to invest in topics related to climate. Looking at the schemes offered by the bank, we have identified twelve support schemes for small and medium sized enterprises, including loans for working capital, investment, exports, and factoring.
Specifically, two schemes are directly related to climate finance:

Financing Sustainable energy sources energy efficiency and renewable:

• use of renewable energy sources (sun, wind, water, biogas, etc.)

• efficient energy use

• environmental care

• improvement of energy climate in the Republic of North Macedonia

Small and Medium Enterprises Financing - Priority – European Investment Bank, financing fixed assets, but also to provide support in the area of knowledge base economy, energy, ecology, industry, tourism, health services, education, services, etc. The rest of the development loans offered by the DBMN do not specifically mention climate related financing, however, they can certainly be used for blending finance for private sector investment in climate related projects.

4.8.3 European Union Instrument for Pre-Accession Assistance for Rural Development (IPARD)

The EU Instrument for Pre-Accession Assistance for Rural Development (IPARD II) Programme (2014-2020) for the Republic of North Macedonia presents access to the funds of the European Union for financial assistance for sustainable agriculture and rural development with a focus on the implementation of the Acquis Communautaire in relation to the common agricultural policies and policies for competitively sustainable agriculture, strong and sustainable rural communities and a diverse and sustainable rural environment.

The IPARD instrument is managed by the Agency for Financial Support of the Agriculture and Rural Development and provides grant assistance to interested individuals and legal entities from the Republic of North Macedonia to submit applications for use of funds from the IPARD Programme 2014-2020 for the following measures: Investment of material assets for agricultural companies, fixed assets and marketing, processing, renovation and upgrade of production facilities, diversification and development of rural economic activities, farm diversification and business development. The general preconditions for using this aid is to be located in a rural area, while each measure is dimensioned to a specific purpose.

Given that all measures cover costs related to investment in energy efficiency, optimization of production resources and environmentally friendly technologies, this is an important source of climate finance for the private sector, which was used up substantively more in the past two years than previously.

4.9 What role can private sector play in promoting climate finance in the Republic of North Macedonia

In an attempt to contribute to addressing climate change in North Macedonia, the private sector can:

• Invest private equity in state and municipal climate actions;

• Invest in climate technologies;

• Invest in energy efficiency;

• Support climate actions as their social responsibility;

• Leverage the role of the Fund for Innovation and Technological development to boost innovation and research and development, hence investment in climate action;

• Support the Government in capacity building on innovation in climate technologies;

• Establish links with existing key Government economic policies, business development efforts and climate finance of private sector;

• Pro-actively engage with climate action laws and regulations in the country;

• Propose and design together with the Government specific state aid schemes for private sector climate action;

• Develop channels for private sector communication on climate-related matters;

• Nurture active dialogue through a key institutional mechanism with the Government on climate action and climate finance.

INFO SHEET NO. 5

Green Climate Fund



In this info sheet you will read:
What is the Green Climate Fund (GCF)
Access to the Green Climate Fund resources
What does the Green Climate Fund support
The Green Climate Fund Private Sector Facility
Examples of GCF Private Sector projects financing



5.1 What is the Green Climate Fund?


The Green Climate Fund (GCF) is one of the primary funding institutions of the international climate finance architecture under the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement. Designed to support significant efforts to address climate change mitigation and adaptation, the GCF started funding projects and programmes in developing countries around the world in 2015.

The fund is expected to make a significant contribution to delivering the global objective of providing US$100 billion in climate finance per year from public and private sources. Figure 8 illustrates the two funding windows countries can access GCF funds through: adaptation and mitigation.

Figure 8: GCF Funding windows

Source: www.greenclimate.fund

GCF resources will be equally split between mitigation and adaptation over time. At least half of adaptation finance will be provided to the Least Developed Countries (LDCs), Small Island Developing States (SIDS), and African countries. For more information please see ‘’The Green Climate Fund at a Glance’’ ..


5.2 Access to the Green Climate Fund resources

GCF channels its resources through Accredited Entities (AEs) – international, regional, national and sub-national institutions, from both public and private sectors. ‘Accredited’ means that these entities went through the GCF accreditation process and meet the standards of the Fund.
There are two types of Accredited Entities:

Direct Access Entities International Access Entities

National and sub-national stakeholders

National and sub-national stakeholders from public, private or civil society sectors which are not accredited to GCF can be involved in multiple ways:

• They support the NDA in defining country priorities and project portfolio for GCF funding by participating in the coordination mechanism and stakeholder consultations.

• They identify project ideas and cooperate with AEs on a Concept Note and funding proposal development and implement project activities if approved by GCF. Relevant stakeholders can also be engaged as a delivery partner for project implementation depending on the cooperation of the AE and the approved project proposal.

• They can communicate to NDA their interest in direct access accreditation. Nominated by NDA, entities can apply for accreditation and access GCF resources directly.

• Public entities also provide their input to the NDA on the endorsement of funding proposals as part of the No-objection procedure.

• Relevant stakeholders also oversee and provide feedback on project proposals and implementation of the Fund’s activities.

Figure 9. GCF Architecture

Source: www.greenclimate.fund

5.3 What does the Green Climate Fund support?

The GCF finances low-emission (mitigation) and climate-resilient (adaptation) projects and programmes developed by the public and the private sector to contribute to the climate change priorities of countries. Cross-cutting projects that deliver co-benefits in terms of both, mitigation and adaptation are also eligible for funding by the GCF. As such, a project proponent will have to demonstrate the climate change impact of its proposed project or programme (either in terms of mitigation, adaptation, or both). When developing a GCF project, a project proponent should identify which strategic impact areas its proposed project or programme contributes towards (noting that for an individual project or programme, several can apply). Figure 10 below presents the eight strategic GCF result areas for climate change adaptation and mitigation.

Figure 10. GCF result areas

Source: www.greenclimate.fund/results

GCF offers grants, concessional loans, guarantees and equity instruments for funding projects. It also provides additional grants for the preparation of funding proposals and countries’ readiness and preparatory support. The terms of financial instruments for public and private sector are determined on a case-by-case basis. Grants are tailored to incremental cost or the risk premium required to make the investment viable, or to cover specific activities such as technical assistance. The recipient’s indebtedness capacity should be considered. The level of concessionality should not displace investments that would have occurred otherwise, including private sector investment.


5.4 The Green Climate Fund Private Sector Facility (PSF)


In order to scale up GCF’s activities and de-risk the delivery of private capital flows, GCF has set up the Private Sector Facility (PSF), a dedicated division designed to fund and mobilize private sector actors, including institutional investors, project sponsors and financial institutions.

The GCF PSF’s mission is to engage both the local and global private sector to support climate change mitigation and adaptation projects in developing countries. Through active engagement with the Accredited Entities (AEs), PSF can act as a catalyst for funding high impact, transformative and innovative climate projects and activities in developing countries.

PSF aims to change the current paradigm by de-risking the delivery of private capital and scaling up private sector investment flows for low-carbon and climate-resilient development.

Once in the hands of Accredited Entities, the instruments further take the form of on-landed finance, loan, equity, grant or blended finance for private sector entities. It is important to note that GCF financing captures the evolving trend of blending public and private funds. It’s public sector-targeted projects also include concessional sovereign loans, which can be on-lent, often through national development banks, to direct private sector investments in sustainable, climate-focused directions.


5.5 Examples of GCF Private Sector projects financing

Transforming renewable power in Chile

GCF is helping Chile move away from its dependence on fossil fuels by investing in an innovative combination of solar energy and pumped storage hydroelectricity to generate 24-hour baseload power. This project, co-financed with Japan’s MUFG Bank, addresses the inherent challenge with renewable energy of intermittent power supply. By investing up to USD 60 million in early-stage equity, GCF de-risks the project and catalyses much larger private sector financing. This will help attract additional private sector debt and equity investors to finance the remaining USD 1 billion.

Empowering energy poor in Africa and Asia

GCF is kickstarting new renewable energy markets through a novel type of finance facility incorporating two geographic regions. GCF’s commitment to Climate Investor One covers 11 countries in Africa and the Asia Pacific that share a deficit of available energy and an over-reliance on fossil fuels. GCF’s USD 100 million investment through the Dutch development bank (FMO) reduces the complexity of project implementation by bringing together financing for the project development and construction stages, negating the need to source different investors.

Opening new climate opportunities in agriculture

Lack of private sector capital inhibits developing country farmers from adjusting their agricultural practices to meet climate challenges. GCF is working with the Inter-American Development Bank (IDB) to bridge this funding gap in Guatemala and Mexico. GCF and IDB have pooled their financial resources to create the low emission, climate-resilient agriculture risk-sharing facility. This new funding vehicle is unlocking innovative financial instruments for agricultural Micro, Small and Medium-sized Enterprises (MSMEs) in these two countries, including essential long-term loans, equity and guarantees.

Boosting adaptation with private sector funds in African countries

GCF is collaborating with an impact investor in Africa to overcome barriers and attract private sector funding for initiatives that enhance climate resilience. The Acumen Resilient Agriculture Fund (ARAF) is designed to shift investments in adaptation activities from grants to long-term capital, enabling smallholder farmers to respond to climate change more effectively. ARAF supports entrepreneurs in micro-, small, and medium-sized enterprises in Ghana, Kenya, Nigeria and Uganda by providing farmers with innovative financial services, including microinsurance and mobile payments.

Using blended financing to expand Egypt's renewables

GCF has rich experience in supporting funding arrangements that attract private investors in nurturing renewable energy markets. This includes its collaboration with the European Bank for Reconstruction and Development (EBRD) in setting up Egypt’s Renewable Energy Financing Framework, including financing for one of the world’s largest solar farms. Consisting primarily of tailored loans to finance greenfield investments, this project’s potential to transform energy generation is shown by the early lowering of renewable production prices through reverse auctions.

INFO SHEET NO. 6

NATIONAL POLICY FRAMEWORK ENABLING PRIVATE CLIMATE INVESTMENTS



In this info sheet you will read:
Overview of private sector structure in North Macedonia
Key policy and strategic frameworks enabling climate investments from private sector in North Macedonia
Legal framework on climate action in North Macedonia
National strategic framework
Opportunities for sector-specific climate investments with participation of the private sector

6.1 Overview of the private sector structure in North Macedonia

Micro Small and Medium Enterprises (MSMEs) represent 99 % of the total number of registered enterprises and employ 75 % of the total workforce in the Republic of North Macedonia. The total number of active enterprises in North Macedonia in 2020 was 70 061, and compared to 2019 it decreased by 3.8%. The number of active micro-enterprises in 2020 decreased by 4.1 % compared to 2019, the number of small enterprises in 2020 decreased by 0.8 % compared to 2019, the number of medium-sized enterprises rose by 0.4 % and that of large enterprises by 0.4 %. The largest share of companies in the Republic of North Macedonia (90.4 %) belongs to micro enterprises, i.e 66 013, followed by small enterprises (7.4 %), i.e. 5 404 and medium enterprises (1.9 %), i.e. 1 410, based on data from 2020. MSMEs remain the dominant type of enterprises in North Macedonia in 2020, with a total of 72 828, representing 99.7 % of all active enterprises in the country.

Table 5. Total number of registered enterprises in North Macedonia (2016-2020)

Activities | %
Active enter prises 2016 2017 2018 2019 2020 | 2016 2017 2018 2019 2020
Micro 64782 64546 65405 68830 66013 | 90.6 90.4 90.5 90.6 90.4
Small 5141 5255 5271 5448 5405 | 7.2 7.4 7.3 7.2 7.4
Medium 1363 1382 1399 1404 1410 | 1.9 1.9 1.9 1.9 1.9
Large 233 236 240 232 233 | 0.3 0.3 0.3 0.3 0.3
Total 71519 71419 72315 75914 73061 | 100 100 100 100 100

Source: State Statistical Office - News release: Number of active business entities

Micro, small and medium-sized enterprises absorb most of the labor force in North Macedonia, significantly contributing to employment. Of the total number of employees in 2018, 71.31 % are engaged in MSMEs.

The service industry is the greatest contributor to the GDP of the country.

Figure 11 Value added by sectors in % of GDP 2009-2019

Source: www.statista.com/statistics/510285/share-of-economic-sectors-in-the-gdp-in-macedonia/

Looking at the structure, most of the active companies in the country are in the services sector, more specifically retail and trade, repair of motor vehicles and motorcycles.

Figure 12. Number of active companies by sector in North Macedonia (2011-2019)

Source: State Statistical Office (www.stat.gov.mk/PrikaziSoopstenie_en.aspx?id=79&rbr=3262


Finally, the Republic of North Macedonia is ranked 17th on the Global Doing Business index, while access to electricity and its pricing has been presented as one of the key advantages for attracting investors in the country.

Figure 13. Doing Business 2020 Ranking - Republic of North Macedonia


6.2 Key policy and strategic frameworks enabling climate investments from private sector in the Republic of North Macedonia


The main policy documents directly related to state efforts for private sector development and provision of state aid, which could be relevant for climate action of private sector include: The Plan for Economic Growth translated into the Law on Financial Support of Investments, Industrial Strategy with focus on the Manufacturing Sector (2018), National Strategy for Small and Medium Enterprises, the Smart Specialization Strategy (under drafting) and the Law for Free Economic Zones.

Law on financial support of investments in the Republic of North Macedonia (2018) Industrial Strategy of the Republic of North Macedonia (2018-2027) with Action Plan National Strategy for Small and Medium Enterprises (2018-2023) Smart Specialization Strategy (S3)
Main goal Responsible institution/s
Encourage economic growth and development in the Republic of North Macedonia by supporting private sector investments to increase the competitiveness of the domestic economy and the employment. Cabinet of Deputy President of the Government in charge of economic affairs, coordination of economic sectors and investments

Directorate for Technological Industrial Development Zones (for investment projects in technological industrial development zones)
Agency for Foreign Investments and Export Promotion (for investment projects outside technological industrial development zones)
Main goal Responsible institution/s
1. Strengthening the foundation of the manufacturing industry
2. Increasing productivity, innovation and technology transfer in the manufacturing industry
3. Catalyzing green industry/ production
4. Stimulating the export of the processing industry
5. Building a learning manufacturing industry
6. Inter-sectorial implementation and coordination
 Ministry of Economy
Main goal Responsible institution/s
A framework for cooperation between public and private sector actors and civil society to support SME development and innovation in increasing their competitiveness.

1. Favorable business environment: create a favorable business environment in which entrepreneurship and investments are encouraged.
2. Increasing and improving the opportunity for SME growth: To help SMEs become highly productive and competitive participants in European and other international markets
3. A dynamic ecosystem of entrepreneurship and innovation: To encourage North Macedonia's economic competitiveness by increasing the entrepreneurial and innovative capacity of SMEs 		Ministry of Economy
Main goal Responsible institution/s
Ongoing identification of competitively strong sectors according to the EU Joint Research Center methodology Working group led by the Ministry of Education

Looking at these key documents as drivers of state aid in the last Government mandate, we can identify the following overlaps:


All documents have a common final outcome of trying to improve the competitiveness of the country, enable innovation,improve productivity and facilitate technology transfer and technological extension. However, all documents take slightly different approach in trying to achieve this goal, and are complementary to one another, which creates a valuable and quite comprehensive framework for the efforts of the Government of North Macedonia on private sector development.

• The Plan for Economic Growth (PEG) (2018) aims to achieve competitiveness of the Macedonian economy by focusing on horizontal support of technological improvement, commercialization of innovation, employing highly skilled employees and improving the overall success of existing companies. The plan has been revised twice since 2018.

• The Industrial Policy (2018-2027) aims to improve competitiveness by strengthening the manufacturing foundation of the country, introducing green industry and knowledge economy, and improve the exports of the processing industry.

• The National SMEs Support Strategy (2018-2023) focuses on improving entrepreneurship and innovation among SMEs.

• The Smart Specialization Strategy (S3) is an ongoing process, aiming to identify and provide impulse exactly to those sectors that already show competitive advantage in the country, but do so via strong link with research and development, academia and the so-called triple helix: government, business and academia.


6.3 Legal Framework on Climate Action in North Macedonia

The legal framework on climate change in North Macedonia is currently incorporated into the Law on Environment which currently regulates the monitoring of anthropogenic greenhouse emissions (GHG) emissions by sources and sinks, as well as details requirements for the development of national GHG inventories. Article 187 refers to the National Plan for Climate Change Mitigation, and Article 188 refers to the National Inventory of greenhouse gas emissions by sources and sinks. The Law on Climate Action , which is under development and is to be completed in 2021, is expected to fully transpose EU climate legislation, enabling low-carbon development and climate change resilience.

Regarding the adjustment of the national legal framework for climate change to the United Nations Framework Convention on Climate Change (UNFCCC), the Republic of North Macedonia has adopted the following laws:

• Law on Ratification of the UNFCCC (Official Gazette of the North Macedonia No. 61/97)

• Law on Ratification of the Kyoto Protocol to the UNFCCC (Official Gazette of North Macedonia No. 49/2004)

• Law on Ratification of the Paris Agreement (Official Gazette of North Macedonia No. 161/2017)

• Law on Ratification of the Doha Amendment to the Kyoto Protocol to the UNFCCC (Official Gazette of North Macedonia No. 152/2019 dated 25.07.2019)

• Law on Ratification of the Kigali Amendment to the Montreal Protocol on Substances that Deplete the Ozone Layer (Official Gazette of North Macedonia No. 34/2020)

• Law on Ratification of the UN Convention to Combat Desertification (Official Gazette of North Macedonia No. 13/2002.

Different aspects of climate change are integrated to varying degrees into sectoral laws on national level:

• Climate change and energy
o Energy Law (2018) (Official Gazette of North Macedonia no. 96, 28.5.2018)

• Climate change and energy balances
o Rulebook on Energy Balances and Energy Statistics

• Climate change and energy markets
o Rulebook on the manner and procedure for monitoring the functioning of energy markets

• Climate change and energy efficiency
o Law on Energy Efficiency (2020) (Official Gazette of North Macedonia no. 32, 10.2.2020)
o Rulebook on Marking Energy Consumption and Other Resources for Energy Products (2016)

• Climate change and renewable energy
o Rulebook on Renewable Energy Sources (2019) (Official Gazette of North Macedonia no. 112, 3.6.2019)
o Decree on the measures for support of the electricity generation from renewable energy sources (2019) (Official Gazette of North Macedonia no. 29, 5.2.2019)
o Decision on the total installed capacity of the preferential producers of electricity (2019) (Official Gazette of North Macedonia no. 29, 5.2.2019)
o Decision on the national mandatory goals for the share of energy generated from renewable sources in the gross final energy consumption and for the share of energy generated from renewable sources in the final energy consumption in transport (2019) (Official Gazette of North Macedonia no. 29, 5.2.2019)

• Climate change and waste
o Law on Waste Management (Official Gazette of North Macedonia No. 68/04 and several amendments and changes)
o New Law on Waste Management (Consultation document 2020)

• Climate change and transportation
o Law on Vehicles (2016) (Official Gazette of the North Macedonia no. 140/08, 53/11, 123/12, 70/13, 164/13, 138/14, 154/15, 192/15, 39/16)
o Law on Motor Vehicle Tax (2019) (Official Gazette of North Macedonia no. 261/2019

• Climate change and spatial planning
o Law on Urban Planning (2020) (Official Gazette of North Macedonia no. 32/2020)

6.3.1 National Strategic Framework

The national strategic framework on climate change includes strategic documents, national action plans and programmes that contain aspects related to climate change:

• Climate change and climate action
o Long-term Strategy on Climate Action (under development, it is expected to be completed in 2021), serving as a key milestone on the path towards sustainable development in general, and in particular towards a sustainable energy transition

• Climate change and energy
o National Energy and Climate Plan (under development, it is expected to be completed in 2021)
o Strategy for Energy Development in North Macedonia until 2040 (2019) (Official Gazette of North Macedonia no. 25/20, 05.02.2020)

• Climate change adaptation
o National Climate Change Adaptation Plan ( Green Climate Fund Readiness support project proposal under development, supported by UNDP )

• Climate change and energy poverty
o Program for protection of vulnerable energy consumers for year 2020 (Official Gazette of North Macedonia no. 13, 17.01.2020)

• Climate change and energy balances
o Statistical research program for the period of 2018-2022

• Climate change and energy efficiency
o Third Energy Efficiency Action Plan of North Macedonia (2016-2018)

• Climate change and renewable energy
o Strategy for Renewable Energy of North Macedonia by 2020
o Program for financial support for generation of electricity from preferential producers who use premium for 2019 (2019)

• Climate change and waste
o National Waste Management Plan of the Republic of Macedonia 2020 - 2026 (Draft Consultation Document)

• Climate change and transportation
o National Transport Strategy (2018-2030)

• Climate change and agriculture
o National Strategy for Agriculture and Rural Development for the period 2021-2027
o National Programme for Agricultural and Rural Development for the period 2018-2022
o National Water Strategy (2012-2042)

• Climate change and green jobs
o Based on the conclusions of the 59th Session of the Government of North Macedonia for development of youth-related policies, a working group has been established to connect the "green" jobs with youth unemployment. Promotion of green jobs has been inserted in the Strategic Plan of the Ministry of Environment and Physical Planning for the period 2020-2022
o The potential of new green jobs creation according to the analysis in the Climate Change Scenarios (Third Biennial Update Report on Climate Change, 2020)

• Climate change and air
o National Ambient Air Protection Plan in North Macedonia (2012)
o Clean Air Plan - reduce air pollution. Government Strategic Programme (2019)

• Climate change and gender equality
o Draft Action Plan for integrating gender aspects responsiveness in the preparation of the 4th National Communication/ 3rd Biennial Update Report

• Climate change and health
o Action Plan for Prevention of Harmful Impacts and Consequences of Cold Weather and Cold Waves on the Health of the Population in North Macedonia (2012)
o Action plan for prevention of the consequences of heat waves on the health of the population in North Macedonia (2011)

• Agenda 2030 and Sustainable Development Goals
o Voluntary National Review (2020)


6.4 Opportunities for sector-specific climate investments with participation of the private sector

Following the key priority sectors for assessing funds from the Green Climate Fund, we present opportunities for climate investment by private sector or partnership between Government and the private sector.

ENERGY

Energy

The Republic of North Macedonia adopted the Energy Efficiency Law in February 2020, and an Energy Strategy until 2040, enacted in 2019. The Strategy and Law provide an elaborate basis for climate finance opportunities in stirring the shift towards renewable energy sources in the coming years. Energy efficiency is also identified as one of the sectors where the country has a competitive advantage. The Strategy is aiming to enhance North Macedonia’s integration into the European markets, protect today’s levels of energy dependence and provide necessary flexibility for higher Renewable Energy Source (RES) integration. The state body responsible for the implementation of national energy efficiency policy in North Macedonia is the Ministry of Economy’s Department for Energy. Additionally, the Energy Agency, is responsible for monitoring energy savings, analysing municipal energy efficiency programmed and plans, energy auditor certification, developing programmes at state level, etc. Since 2015, North Macedonia has expressed its intention to set up a Revolving Energy Efficiency Fund to finance retrofitting of public sector buildings.

North Macedonia relies predominantly on fossil fuels (low-grade lignite and gas) and hydropower and is dependent on electricity imports. The total annual production of electricity in 2018 was 5 447 GWh, and another 2 297 GWh was imported to satisfy the total domestic electricity demand. The electric power generation capacity in North Macedonia in 2018 mainly consisted of two thermal power plants with a total of 800 MW installed capacity, eight large hydropower plants with 586,65 MW installed capacity, 96 small hydropower plants with 106,32 MW installed capacity and three Combined heat and power plants (CHP) with 287 MW installed capacity.

Energy Development Strategy 2020-2040

Energy Development Strategy 2020-2040

In January 2020, the Macedonian Government adopted the new Energy Development Strategy 2020-2040 that elaborates three different scenarios: i) reference (business as usual-BAU), ii) moderate transition and iii) green (strong decarbonization) scenarios. The moderate transition and green scenarios both foresee coal phase-out in 2025, which makes North Macedonia the first country in the Western Balkans to layout concrete options for a pre-2030 coal phase-out. The green scenario was chosen to further develop the enhanced Nationally Determined Contributions and draft National Energy and Climate Plan for the country.

Renewable energy projects in North Macedonia

Renewable energy projects in North Macedonia

Even though the legal framework for renewables in North Macedonia is under development, several renewable energy projects have become operational in recent years contributing to an increasing share of energy from renewable sources in the energy mix. North Macedonia has a 36.8 MW wind farm at Bogdanci - first country in the Western Balkan region to put into operation a sizeable wind facility. There are also two more wind farms planned to be built in the next five years according to the strategy since they already have most of the permitting process done, which should bring total wind installed capacity to around 86 MW. The first private project for wind energy in the country is "Bogoslovec", launched in 2021 and planned to be finalized in 2023. It is the second after the project Bogdanci launched in 2015 by the state company ESM. "Bogoslovec" is among the latest installations of wind farms in North Macedonia, with total capacity of 36 MW and has significant contribution to the ambitious goals of North Macedonia to redirect its national production of electricity, still dominated by brown coal (lignite), to green sources.
In terms of solar PV capacity, it has been stagnating for the last five years as annual production remains the same at around 23 GWh. The Government works on increasing the generation via solar by a public private partnership between the state-owned power utility ‘’Elektrani na Severna Makedonija’’ (ESM) and a bidder company for construction of two 50 MW solar parks in Oslomej. The project is worth EUR 80 million, for a duration of 35 years. Another 10 MW solar project in Oslomej was awarded to a Turkish contractor Girishim Electric in 2019 (EUR 7 million project).

In terms of hydropower, the Energy Development Strategy recommends a total of 998 MW new hydro capacity to be added until 2040 in all scenarios. Around 80 small hydropower plants have been operational since 2010, with the latest eight in 2017 and four in 2018, while in 2019 a new tender for 21 locations was published. The largest number of greenfield plants are financed by the EBRD (20 plants, 15 directly and five through intermediaries).

Finally, electricity losses in the grid range from 14 to 16 % of the gross national electricity consumption, and practices such as heating on electricity have contributed to increasing energy costs for many households.

Areas for private sector involvement include

TRANSPORT

Transport

The Republic of North Macedonia is vulnerable to climate change and its economic growth depends on climate-sensitive natural resources like land, forestry and water. According to the data from the Report on the National Greenhouse Gas Inventory, as part of the Third Biennial Climate Change Report, analyzing the greenhouse gas (GHG) emissions in North Macedonia, the annual GHG emissions, are in constant decrease for 6 years, from 12 430 Gg CO2-eq in 2011, to 10 111 Gg CO2-eq in 2016. Most of these emissions (73,7 %) come from the Energy sector, which includes the Transport sector.

The annual increase of energy consumption in transport sector in the Republic of North Macedonia over the period 2010-2020, estimated to 3.6 %, is higher than the annual increase of the total energy consumption in the country (3.1 %), as well as much higher than the corresponding figure for developed countries (2 %). The motorization level in the country follows the “S” curve. In the initial period slow growth of the motorization (beginning of motorization of the population) can be observed , followed by a period of intensive growth, and in the last part of the curve by a slower growth again, due to saturation phase. The saturation level varies among countries and is between 500 and 800 vehicles per 1000 inhabitants. In North Macedonia, the expected number of vehicles per 1 000 inhabitants in 2020 and 2030 are 260 and 400, respectively. The vast majority of passengers use cars (Figure 16).

Figure 16 Passengers transport in the Republic of North Macedonia

The measures that can be applied in order to reduce GHG emission in the transport sector include:

• Increased use of railway;

• Renewing car fleets - It is assumed that by 2025 only new vehicles will be bought, which meet EU emission standards: CO₂ emissions in 2020 of 95 g/km 2020, 70 g CO₂/km

• Increased use of bicycles, walking and introduction of parking policy;

• Railway to Bulgaria;

• Green mobility and logistics focused on environmental performance of the transport sector

• Establishment of reliable and safe transport system for all transport modes and urban transport;

• Improvement of vehicle fleet/Introduction of low carbon fuels and improvement of travel behavior;

• Public-Private Partnerships (PPPs) for transport and improved infrastructure.

Figure 17. Transport emissions in North Macedonia


Water resources

Water resources

Water resources in North Macedonia are spatially diverse, with the quantity depending on precipitation and snowmelt. Temperature increase will change snowpack and snowmelt patterns, likely leading to overall less snowpack, especially at lower elevations, and early runoff. North Macedonia’s ski resorts are also at risk, as most of them are located between 1 200 – 1 600 m, an altitude that will likely see more rain and less snow with increased temperatures. Freshwater springs are primarily used for micro-scale water supply due to low yield, though in some cases yield is large enough to be captured for supply for small cities and villages.


Water resources are extremely sensitive to the effects of climate change, both in terms of quantity, quality, and timing with total average precipitation expected to decrease in the country. Rural areas often don’t have access to fresh water, which could be exacerbated by climate change. The adverse effects will be particularly acute in agricultural areas where water is not available for irrigation, likely resulting in decreased yields. The analyses prepared for the Third National Communication on Climate Change report that the overall availability of water in the country is expected to decrease by 18 % until 2100. Decline in all water resources, such as surface water, groundwater recharge and precipitation, is expected in the period 2025 to 2100. In detail, total average precipitation will decrease by 8 % and 13 % by 2025 and 2100, respectively.


Climate change also has the potential to increase the frequency and severity of flooding events. This is particularly problematic during spring months, as it can prevent the planting of summer crops, and during late summer when it can prevent timely harvesting or cause water-logging of roots. Erosion is also a major concern in the country, as it can decrease both soil and water quality. Primarily due to poor land management, but combined with steep slopes and unfavorable soil properties, 44 % of the country is at severe risk for erosion. Unsustainable farming practices in areas prone to erosion can lead to pollution of waterways and damage to reservoirs and other irrigation and drainage infrastructure. In addition to environmental risks, lack of water availability could negatively affect human health.


The water resources sector has been deemed one of the most vulnerable to climate changes in many countries in the world (UN-Water Development Report 2020). Similarly, the overall water sector in North Macedonia is particularly vulnerable to climate changes, mainly because of increase in water demand, sensitivity and unsustainability of the water management systems to changes in precipitation and runoff, and because of the considerable time and finances that are required to implement climate adaptation measures.

Water supply and waste water services are provided mostly by public enterprises established by local authorities. For the time being, there has been no involvement of the private sector in the provision of water and wastewater services.

Areas for private sector involvement include:

• Construction/modification of physical water infrastructure;

• Water-saving measures and technologies;

• Irrigation systems investments;

• Sustainable irrigation technology development


Agriculture

Agriculture

Agriculture is an important economic sector (third place after industry and services) and a critical employer in the rural areas of North Macedonia, contributing 12 % to the Gross Domestic Product (including the processing industry) and accounting for some 22 % of employment. It is also highly vulnerable to climate change impacts, particularly floods, droughts, forest fires and extreme temperatures, negatively affecting the natural resources, leading to high adaptation and mitigation costs. About half of the country’s territory is arable agricultural land (1.26 million ha in 2019) and around 44 % is forestland. About 60 % of the agricultural land belongs to pastures and the rest 40 % (520 thousand ha) is arable agricultural land, which is the basis for agricultural production. Irrigation systems cover only about quarter of the arable agricultural land. On the other hand, unsustainable natural resource management practices pose a serious challenge to preserving land/soil, water and biodiversity, increasing the vulnerability of agricultural systems and rural assets to external shocks, such as climate change. Crises caused by new animal and plant diseases are becoming more frequent as well.


The forestry sector is expected to experience high impact from climate change as well. Forests (43 %) and other wooded lands (16.8 %) make up more than half of the country’s territory, confirming the economic, social and environmental significance of the forest sector in North Macedonia. However, more than half of the forests in the country are subject to forest degradation, with coppice systems that do not produce the possible yield and fulfil their carbon storage functions. Forest degradation is also a result of large-scale illegal cutting, particularly for fuelwood. A National Forest Monitoring System is necessary as a basis for providing up-to-date and reliable information on the status and changes of Macedonian forests for evidence based decision-making and viable policy formulation. This is also identified in the Second and the Third Macedonian Biennial Report on Climate Change, which highlight the importance of the forestry sector as main GHG sink in the country.

Areas for private sector involvement include:

• Climate-smart agriculture;

• Innovation and digitalization of agriculture and the food value chains;

• Cropland-Agronomy/Water management and irrigation /Nutrient management/Agro-forestry;

• Bioenergy-Energy crops, solid, liquid, biogas, and residues (Agriculture for bio-fuel production);

• Organic agriculture;

• Adaptation measures to protect natural disasters and enable sustainable natural resources management in agriculture under a changing climate;

• Enteric fermentation in livestock production;

• Manure management in livestock production;

• Sustainable agricultural mechanization;

• Early warning and preventive control systems;

• Food loss and waste reduction across the food supply chains;

• Decreasing the number and extent of forest fires

• Changing the quality of forests through afforestation of transitive forest land

• Conversion of crop land in areas with more than a 15 % incline to other uses

• Contour farming on croplands on an inclined terrain (5-15 % incline)

• Perennial grass in orchard and vineyards on inclined terrain (> 5 % )

Figure 18. Agriculture GHG Emissions


Source: Klimatski Promeni

WASTE

Waste

The waste sector is the second largest source of GHG emissions in the country. Solid waste is mostly disposed of in landfills. In 2014, approximately 370 kg of communal waste was generated per capita, and 75 % of that waste was disposed of to landfills. The Drisla Landfill in Skopje is the only permitted landfill in the country, and there is a need to improve waste management practices at approximately 54 authorized municipal landfills and to close approximately 320 illegal dumpsites. Only 1 945 tonnes of biological waste was composted in 2014. Mining and processing industries that have closed down operations have abandoned their on-site hazardous waste dumps, and little or no information is available on the composition or condition of these sites.


The total power output of municipal waste in the country is estimated at 7 860 kJ / kg. Estimates of the values for paper and plastics are accounted for 24% and 6% respectively. Depending on the recycling variants that will be done, the potential of solid communal waste in Macedonia is 500 – 1.500 GWh per year. If the electricity is used for the production of electricity only, it would mean a production of 200 - 500 GWh per year. For the period from 2014 to 2016 emissions from Biological Treatment of Solid Waste have been introduced as a result of data availability.

With regards to municipal solid waste from the total municipal solid waste (MSW), 90 % is disposed of at solid waste disposal sites (SWDS) whereas the remaining 10 % of waste is reported in the category Open Burning of Waste.

According to the baseline scenario, waste sector emissions are projected to grow up until at least 2030 in line with population and economic growth.


Areas for private sector involvement include:

• Improvement of waste management (Closure of existing landfills and set up of regional landfills);
• Use of methane combustion and waste sorting;
• Improvement of climate change related waste sector data collection and management


Figure 19. GHG emissions from waste by regions in North Macedonia

Source: Klimatski Promeni

Biodiversity

Biodiversity

The Republic of North Macedonia has specific geographic position in the Balkan Peninsula where different climatic influences (continental and Mediterranean) on a small area in separate parts of the country intertwine. In combination with other ecological and historic factors they have led to development of a specific and very rich biological diversity. Beside its intrinsic value, biodiversity in Macedonia has other values, especially economic, as it provides livelihoods, enhances food and nutrition, food security, enables access to water and health and it provides a lot of goods and services.


Climate change poses a major threat to all-natural ecosystems and the overall biodiversity of the country, as the rising temperatures and decreasing precipitation have adverse effects on the environmental conditions in habitats of rare and endangered plant species and communities, as well as decreasing the potential for the regeneration of the vegetation. This could result in extinction or significant reduction of the geographic range of several sub-alpine and alpine species, especially in mountain areas; for instance, dry grasslands, forests and aquatic ecosystems are vulnerable to climate change. According to estimates carried out for the elaboration of the Third National Communication to the UNFCCC, 18 habitats have been identified as potentially affected by climate change and 58 plants and 224 animal species vulnerable to climate change. Furthermore, climate change enhances desertification and soil erosion processes and the expansion of arid areas, thus increasing the threat of grassland and forest fires. It is of paramount importance therefore to develop economic activity with focus on preserving biodiversity.

For the biodiversity sector, the National Biodiversity Strategy and Action Plan for the period 2018-2023, the National Strategy for Nature Protection (2017-2027) and Nature Conservation Strategy have been adopted. Together with the National Communications to UNFCCC these documents include measures to specifically promote adaptation to climate change. Assessment of biodiversity’s vulnerability to climate change is well established globally and in North Macedonia. More so than for other sectors, the vulnerability assessment and definition of adaptation measures is greatly dependent on scientific knowledge. However, a liming factor is the lack of comprehensive monitoring that could confirm the climate change impact on biodiversity.

Climate change impact combined with the human impact will have irreversible consequences on the functioning of these ecosystems as well as particular species and plant communities. In terms of species there is a long list of plants and animals that require attention. One of the most striking features of the North Macedonia biodiversity is the existence of the refugial sites within larger refugial zones. All of them can be considered as highly vulnerable on climate change.

Areas for private sector involvement in preserving biodiversity include:

• Development of tourism while protecting biodiversity’;
• Leveraging biodiversity for ecological products production.


HEALTH

Health

In the period 2025-2100 climate change is projected to cause continuous increase of the air temperatures in North Macedonia. Summers will be warmer with extremely high temperature peaks. The effects of climate change on floods and droughts could be investigated in terms of health impact, although this is difficult to quantify. Understanding of the health implications of flooding, particularly impacts on mental health and impacts from disruption to critical supplies of utilities, such as electricity and water has increased in recent years, but knowledge gaps still remain. Cold is still likely to contribute to the majority of temperature-related health effects over the coming decades. The analysis of the frequency of the emergency calls indicate that the elderly are more vulnerable to extreme heat and cold than younger people, so future health burdens are likely to be amplified by an aging population.


Climate change can influence the incidence of certain water and food-borne diseases, as well as diseases transmitted by insects, which show seasonal variation. Climate change may also lead to reductions in the availability of certain food groups, which may lead to reductions in the nutritional quality of dietary intake in some population groups. Vector-borne diseases are influenced in complex ways by the climate, land use changes and human activities, and as such it is difficult to make quantitative predictions of future changes due to climate change. Hospitals, health centers and care homes may be adversely affected by high temperatures during heat waves and flooding. People with chronic diseases, especially the elderly, are very susceptible to aggravation of the disease state from both excessively cold and excessively hot weather.


North Macedonia was the country most affected by disasters in Europe in 2007, with a rate of 488 affected people per 1 000 inhabitants, which means that almost half of the population was affected by wildfire. Under conditions of heat wave, an increase of the temperature by 1°C above the heat cut point (30.8 °C) leads to an increase in mortality by 4.8 %. About 10 % of the population still lacks access to clean and safe water, be it for drinking or for meeting their basic needs. In addition, there are year-on-year growing trends for certain groups of communicable diseases, especially those associated with contaminated food and water (salmonellas, alimentary toxic infections, shigelloses). Recent studies on food borne diseases show that disease episodes caused by Salmonella bacteria increase by 5-10 % per each degree Celsius rise in temperature.


All climate and weather variables have some influence on human health. The effect may be either direct on the human body or indirect through effects on disease-causing organisms or their vectors. Direct effects involve mostly physical impacts that act to cause physiologic stress (e.g., temperature) or bodily injury (e.g., storms, floods). Direct effects tend to be observed soon after the causative weather event and are generally more easily modelled and understood than indirect effects. High-priority environmental health issues in the Republic of Macedonia include the following: access to safe drinking-water in rural areas, access to sanitation in almost the entire country; inadequate waste and wastewater management at the state level; uncontrolled use of chemicals and pesticides; and inadequate air quality indoors and housing generally (in particular associated with poverty and children's exposure to environmental tobacco smoke).

The Ministry of Health (MoH), and the Institute for Public Health (IPH), are in charge of all aspects related to the impacts of climate change on human health. The Ministry of Health and the Institute for Public Health prepare annual Public Health Program with one chapter dedicated to climate change and health, financed by the Government. The institutions cooperate with the national and international partners on climate change-related activities. The MoH also cooperates with the Department for energy in the Ministry of Economy on the implementation of the recommendations of Energy Efficiency Law, Article 10, related to energy efficiency upgrades of public buildings.

Areas for private sector involvement include:

• Strengthening preparedness, public health services, public health system and health security;
• Improvement of health monitoring and establishment of integrated climate change early- warning and monitoring health information system;
• Priority areas for monitoring and adaption: heat stress, natural disasters, freshwater supply, food value chains.


Forestry

Forestry


“Forestry sector is the main GHG sink in the country, within the Land subsector of Agriculture, Forestry and Other Land Use (AFOLU), with exception of several years when the amount of forest fires (burned areas) were significantly above the annual average. The area of forestland, the species composition (conifers, broadleaved, mixed), as well as the annual increment and removals from the forests are relatively stable. The estimated GHG sinks in this sector for 2015 is estimated on 1 608.3 and in 2016 2 120.6 Gg CO2 eq.”Forest vegetation and soils contain about half the planet’s terrestrial carbon, and terrestrial ecosystems have the potential to sequester more CO2 than at present.


Forests in North Macedonia are expected to experience high level of impact from climate changes, especially the boreal type of forests, where those impacts could be more dramatic. Climate change has already been documented throughout the country as temperature increase, precipitation decrease, and seasonal changes. While in other sectors, the influence of these changes is becoming clearer; in the forestry sector we still have a lack of conceptual framework for determination of the vulnerability.


North Macedonia’s forests cover around 1 095 000 ha of forest land, out of which as forests are recognized around 94 .000 ha, or 1/3 of the total Country area (State statistical office, 2009). The total wood stock is estimated on around 75.000.000 m3, and annual increment of around 1.830.000 m3. The most dominant species are beech (Fagus moesiaca), and several oak species (Quercus spp.), that make up to 90 % of all native forest types. Forests are mostly covered with deciduous tree species, and conifers cover around 11 % of all forests. Around 550 000 ha are categorized as low-quality coppice forests, and around 390.000 ha are categorized as high forests, out of which around 140 000 ha are plantations (artificially planted), mostly with coniferous tree species (Pinus nigra, Cupressus arizonica).


Regionally, the richest forest region is Southwest region with around 180 000 ha, and the poorest is Skopje region with around 125 000 ha. Distribution throughout the country is uneven in terms of quantity and quality. High forests with good quality are located in the outskirts of the state border, far from the industrial and inhabited places and human influence. Low quality coppice forests are located in the central parts of the country, and their condition is partly a consequence of the climate conditions, and partly of human activities. Around 90 % of the forests are in state ownership, and the rest is in private ownership. There are approximately more than 200 000 parcels of forests owned by around 65 000 households, averaging 0.6 ha.

Areas for private sector involvement include:

• Renewable energy production from forest and agricultural biomass;
• Introduction of technologies for efficient biomass use in the forestry sector;
• Educational programs for sustainable forest utilization;
• Afforestation of transitional forest surfaces;
• Afforestation of forests surfaces damaged by fire.

Figure 20. Forestry GHG emissions


Source: Klimatski Promeni

Cultural Heritage

Cultural Heritage


Although most commonly omitted from other climate assessments, vulnerability studies or from policy priorities, cultural heritage is likely to be influenced by climate change, both in physical and intangible form. While the other elements of ecosystems can regenerate, the effects of climate change on cultural inheritance is expected to cause (unless preventive action is taken) irreparable consequences and even disappearance.


Historic buildings are usually built in and for a specific local climate that has often been different from current and future climatic conditions. Therefore, adaptive measures for the cultural heritage are needed to ensure its preservation. The composition of the buildings is in danger due to heavy rainfall and water ingress into the building, which increases the risks of moisture, condensation, rot and fungal growth.


These changes may not only affect the structural safety of buildings, but also on their decorative elements (for example, historic buildings have more porous material, which draws water from the soil and it evaporates through the surface; Increased moisture may mean greater salt mobilization and as a result of that is, crystallization of decorated or gypsum surfaces by evaporation).

It should be emphasized the lack of serious studies that will detail the risks of the impact of climate change on cultural heritage and research that will provide concrete data for which policies and activities can be created in the future to mitigate these impacts and develop projects that will adapt cultural heritage to the effects of climate change. So far, only one report has been made on this issue entitled "Protection of cultural heritage and climate change" prepared in 2013 by the Institute for Cultural Heritage of Germany, in close cooperation with all relevant national institutions (Ministry of Culture, Office for the Protection of cultural heritage, the National Conservation Center Skopje, the National Institution Stobi and the Institute for the Protection of Cultural Monuments and Museum - Ohrid). The preparation of the report was jointly funded and supported by the German Society for International Cooperation (GIZ) and the UNDP. It is an integral part of the Third National Climate Change Plan submitted to the United Nations Framework Convention on Climate Change (UNFCCC) prepared by the Ministry of Environment and Physical Planning and the GEF. This same report is the basis for the recommendations contained in the "Third National Communication on Climate Change (TNCCC) in the field of cultural heritage protection. The report was prepared based on the results of the rapid vulnerability assessment made on three important sites of the country's cultural heritage: Skopje Aqueduct; Archaeological site Stobi; Plaoshnik site in Ohrid. During the preparation of the Report, a rapid vulnerability assessment was conducted, using criteria aimed at identifying the specific possible impacts of climate change on each site In the Report, these impacts are assessed in relation to the predicted extreme weather events such as heavy rainfall, storms and floods. The report confirms that additional research and prevention activities are needed to protect cultural heritage from the effects of climate change. Without research and intervention, there is a risk that cultural monuments will be destroyed and thus entire cultural sites will disappear.

Areas for private sector involvement include:

• Assessing the negative impacts of climate change on cultural heritage and historical cultural landscapes;
• Establishing a monitoring program for damages on built and archaeological heritage as well as historical cultural landscapes for short-term extreme weather events and long-term climate change;
• Implementation of long-term management strategies related to cultural heritage adaptation to climate change and resistance to damages.

INFO SHEET NO. 7

CLIMATE TECHNOLOGIES AND INNOVATION



In this info sheet you will read:
What are climate technologies and why they are relevant for the private sector?
Climate technologies used for adaptation and mitigation
Support for Innovation and Technology Development in the Republic of North Macedonia

7.1 What are climate technologies and why they are relevant for the private sector?


Technologies that we use to address climate change are known as climate technologies. Climate technologies that help us reduce greenhouse gas (GHG) emissions include renewable energies such as wind energy, solar power and hydropower. To adapt to the adverse effects of climate change, we use climate technologies such as drought-resistant crops, early warning systems and sea walls. There are also ‘soft’ climate technologies, such as energy-efficient practices or training for using equipment.

Developing and transferring technologies to support national action on climate change has been an essential element from the beginning of the United Nations Framework Convention on Climate Change (UNFCCC) process. In 1992, when countries established the Convention, they included specific provisions on technology with the aim of achieving the ultimate objective of the Convention. The Convention notes that all Parties shall promote and cooperate in the development and transfer of technologies that reduce greenhouse gas (GHG) emissions. It also urges developed country Parties to take all practicable steps to promote, facilitate and finance the transfer of, or access to, climate technologies to other Parties, particularly to developing countries. Furthermore, the Convention states that the extent to which developing country Parties will effectively implement their commitments will depend on the effective implementation of their commitments under the Convention related to financial resources and transfer of technology.

Over the years, technology development and transfer with regards to climate change adaptation has received increasing attention. The Paris Agreement speaks of the vision of fully realizing technology development and transfer for both, improving resilience to climate change and reducing GHG emissions. It establishes a technology framework to provide overarching guidance to the Technology Mechanism.



Technology Mechanism


Climate Technology Centre and Network


Technology Needs Assessments

7.2 Climate technologies used for adaptation and mitigation


The climate change technologies are developed in two main directions:

7.2.1 Mitigation technologies

Climate Change Mitigation technologies refers to reduction or prevention of greenhouse gas emissions. Mitigation means using new technologies and renewable energies, making older equipment more energy efficient, or changing management practices or consumer behavior. It can be as complex as a plan for a new city, or as simple as improvements to a cook stove design. Efforts underway around the world range from high-tech subway systems to bicycling paths and walkways.

Typical sectors where mitigations measures can be implemented are: energy, transport and industry.

7.2.2 Adaptation technologies

Climate change adaptation technologies refers to adjustment and reduction of the effect of current or future climate changes. This means society, flora and fauna should make adaptations to avoid harm, the humans have to take action to help natural systems to adapt to new circumstances.

Typical sectors where adaptation measures can be implemented are: health, agriculture, forestry and biodiversity.

7.2.3 Cases of climate change adaptation and mitigation technologies in the Republic of North Macedonia

Based on the national strategies and best practices from other countries, the list of applicable climate technologies in the priority sectors in Republic of North Macedonia is developed. For each climate technology there is information about background, benefits, correlation with other sectors, examples or potential for use and other useful information.

For more information please follow the link Climate change technologies.

If you are interested in climate change technologies in specific sector, you can get more info on the following links:

Energy, Transport, Water Resources, Agriculture, Waste, Biodiversity, Health, Forestry, Cultural Heritage.


7.3 Support for Innovation and Technology Development in the Republic of North Macedonia


Issues related to innovation and technology transfer (TT) policy goals in the Republic of North Macedonia are regulated by the following legal acts:

● Law of Innovation Activity of the Republic of North Macedonia;

● Innovation Strategy of the Republic of North Macedonia;

● Industrial Policy of the Republic of North Macedonia;

● Policy of Small and Medium Enterprises of the Republic of North Macedonia;

● Regional Strategy for Innovation, Research and Development of Western Balkans.

Source: Klimatski promeni

The Fund for Innovation and Technological Development (FITD) in the Republic of North Macedonia is a national public institution, responsible for supporting innovation, encouraging and funding private sector micro, small and medium enterprises (MSMEs) for achieving accelerated technological development. The overall goal of the FITD is to encourage and support the innovation activity in the country, based on knowledge transfer and research on development that contribute to new employments and economic growth, while improving the business environment for increasing the competitive capabilities of the companies.

The FITD aligns its activities and Public calls with the Governmental policies and cooperates closely with different national Ministries, Agencies and Economic chambers. The latest Annual work-Programme of the FITD for 2021 is available HERE.

The Fund is capitalized by combination of national and international sources of finance including the state budget, international finance institutions, European Union funds and development banks. Partners in developing and implementing specific Public calls include USAID, UNDP, UNICEF, British Embassy, The State of Israel, Swiss Entrepreneurship Program, Macedonia2025 , etc.


7.3.2 How does the Fund for Innovation and Technology Development work with Private Sector?


FITD cooperates with the private sector in the following ways:

(1) Co-financing micro, small and medium-size enterprises (MSMEs) registered in the Republic of North Macedonia, with the aim of encouraging innovation activities, implementation of innovative solutions and innovative processes, introducing innovation and transfer of technology among companies, as well as supporting companies with high growth potential;
(2) Financing newly established MSMEs registered in the Republic of North Macedonia, foundations and accelerators, with the aim of encouraging innovation among companies and transfer of results from scientific research into applicable, commercial activities by establishing “spin-off “companies;
(3) Achieving long-term positive contribution to the development of the national economy, improving competitiveness through technological and operational improvements and the provision of new jobs; supporting the formation of business and technology accelerators, entities providing infrastructural support for innovation activities in order to promote entrepreneurship by supporting individuals who want to establish an enterprise, as well as already established companies in their initial stage.
(4) Advocating and creating collaborations with national commercial banks for matching finance for innovation and technological development .
(5) Finally, FITD actively communicates with the four major economic chambers in the country related to the calls it launches: The Macedonian Economic Chamber, The Macedonian Association of Business Chambers, The Chamber of North-West Macedonia and the Macedonian ICT Chamber. There is however less communication with the Association of Foreign Investors, and other foreign investment chambers, economic representatives of other countries, as well as little outreach to companies beyond the membership of the chambers. FITD also has active communication with Macedonian universities.

FITD engages companies through marketing activities, info sessions when the calls are launched, info session around the country and open office for all interested applicants. FITD also assesses private sector through surveys, feasibility studies and assesses the impact of its projects bi-annually.

A continuous program the FITD runs is the third pillar from the Plan for Economic Growth: financial support (co-financed grants) for micro, small and medium enterprises for innovation and technological development, under the coordination of the Office of the Deputy President of the Government in charge of economic affairs. The program includes:
1) Co-financed grants for technological development;
2) Financial support to improve innovation;
3) Financial support for professional development and practice of newly employed young people; and
4) Creating an environment and preparing legal bases for risk capital development.

Another major scheme of the FITD is the Skills Development and Innovation Support Project funded by the World Bank, providing financial support through four instruments to support micro, small and medium enterprises:

1) Co-financed grants for start-ups;
2) Co-financed grants for commercialization of innovations;
3) Co-financed grants for establishment, operation and investments of business-technological accelerators and
4) Co-financed grants for technological extension.

The FITD issues other thematic calls, such as call for Digitalization of Municipal Services, Digitalization in agriculture, Call for research projects by high school students, Covid-19 support for start-ups and the Climate Change ‘’O2’’ Challenge.

INFO SHEET NO. 8

Ensuring gender equality
in private climate financing

In this info sheet you will read:
Gender Action Plans for Climate Action - a global perspective
Private sector climate change finance and gender
Why is gender relevant for private sector engagement in climate action?
What are the main opportunities to integrate gender-based priorities into private sector regulations and policy frameworks?



8.1 Gender Action Plans for Climate Action - a global perspective


The fact that women and men are disproportionally affected by the climate change negative impacts, which at the same time accelerates gender inequalities and it is increasing the gender gap in the society, was recognized and introduced in the modest beginning of gender mainstreaming through the United Nations Framework Convention on Climate Change (UNFCCC) process with the Conference of the Parties (COP) 7 (2001) by urging bigger female representation of the Parties within the bodies established under the UNFCCC and the Kyoto Protocol.

Still, the significant step forward was done by the Lima Work Programme on Gender (18/CP.20) in 2014, by acknowledging the importance of gender mainstreaming through all relevant targets and goals in activities under the Convention as an important contribution to increase their effectiveness, followed by the Paris Agreement (2016) and recognizing the gender equality principle as a substantial and crucial part that will lead towards increased transparency and effectiveness of the climate change policies and actions.

Gender Action Plan and UNFCCC Enhanced Lima Work Programme on Gender (LWPG) (COP 25, 2019)

It is important to highlight that climate financing without addressing gender inequality can undermine the effectiveness of the interventions. In that regard, private sector, as one of the key actors in climate change policies and actions, should imperatively make their engagement in climate change efforts gender responsive and gender proved.


8.2 Private sector climate change finance and gender



Gender constraints and gaps play critical roles in influencing women’s participation in financial markets, including the carbon market. Effective participation requires proper understanding and the freedom to engage in transactions, which many women lack. Access and control over capital and other economic resources further constrain wider participation.

Unfortunately, gender segmentation and disparate access to tangible and intangible resources impact women’s abilities and capacities to enter and exit the market. The private climate change finance market currently exhibits the same gender dynamics as traditional financial markets: women are under-represented and a high degree of gender biases and asymmetries inhibit their full participation. Further, actors with financial expertise and historical attachment to the environmental field—typically men—have been the early participants in trading innovative financial products (e.g. carbon credits). Early entry, experience and expertise in markets typically give these actors a range of advantages over newcomers.

Women also face challenges with access to credit. Reasons include lenders assigning a higher probability of default to small producers (many of whom are women), high administrative costs of extending and recovering smaller loans, gender asymmetries in the flow of information about credit markets and women’s general lack of access to collateral. In addition, many financial institutions, even for the same activity or purpose, will usually offer women smaller loans than men. These factors often combine to exclude or crowd-out women from existing credit markets.

Women are also discriminated against because credit institutions tend to assume that women borrow for consumption purposes and are therefore likely to have trouble repaying. But, women’s apparent consumption goods frequently serve dual purposes and are often transformed into capital goods that generate income in the informal and household economy. For example, women often utilize household refrigerators for cooling services for drinks and juices, ice production and sale, and storage facilities either for their own activities or on a fee-based system for neighbourhood services. Similarly, women may use stoves and other equipment to make and prepare foods for sale.



Access to finance for women - examples

As a result of high transaction costs and frequent market failures, financial markets may actually increase or exacerbate the gap between men and women in terms of access to other tangible resources in the economy. For example, in its Diagnostic Study on Access to finance for Women Entrepreneurs in South Africa, the International Finance Corporation notes that in Kenya, 48 percent of business owners are women, yet they hold only 7 percent of formal credit and own just 1 percent of land. Similarly, in Nigeria women own 25 to 30 percent of registered businesses, but access only 10 to 15 percent of bank credit. And in Uganda women account for 39 percent of businesses with registered premises, but receive only 9 percent of commercial bank credit. This situation has serious implications for women’s abilities to engage in the climate finance arena or to start or scale up initiatives aimed to respond to climate change. In the Republic of North Macedonia, in terms of access to credit, women account for 45 percent of the total number of individual borrowers, compared to 55 percent of men, and in terms of the volume of loans, even less, i.e. only 38 percent of the total approved loans belong to women.


8.3 Why is gender relevant for private sector engagement in climate action?



Engaging private sector is an imperative for effective climate change actions, and at the same time, including gender responsive actions within the private sector`s response will secure a real efficiency and effectiveness of that response.

Still, there are two sides of gender inequality in climate financing, as well as the private sector engagement in climate action.

The existing social gender-based inequalities and differences, as well as gender-related barriers, which disable women from taking equal participation in the decision-making processes and financial resources must be recognized by the private sector.

Women’s Entrepreneurship Report 2018/2019 (GEM)

Women’s Entrepreneurship Report 2018/2019 (GEM) states that when it comes to Factor-Driven and Factor-to-Efficiency-Driven Economies: women are 21 percent less likely than men to start a business, for Efficiency-Driven and Efficiency-to-Innovation-Driven Economies women are 30 percent less likely than men to start a business, and when it comes to Innovation-Driven Economies, women are 41 percent less likely than men to start a business. This shows that in general, women are less likely than men to start their own business, and the entrepreneurial gap is increasing with the higher stage of economic development. On the other hand, real climate change action will be achieved when both men and women will take the same advantages of the activities as final beneficiaries in both mitigation and adaptation activities. Data in the Figure 22 shows that women as agents of change have remained neglected in climate policy and finance circles at the global level.

Source: www.adb.org/sites/default/files/publication/42881/climate-finance-work-women.pdf


8.4 What are the main opportunities to integrate gender-based priorities into private sector regulations and policy frameworks?



Republic of North Macedonia so far does not have intersected climate change and gender equality in the national policies, except for the Draft Action Plan for Gender Equality and Adaptation / Mitigation to climate change - excerpt from the First Biennial Update Report on Climate Change and the Draft Action Plan for Integrating Gender Aspects Responsiveness in the Preparation of the 4th National Communication/ 3rd Biennial Update Report (2019). In that regard, it is highly recommended to include a beneficiary and people-centered approach to climate change adaptation and mitigation measures, paying particular attention to some of the small-scale and community- based actions, in which women are over-represented, including in the informal sectors and as owners of micro-, small-, and medium-sized enterprises in developing countries and ensuring that the concessionally of public funding is passed to women as beneficiaries. The Ministry of Economy adopted Strategy for development of female entrepreneurship in the Republic of Macedonia, 2019-2023, with an overall objective of economic empowerment of women with no clear references on green economy or climate change financing.

To achieve gender responsive Business Sector Climate Financing, it is important to start from scratch by including the Gender Mainstreaming process into the Business Sector Climate Financing. On one hand, the Climate Financing must incorporate gender equality as a guiding principle and a cross-cutting issue with clear gender criteria in performance objectives and results measurement frameworks such as mandatory gender analysis, proposed gender action plan and gendered budgetary framework, clear gender quantitative and qualitative indicators measuring how projects and programmes contribute to gender equality objectives, as well as the systematic collection of gender-disaggregated data.

In the ownership structure of the Macedonian economy, companies owned by at least one woman with a founding investment over 50 percent participate with about 29,39 percent of the total number of active enterprises, but only with 12,9 percent in the total number of employees (data for 2017).

Most of the entities owned by women in 2017 were in the wholesale and retail trade sector (7 489), the processing industry (1770) and professional, scientific and technical activities (1 678).

In the dynamics of registering new business ventures (owned by at least by one woman, holding at least 50 percent ownership), women participated with 25 to 28 percent in the period 2010-2017.

Source: Strategy for development of female entrepreneurship in the Republic Macedonia, 2019-2023.

Law on Equal Opportunities on Women and Men

On the other hand, gender-based priorities must be reflected into private sector regulations and policy frameworks, as stated in the Article 4(10) of the Law on Equal Opportunities on Women and Men by mainstreaming the gender perspective into each of the planning, decision-making, evaluation processes. The field situation gives a different and opposite picture, having in mind the fact that even female representation in the decision-making structures within the private sector energy related companies is not equal nor balanced.

The two biggest energy suppliers in the Republic of North Macedonia, AD ESM (Power Plants of North Macedonia) and EVN Macedonia, are registering low level of female participation in the decision-making processes, with highest female participation of 33 percent in the ESM’s Management Board, and no female participation in EVN’s Management Board. On the other hand, only 33 percent of the companies supported by the Fund for Innovation and Technology Development in the Republic of North Macedonia are owned or managed by women. Therefore, according to the Fund for Innovation and Technology Development, national public institution financing Micro, Small and Medium-Sized Enterprises (MSMEs), with a purpose of technological development based on knowledge transfer, development research and innovations that contribute to job creation, economic growth and development, also have to set gender principles in their financing rules and procedures.

The private sector engagement in climate action in the Republic of North Macedonia must not remain gender blind. It has to systematically take gender considerations into its policies, activities and in general climate actions by mainstreaming gender on the ground, by ensuring equal participation of women in decision-making, ensuring gender-mainstreaming into policies, setting affirmative measures (subsidizing measures) to boost the female economy, equitize the female usage of the business climate financing as agents of change and beneficiaries.