Overcoming the existential threat of climate change will require different measures: the way energy is created, food is produced and how people travel the world. As development banks, the private sector and governments recognize the magnitude of the challenge, many are increasing funding to drive forward the Paris Agreement goals to dramatically slow the rise in global temperature and to prioritize climate-resilient development. Take a five-minute break to read comments from some experts below.
What are some mistakes that have been made in climate finance?
“The finance gap is ever growing. We need to increase the level of climate finance, primarily through public sources. Adequate climate finance, mobilized through public sources will easily be deployed into the communities most affected by climate change. Poor communities who are disproportionately affected by climate change will need dependable sources of climate finance and currently there is none better than public sources. Pertaining to deployment, there is a need to expedite 50% parity between adaptation and mitigation. The reason why climate finance flows more to mitigation is because it makes more profit there and we neglect the flow to adaptation where it saves people’s lives…that’s one of the gravest errors that needs to be corrected in international climate finance.”
„Failure to address capacity needs and demands for experts in climate finance. Climate finance planning failures to build the capacity national and local governments to attract and utilize climate finance opportunities including capacities on climate change reporting. Same capacity should be extended to the private sector and Regulatory bodies in developing countries most affected by climate change. Balance: The balance between adaptation and mitigation including finance for climate resilience. More finance solutions targeting adaptation, mitigation and disaster risk reduction including resilience of vulnerable and differently gendered groups in society. Mechanisms to address transparency and accountability of climate funds. Discussions to ensure the developing countries (including mechanisms internally to address gaps in transparency and accountability at national, local and private sector) have clear definitions and systems that allow for tracking and evaluation of the climate financing flows. Role of PBOs in tracking climate finance and advocating for aspects of transparency and accountability working with donors think tanks and regulators. MER&L Indicators adopted e.g. Climate Public Budget Expenditure Review (CPBER) and budget codes/tracking. Inadequate mobilization strategies for climate finance: mobilizing financial resources to support country climate change strategies. Adequate budgetary provisions: Developing countries benefitting from developed countries.”
“A major error in climate finance over the past few years has been the disproportionate distribution between mitigation and adaptation investments. As recently as 2019, multilateral development bank climate finance for example devoted 76% of the combined total financing to mitigation efforts. While it is important to reduce global warming and shift to low-carbon initiatives, a low or lack of equal investment in climate adaptation to make settlements more resilient can make certain populations even worse off. For example, the global south emits less greenhouse gases compared to the north but bears the brunt of climate change impacts. And, within less developed countries, it is the poor populations, especially the urban poor, who are often least capable to prepare. COVID-19 has shown that low investment in the poor can have dire social and economic implications on national budgets and recovery. Another error is the poor maximization of the opportunities that blended finance brings. Not enough of it has been devoted to sustainable development as some studies show most of it has been used on economic growth, and industry for example.”
“Climate finance is mostly directed to the upgrading of energy systems in advanced countries and disaster risk management and adaptation in the developing world. Historically, climate finance is handled by national level agencies and the debate is restricted to policy level only. The city officials who are operational heads are nowhere in the debate. The recent pandemic response shows that, even during lock-downs, cities (even dysfunctional ones) continued to provide essential services such as WASH, SWM, and communication campaigns which contributed to the slowing of the infection.”
“One of the main mistakes that I identify concerning climate finance is the focus on large projects adopted by some of the main funds and development banks. The need to create climate finance mechanisms at the sub-national level is evident with support and, when possible, co-financing from local development banks and municipal or regional development agencies, in the countries where it exists. Now is the right time to make global-to-local climate financing feasible which can foster the mitigation and adaptation impacts at the local level, improving quality of life, and generating employment and income where it is essential.”
“Climate finance has traditionally been framed around the notion of “mitigation” – reversing the harm that has been done in search of restoring the former state of “normal”. Over the past decade, a striking upward trend in the number of billion dollar plus extreme weather disasters has led to an awareness that we have neither sufficient time nor money to rebuild to an outdated status quo. Adaptation to a changing world and resilience in the face of its harms are now accepted as future-forward climate finance. The shocking socio-economic toll and uncertainty created by the COVID-19 pandemic have given new impetus to sustainable climate finance, but climate has an impact on all economic sectors, not just energy.”
“Climate finance is critical for many developing countries especially in Africa. Currently, climate financing has not matched the increasing adverse impacts of climate change. African countries would require over US$3 trillion to implement their Nationally Determined Contributions by 2030 but this is unlikely to be achieved unless more financial international supports is received. The implications of this would be more droughts, cyclones, floods, heatwaves, famine and diseases. There are different climate financial architectures in place from multi-lateral, bilateral to unilateral. However, the trickling down of climate finances to grass-root level and those that need it the most has suffered some setbacks. The balance in the allocation of climate finance between adaptation and mitigation is lacking. Accessing these finances is also very difficult – a camel going through the eye of a needle.”
The resource mobilization strategy of the largest international climate finance (Green Climate Fund) source needs to be revisited. Given that there is no real way for the GCF to know for sure whether countries will maintain their political stance on climate change it may be time for the Fund to develop a private sector and philanthropic resource mobilization strategy to ensure that the future of the Fund is not dependent on the political views of individual countries belief or disbelief of climate change. The global private sector’s contribution to greenhouse gas emissions and increased global temperatures is significant. Part of the GCF’s resource mobilization strategy should be to target these companies and either offer carbon credits in exchange for them contributing to the GCF or some other initiative that would act as a sweetener to attract these global private sector firms to make contributions to the Fund. And I am not saying that the GCF should only focus its resource mobilization strategy on the private sector, but they need to focus on it more as I have yet to see a report which states the inflows from private sector contributors. So far, according to the Fund’s seventh report to the Conference of the Parities to the United Nations Framework Convention on Climate Change, the pledges to GCF in the initial resource mobilization period as at 30 April 2018 amount to USD 10.3 billion equivalent. The pledges are from 43 countries, three regions and one city, 34 of which are developed and nine are developing countries. None from the global private sector. The GCF resource mobilization strategy should not be dependent mainly on country pledges which can be withdrawn.
In what directions should the finance sector go to address climate finance?
“First, we need to recognize that climate change affects sectors such as agriculture, health, infrastructure etc. The extent to which we integrate climate change in the design and implementation of the affected sectors is the level of climate finance allowable in those sectors. The approach is empowering as it makes climate finance an ‘obligation’ for both developed and developing countries. Due to escalating climate change, the costs of fully integrating climate finance into sectors is likely going to be more than most developing countries can manage on their own, hence the need for international cooperation. Developed countries are not absolved of their leadership role to mobilize climate finance. Integrating climate change into planning helps to climate-proof development and ensure sustainability.”
“To maximize climate finance, it is suggested that efforts must be made to direct it to climate adaptation efforts, particularly in the global south or in cities where there are high concentrations of urban poor to lessen their vulnerability. A holistic approach to support the finance necessary to achieve the required policies, raise awareness and risk-informed understanding and action, and an actual infrastructure to increase their resilience to various hazards would also be directly helpful. By directing climate finance to cities for example, investments and activities would be closer to the actual climate vulnerable and could be undertaken in cooperation with a range of more localized stakeholders. The Green Climate Fund’s approach of partnering with national agencies and local governments and development partners to support community-based activities is an example. Coupled with support from the private sector, impact investors and even municipal finance, blended finance expands opportunities to achieve the intended outcomes. The linkage between climate finance and environmental, social and governance (ESG) principles must also be strengthened and mainstreamed. Assessing and disclosing the effects of climate change on each investment also contributes to further greening economies globally and helps in the transition to a climate-resilient and low-carbon growth path.”
“Considerable and moderately successful efforts to mitigate climate change through shifts in the energy, construction and transportation sectors have come through 20 years of public sector incentives and technological innovation. It has proven more difficult to finance adaptation to climate change — at a scale not yet achieved by impact investment —in the places most directly affected by it. Market problems are tractable; governance problems are more difficult. Existing modes of public-sector governance are not suited to rapid and effective adaptation to the effects of climate change. Attention must be paid to local and regional decision-making and operations. Without better governance there is no way to underpin the risk management processes and products that can be offered under the rubric of insurance at the local level.”
„Strengthen Partnership between the actors. Invite collaborations to work with the various identified actors in climate finance to leverage finance sector knowledge on financial inclusion and climate finance opportunities to leverage CF opportunities. Monitoring, reporting and verification/ financial disclosures. Opportunity for the finance sector to work with Regulators in developing countries including financial actors to create a market for climate financing in developing countries; pursue finance sector role in disclosure and MRV framework to increase investment opportunities and green growth. Increasing the number of players and widening the scope of climate finance. The finance sector has the potential to increase the number of players in climate finance through innovative products e.g. green bonds replicated to support financial institutions develop tools and solutions for climate finance with reporting standards e.g. CSR/ESG indicators and widening scope of CF to include DRR, resilience and recovery of developing countries economic sectors (Energy, agriculture, tourism, manufacturing and Health etc.)”
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