FEATURE: Climate finance landscape – Developing countries still in great need, but private sector shifts give hope
CDKN’s Miren Gutierrez takes the measure of latest developments in the global climate finance landscape, including a read-out from Chief Executive Sam Bickersteth and developments in India and Nepal.
Climate funds have been recently in the news because of a press release on May 25th in which the Green Climate Fund (GCF) admitted that, although 42 proposals worth $2.4 billion have been submitted so far, not all will be approved in 2016, missing a target to approve $2.5 billion in new projects.
It is not common that this issue hits the news, in spite of climate finance being crucial for the future of the planet and of its volume – there is a commitment to raise $100 billion a year by 2020 for adaptation and mitigation projects in developing countries. But where is international climate finance being spent? A look at specific countries suggests that, among other factors, it may depend on how smart countries are in submitting proposals and negotiating their requirements.
Least developed countries still need to get ‘climate finance ready’
Some countries are more successful than others “because they domestically are better able to tackle climate change. And that is essentially to do with resourcing, institutional capacity and leadership,” says Sam Bickersteth, Chief Executive of CDKN.
If you look at the landscape of climate finance globally in the world today (beyond the Green Climate Fund alone), the major recipients of approved project spending are all middle-income countries: Brazil ($846 million), Mexico ($720 m.), Morocco ($652 m.), Indonesia ($630 m.) and India ($608m.), according to the Climate Funds Update (CFU) which tracks the big picture. These are countries that have invested in their negotiating power and boast skilful teams. They are also some of the biggest developing countries as well.
However, needs lie in other places as well. Poor countries, such as Honduras, Myanmar, Haiti, Nicaragua, Philippines, Bangladesh and Vietnam, are among the ones with the highest long-term climate risk, according to a 2015 report by GermanWatch.
Let´s examine the factors that determine success in receiving climate finance.
“Certainly, the ability to negotiate has some impact on how successful a country is in accessing financial resources… This is also related to power relations at regional and international level,” said Ram Chandra Khanal, CDKN’s Nepal Strategy Advisor, in a previous interview.
“In addition to negotiation skills, the other equally important consideration is its institutional capacity to access funds, such as having capable institutions with robust administrative and financial systems –he adds—. It also related to human resources, which is required to understand the cumbersome process and write bankable proposals.”
Colombia ($187 m. in approved project spending) is another success story. “Countries like Colombia have highly sophisticated institutions, capability and universities, programmes and political systems that have generated a momentum,¨ explains Bickersteth.
While the climate finance ‘pie’ needs to grow – so does the portion for climate adaptation and resilience financing
Part of those trillions is going to be needed to tackle climate-related disasters. In 2012, there were 552 disasters costing just under $158 billion, according to an Australian Red Cross Report.
Investment in reducing risks from climate change (including extreme weather events) is currently far behind investment in climate change mitigation solutions, such as clean energy. Adaption projects have attracted so far $3.68 billion in funding, while mitigation projects gather $8.26 billion and REDD (Reducing Emissions from Deforestation and Forest Degradation plus conservation) projects, whose primary focus is also climate mitigation, attract $2.38 billion, according to the CFU’s thematic analysis.
An example is India, one of the biggest recipients of climate finance, where more than $821 million pledged (not approved) are to be funnelled towards mitigation projects. There is certainly a need there. India is the fourth emitter in the world, after the EU-28, according to the Emission Database for Global Atmospheric Research. However, this country also faces great adaptation challenges and in comparison only $18 million have been pledged for adaptation projects.
Mihir Bhatt, CDKN´s country leader for India, who leads All India Disaster Mitigation Institute (AIDMI), says that “a slow but steady evolution of climate finance is taking place in India” as managing climate-related disaster risk takes a higher profile in investment.
“Let us not forget that these are years of heightened caution in the investment and finance sector,” Bhatt says, drawing links between climate-related risk and increased conservatism in the investment world, overall.
“At a meeting of the Commonwealth Parliamentary Association, the World Bank and Yes Bank demonstrated what can be done to invest in renewable energy, adaptation and in the household sector. Member of Parliament Kirit Somaiya, who chairs the Joint Committee for Energy, pointed out how rapidly the government is moving ahead to transfer investments where they matter. The Asian Regional Workshop on Sustainability, Energy and Development discussed adaptation, mitigation and risk finance in detail. In addition, disaster risk finance in India is still evolving.”
“Risk transfer or insurance is an area where the state governments of Assam, Tamil Nadu and Odisha have taken initial steps to run pilot test programmes, with the Humanitarian Innovation Fund and local small businesses, to find out how best to protect the income and assets of small urban businesses,” adds Bhatt. “The German bilateral agencies, KFW and GIZ, have developed a growing interest in risk pooling”.
Where the greatest action can happen: in private investment
Looking to the even bigger picture of climate finance, the Green Climate Fund’s support will be just the beginning, says Bickersteth. “The US$100 billion in the Green Climate Fund (the annual amount which donor countries pledge to see flowing by the year 2020) is important for lots of reason, but it is a small amount. We need to mobilise trillions to make investments climate-resilient.”
For Bickersteth, a potentially transformative moment came at the UN Conference on Climate Change in Paris with “the engagement of the governor of the Bank of England and of businesses on the whole issue of climate risk to private sector assets, and the establishment of the Financial Stability Board to look at climate risk for international companies.
“The establishment of the Financial Stability Board together with the shift of private sector finance to be more climate-resilient, to move away from fossil fuel-based assets to clean, green technology is the most exciting thing that is happening today,” he says. “It is the opportunity to switch from dirty fossil fuels, the opportunity to build climate risk into the value of private companies; that’s what the Bank of England’s Financial Stability Board is driving for.”
Although the private sector from developing countries was inadequately represented during the business-led talks in Paris, “the issue now is get non-state actors in developing countries really behind what countries have signed up to, and that includes the financial sector. Not just businesses, it is not just NGOs, it is not just subnational authorities and mayors, but it is also banks and the financial sector… That is really the front line of where the change can happen. That is where the trillions are,” he concludes.
In summary, tackling climate change and accessing climate finance to do so take more than just negotiating skills.
Leadership, a sound long-term strategy, resourcing, institutional capacity and the collaboration of the private sector are key elements as well.
Image: India natural disaster, courtesy diariocritico, flickr.com
 The complete title of the workshop is Asian Regional Workshop on Sustainability, Energy and Development: Energy Sustainability, Renewable Energy and Climate Resilience. It was held on January 18-21, 2016, in New Delhi, organised by Commonwealth Parliamentary Association, UK, in partnership with United Nations Development Programme (UNDP).