No time to spare in addressing challenges in making climate finance effective

The past months have reminded us yet again that we are, indeed, in a race against time. With the latest IPCC report revealing how the world is heading in every wrong direction possible in its decades-long fight against climate change, it may seem that all hope is lost and we are only left waiting for the inevitable end. Yet the best available science says the opposite. There is still hope, and we will not be condemned to a destruction-filled future, if we act fast.

That leaves world governments and corporations majorly responsible for the ongoing climate breakdown to take drastic, larger-than-life actions for the next three years. Actions that veer away from the ‘business as usual’ route. But carving a development path towards a just, climate-resilient future proves to be highly contentious and an equally political one, at that.

Current plans and voluntary pledges fail to make a significant impact on limiting global warming to 1.5 degrees Celsius. And despite their large-scale commitments at Glasgow last year, developed nations such as the United States and the United Kingdom are leading the push for new fossil fuel infrastructure rise in arms spending thwarts aid crucial to achieving not only climate action and resilience but also the sustainable development goals (SDGs).

With a lack of a concrete, unified plan, as well as governments quickly watering down their responsibilities in jointly mobilising the long overdue USD 100 billion goal , we are nowhere near making finance flows consistent with much needed climate-resilient development.[1] This attests to the glaring truth that inasmuch as climate finance has always been integral to negotiations, it has done far from enough for developing nations — with calls from grassroots and vulnerable communities visibly falling on deaf ears .

As climate financing is rife with issues at the country level — more importantly in aligning national development strategies — achieving a just transition amid a crucial tipping point in history requires tackling with depth and urgency the challenges in governing, delivering, and monitoring effective climate finance.

No ODA as climate finance

Last year’s COP26 called on Parties to scale up their contributions in line with the increasing impacts of the climate crisis on developing countries. With ongoing talks expected to dominate COP27 this November, little discussion is raised at the policy level as to whether new and additional climate finance — those sourced outside existing official development assistance (ODA) flows and on top of the 0.7 per cent of donor countries’ gross national income (GNI) — is being met with significant results.

Despite a strong legal binding that puts emphasis on burden-sharing, more o the responsibility of developed nations to meet the incurred costs of their historic emissions, the crux would be on the terms “new” and “additional,” as they have never been properly defined nor their parameters set straight. The 2015 Paris Agreement further confused this notion of being on top of current development aid  by defining it [new and additional] as “a progression beyond previous efforts.”[2]

In a muddled state of affairs, bilateral country donors are given the leeway to define what is “new and additional” in their respective contributions. Almost all developed countries have included and reported climate finance in their ODA, consequently establishing their own benchmarks.[3] This lack of clarity results in the conflating and further cannibalising of ODA, stunting the growth and progress of climate finance while simultaneously compromising needed financing for development .

More loans are then consequently disseminated in the guise of climate aid to developing nations, as opposed to direct, accessible grants. Bilateral donors are no stranger to this practice. Headliner countries like Japan and France have provided a meagre 14 per cent and 10 per cent of their respective climate finance as grants in 2016-2018, despite contributing more than their fair share. The same has been observed in multilateral financing, with non-concessional loans making up the largest share of multilateral development banks’ (MDBs) climate aid in 2019 — amounting to 79 per cent or USD 30.9 billion.

Financing for adaptation continues to lag behind

As major parts of Africa contend with an unprecedented drought that poses to leave over 20 million people in extreme hunger and starvation, and amid other highly damaging catastrophes, calls for the urgent ramping up of adaptation finance have been growing. But patterns of current allocations do not bode well.

In 2019 alone, USD 20 billion went to adaptation projects — a far cry from the USD 50.8 billion provided to mitigation. With annual adaptation costs expected to reach USD 140-300 billion in 2030 amid such a worrying level of financial support, actions made so far towards striking a balance between adaptation and mitigation ultimately fail to echo the language of the Paris Agreement. This is aggravated by a lack of understanding and unified mechanism on how adaptation efforts are to be interpreted in practice and reported subsequently.

Disclosing inflated margins in projects then becomes an open secret in development aid and practice, further overstating the amount donors spend on climate adaptation. Strikingly clear in World Bank’s endeavours, a report by CARE revealed that 86 per cent of the budget for the Earthquake Housing Reconstruction Project in Nepal was listed as adaptation finance regardless of the initiative being unrelated to climate change. Hand in hand with such over-reporting are the series of non-concessional loans and other non-grant instruments that only seek to cripple the already limited capacities of least developed countries (LDCs) and small island developing states (SIDS).

With development actors opting to resort to schemes that further displace debt-ridden nations[4] in a crisis that is the least of their doing, continued calls for enhanced global adaptation financing and private sector leveraging will only be — yet again — met in vain should this injustice remain unaddressed.

Ambiguous mechanisms for transparency make way for disparate results

Southern developing countries’ trust in the current processes is vastly eroded by discrepancies in climate finance reporting. Coupled with this is a certain flexibility brought about by the continued lack of a common monitoring and evaluation system. An internationally agreed definition of climate finance is also yet to be settled, allowing space for a wide range of interpretations. In spite of this, assessments made by the United Nations Framework Convention on Climate Change (UNFCCC) still mainly depend on what governments state in their national reports.

The Rio markers[5] set by the Organisation for Economic Co-operation and Development (OECD) is a prime example of how such accounting mechanisms impose risks in presenting exaggerated numbers that fail to accurately exhibit what has been provided and mobilised to the global South. Particularly, Japan’s OECD-based financial reporting method for projects that carry environmental themes has been found to be riddled with inconsistencies. Regardless of the extent to which each project truly addresses climate mitigation or adaptation as either a main or minor objective, no distinction is made as 100 per cent of the budget is reported as climate finance, mainly resulting in inflated figures.

This practice by Japan alone already contributes to the annual total for adaptation finance being 10 per cent lower than what developed-country donors disclosed to the OECD. Moreover, the UNFCCC has not signalled a compulsory reporting of net finance accounting for loan repayments, despite non-grant instruments’ dominant influence in the climate finance arena. As a reporting standard has yet to be unanimously agreed upon, results from calculation methods like these inevitably find their way into official reports — a complete antithesis of what effective climate finance should be:  transparent, accountable, and scaled up.

With the Standing Committee on Finance (SCF) gearing towards monitoring developed nations’ progress in fulfilling the USD 20 billion deficiency in their joint climate pledge ahead of the November summit in Sharm el-Sheikh, we ought to see another huge disconnect between what has been achieved in numbers and how it translates into action and actual implementation.

No time to spare

All these challenges make one thing clear: the path towards a just transition cannot be achieved without channelling effective climate finance.

These ambiguities and loopholes in the whole climate finance cycle serve as another stern reminder that world leaders and key development actors have done the bare minimum. If widespread injustices are not addressed and urgently called upon, we risk navigating a mechanism plagued by further irregularities that only serve the rich and the most powerful. Pledges and commitments that equate to nothing but a string of empty promises. If left as is, grassroots communities would, for the nth time, get the shorter end of the stick in a battle they are already losing.

It is only through integrating a financing infrastructure that takes into account the importance of development cooperation, human rights, and inclusive decision-making that we can ensure that climate aid and reparations become key drivers to peoples’ empowerment. One that is predictable, adequate, and additional. One that seeks to create an enabling, participatory environment for all sectors of society. One that is effective through and through.

Until climate action sets out to be truly inclusive and reflective of the global South’s crucial role in the climate change discourse, our steadfast call towards upholding effective climate finance through the development effectiveness principles shall persist. We will continue sounding the horn.

Indeed, there’s no time to spare.#

[1] Article 2.1c of the Paris Agreement puts emphasis on the need to make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”

[2] As per Article 9.3 of the Paris Agreement

[3] The OECD DAC’s criteria allows bilateral country providers to report climate finance as part of ODA if these are proven concessional, with a focus on people’s welfare and development..

[4] Despite a debt moratorium imposed amid the Covid crisis, at least 62 developing countries spent more on debt service than on healthcare in 2020 — according to Eurodad.

[5] The Rio markers for climate are commonly used by OECD DAC member countries as indicators for each spearheaded development activity and whether it targets climate objectives. Three scores are utilised: Marker 0 for projects carrying no climate objectives; Marker 1 for projects instilling one climate objective among several other ones; Marker 2 for projects with the climate as a principal objective. Countries employ different practices for Marker 1, whereas the full budget is reported for Marker 2. The finance share allocated is then reported to the UNFCCC.

Featured photo by Mika Baumeister on Unsplash

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