Latest update on climate finance

The SDG Knowledge Hub of the International Institute for Sustainable Development (IISD) provides the November update on global developments in climate finance.

 

November 2016 Climate Finance Update: COP 22 Moves Climate Finance Agenda Forward

COP 22 adopted seven decisions related to climate finance, including on long-term climate finance, guidance to the Green Climate Fund (GCF), guidance to the Global Environment Facility (GEF), and the sixth review of the Financial Mechanism.

The Marrakech Climate Change Conference saw the launch of various initiatives and announcements related to climate finance.

Marrakech was the venue for the main annual gathering of key global finance institutions working on climate finance, including various multilateral development banks (MDBs) and the main global climate funds.

4 December 2016: During the month of November, multilateral climate finance news was dominated by the 22nd session of the Conference of the Parties (COP 22) to the UNFCCC and the 12th session of the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol (CMP 12), which adopted ten climate finance-related decisions that, inter alia, provide guidance to the operating entities of the Convention’s Financial Mechanism.

The Marrakech Climate Change Conference also saw the launch of various initiatives and announcements related to climate finance. Marrakech was also the venue for the main annual gathering of key global finance institutions working on climate finance, including various multilateral development banks (MDBs) and the main global climate funds.

In the Paris Agreement on climate change, countries agreed to make “finance flows consistent with a pathway towards low greenhouse gas (GHG) emissions and climate-resilient development.” Developing countries will receive financial resources for both mitigation and adaptation actions, while developed countries are expected to continue leading in mobilizing climate finance from a variety of sources, with public funds playing a significant role in reaching the previously agreed US$100 billion annual target by 2020. Monthly IIDS RS Climate Finance Updates aim to help track multilateral financing to support the finance goal agreed under the UNFCCC, which will in turn contribute to the implementation of Sustainable Development Goal (SDG) 13 (Take urgent action to combat climate change and its impacts).

COP 22 Provides Guidance to UNFCCC Finance Mechanism

The COP adopted seven decisions related to climate finance, namely on: long-term climate finance, including on the third biennial high-level ministerial dialogue on climate finance in 2018; the report of the Standing Committee on Finance (SCF), including endorsing the SCF 2017 workplan; the terms of reference for the review of the functions of the SCF; guidance to the Green Climate Fund (GCF), including requests to the GCF Board relating to direct access proposals, coordination and delivery of resources, and the first formal replenishment process; guidance to the Global Environment Facility (GEF), including requests relating to efficient access to resources; the sixth review of the Financial Mechanism, including adopting updated guidelines; and the initiation of a process to identify the information to be provided by Parties in accordance with Paris Agreement Article 9.5 (on biennial communications by developed countries), including mandating a roundtable at the 46th session of the subsidiary bodies (SBs) on this matter (May 2017). In addition, the COP adopted a decision on the linkages between the Technology Mechanism and the Financial Mechanism of the Convention.

Under the CMP, the climate finance-related decisions adopted focused on: the third review of the Adaptation Fund; and the report of the Adaptation Fund Board, including deciding to renew the interim institutional arrangements with the GEF for an additional three years.

COP 22 Finance Discussions Address Role of Adaptation Fund, Non-State Actor Participation

At the core of the technical talks in Marrakech was the role of the Adaptation Fund in relation to the Paris Agreement. The final decision under the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA) on matters relating to the implementation of the Paris Agreement reads “the Adaptation Fund should serve the Paris Agreement.” This was celebrated by the Adaptation Fund as “excellent news and represent[ing] a significant step forward,” given that the Paris outcome (FCCC/CP/2015/10/Add.1, paragraph 59) states the Fund “may” serve the Agreement.

In addition, after announcements of contribution by Germany (€50 million), Sweden (SEK100 million), Italy (€5 million) and the Walloon and Flanders regions of Belgium (€3.25 and €6.25 million, respectively), the Adaptation Fund surpassed its 2016 fundraising goal of US$80 million by one million. A new fund, the Marrakech Investment Committee on Adaptation (MICA) was also launched as “the first ever private adaptation and resilience investment vehicle” comprised of US$500 million of blended finance from the US, Africa, Morocco and the GEF.

At COP 22, the agenda also included two mandated events focusing on finance-related issues: the High-Level Ministerial Dialogue on Climate Finance; and the facilitative dialogue on enhancing ambition and support. The SCF presented the findings of its 2016 Biennial Assessment and Overview of Climate Finance Flows, which include, inter alia: improvements made in tracking and reporting of climate finance since 2014; and an overview and assessment of climate finance flows in 2013-2014. Also, the GCF hosted its first annual meeting with the thematic bodies of the UNFCCC. The meeting was intended enhance the GCF’s relationship and collaboration with these bodies, and its outcomes will be presented to COP 23.

Also at COP 22, in an effort to ensure transparency and inclusiveness in climate finance decision-making, a group of observers to the Climate Investment Funds (CIF) trust fund committees and civil society representatives launched the Stakeholder Advisory Network (SAN) on Climate Finance. The SAN will strengthen the partnership between non-state actors and climate finance entities, and will have a governing committee composed by civil society members and supported by a CIF-backed secretariat.

MDBs and Climate Funds Host Side Events at COP 22

During COP 22, the MDBs and climate funds held, and participated in, numerous side and other events. Below is a selection:

  • Africa Action Summit, hosted on the sidelines of COP 22 by the King of Morocco, which heard calls for paying “Africa’s rising bills for adapting to climate change.”
  • Second Climate Finance Day, sponsored by the African Development Bank (AfDB).
  • Water Action Day, which saw the launch of the ‘Water for Africa’ initiative, aimed at mobilizing financial resources for supporting the continent’s during climate change-related water emergencies.
  • A European Bank for Reconstruction and Development (EBRD) side event on the role of the private sector in tackling climate change challenges in the food industry.
  • A Carbon Pricing Leadership Coalition side event, which launched the Coalition’s High-level Economic Commission chaired by economists Joseph E. Stiglitz and Lord Nicholas Stern.
  • GCF events, including on the Fund’s role in implementing the Paris Agreement.
  • An Adaptation Fund event on climate-resilient agricultural communities.

New Support and Partnerships for Forests, Clean Energy and Water Resilience

Major announcements on cooperation and support during the month of November included: the World Bank’s announcement of plans to double its financing to climate action in the Middle East and North Africa (MENA) region; the International Finance Corporation’s (IFC) issuance of a US$152 million Forests Bond; Canada’s commitment of CAD3 million to World Bank’s Transformative Carbon Asset Facility; and the African Water Facility’s (AWF) approval of a €2 million grant to Botswana, Lesotho, Namibia and South Africa.

Under its MENA Climate Action Plan, launched in mid-November, the World Bank aims to nearly double its financing dedicated to climate action to US$1.5 billion per year by 2020. The plan has four priority areas: food and water security; sustainable cities adapted to new climate conditions; transition to low-carbon energy; and protection of the poorest, most exposed to climate change impacts.

The IFC Forests Bond “gives investors the option of getting repaid in either carbon credits or cash, raising $152 million to support private sector development and prevent deforestation in developing countries.” Canada’s support will go to helping developing countries find innovative ways to reduce emissions and collaborate on clean energy projects and market systems. The AWF funds will go to the preparation of a climate resilient water resources investment strategy for the Orange-Senqu River Basin. The AWF is also supporting a €1.4 million project to support smallholder irrigation in Zambia.

Also in the area of water resources, BMCE Bank of Africa, the French Development Agency and the European Investment Bank (EIB) signed a Memorandum of Understanding (MoU) aimed at enabling private investments for protecting water resources and supporting climate change adaptation efforts in the face of increasing droughts in Morocco. The EIB also announced the signing of financing contracts totaling a €200 million with Kazakhstan to support the country’s green economy transition.

Further cooperation agreements in November were signed between Japan and Latin America, and the Nordic countries and the Russian Federation. An MoU signed by Japan and the Inter-American Development Bank (IDB) aims to strengthen an existing co-financing arrangement to “address climate change and environmental issues and promote quality infrastructure.” Nordic Ministers for the Environment launched a cooperation programme aimed at “improving the state of the environment and addressing climate change in Northwest Russia,” comprised of a series of projects with expected benefits at local and regional levels.

In Slovakia, the World Bank will support the country’s national 2050 Low Carbon Strategy through the provision of advisory services in economic modeling for energy and climate policy.

UN Agencies Focus on Climate Resilience and Disaster Risk Reduction Measures

In November, UN agencies reported on the preparations of various countries in all developing regions of the world aimed to increase their resilience and reduce disaster risk.

In Africa, the Food and Agriculture Organization of the United Nations (FAO) reported on a US$1.5 million project, funded from the Africa Solidarity Trust Fund, that will support small island developing States (SIDS) in Africa in enhancing the climate resilience and economic development of their agricultural sectors.

The UN Office for Disaster Risk Reduction (UNISDR) reported on how Mauritius, the host of the Sixth Africa Regional Platform for Disaster Risk Reduction (which took place from 22-25 November), drew attention to the climate change challenges facing SIDS. Mauritius has been investing 2% of its GDP in disaster risk reduction (DRR).

UNISDR also reported on US$12 million funding secured for Burkina Faso, the Democratic Republic of the Congo and Pacific SIDS under the Climate Risk and Early Warning Systems (CREWS), which will support the improvement of early warning systems and forecast services. The multi-stakeholder CREWS aims to mobilize more than US$30 million by July 2017 and US$100 million by 2020.

In Latin America, 30,000 families in Nicaragua’s ‘Dry Corridor,’ will benefit from a US$48.5 million project to support sustainable agricultural production. The UN International Fund for Agricultural Development (IFAD) will provide US$20.5 million of the funding.

In Asia, the Asian Ministerial Conference on DRR (held from 3-5 November in India) adopted a regional plan to substantially reduce disaster losses by 2030, titled the ‘Asia Regional Plan for Implementation of the Sendai Framework for Disaster Risk Reduction.’ On the occasion, India announced a donation of US$1 million to the UNISDR Trust Fund.

In Pakistan, the Asian Development Bank (ADB) will support the strengthening of the country’s disaster risk management capacity through a US$200 million loan. The support package includes a US$1 million technical assistance grant and a US$3.3 million grant from Australia.

GCF, Adaptation Fund Advance on Partnerships for Readiness, Access and Delivery

In November, the GCF signed a readiness grant agreement with the Namibian Environmental Investment Fund, marking the first agreement of such kind for a GCF Direct Access Entity. Other institutional news included an approval for readiness funding for Belize and the signature of a Readiness Framework Agreement between the GCF and FAO. Also, the Development Bank of Latin America (CAF) signed an Accreditation Master Agreement (AMA) with the GCF, and Armenia gained direct access to the Adaptation Fund through its National Implementing Entity.

November Reading List

Below are recommended reads from the month of November:

  • An IFC report on ‘Climate Investment Opportunities in Emerging Markets,’ which finds that the Paris Agreement “helped open up nearly US$23 trillion in opportunities for climate-smart investments in emerging markets between now and 2030.”
  • A guide produced by the Climate Finance Advisory Service (a consortium of Germanwatch and the Climate and Development Knowledge Network) on key issues related to climate finance that were on the COP 22 agenda.
  • Studies by the UN Environment Programme Finance Initiative (UNEP-FI) on the role, potential and policy needs of private financial institutions in enabling adaptation, and on how governments and investors can accelerate the process of portfolio decarbonization so as to support the transition to a low-carbon economy.
  • A web-based portfolio of GCF-supported projects.
  • The World Bank Group’s climate change newsletter for November 2016.

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