The SDG Knowledge Hub of the International Institute for Sustainable Development (IISD) provides the February update on global developments in climate finance.
February 2017 Climate Finance Update: Focus on New Financing Tools
During the month of February, a number of climate finance initiatives reported on new financing tools and approaches being piloted with an eye on replication and scaling up.
The UN Framework Convention on Climate Change (UNFCCC) Secretariat released the results of a survey of developing countries’ support needs. The incoming UNFCCC Conference of the Parties (COP) Presidency signaled adaptation finance would be one of its priorities. A number of adaptation and resilience projects received multilateral funding, with a continued emphasis on agricultural and food security projects.
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 SDG Knowledge Hub 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).
Adaptation Finance, ‘Green Finance,’ Africa Highlighted
In February, announcements around major global governance fora highlighted various priorities for climate finance for the year ahead. The Prime Minister of Fiji, Voreqe Bainimarama, announced adaptation finance would be a key issue area for the incoming Presidency of the Conference of the Parties (COP) to the UNFCCC. The next UNFCCC COP session (COP 23) will take place in November 2017.
Germany, which holds the Presidency of the Group of Twenty (G20) for 2017, announced the Group’s priorities for the year, which include implementation of the 2030 Agenda for Sustainable Development, green financing, climate and energy policies, and an intensified partnership with Africa.
Also in February, the Global Environment Facility (GEF) Trustee and Secretariat kick-started discussions on the seventh replenishment of resources of the GEF Trust Fund (GEF-7). The GEF provides funding, inter alia, in the areas of sustainable cities and climate change mitigation, and restoration, green financing, biodiversity and the circular economy.
UNFCCC Secretariat Study Highlights Role of CDM, NAMAs in Financing NDCs
The UNFCCC Secretariat released the results of a survey by the Nairobi Framework Partnership (NFP) on the status of nationally determined contributions (NDCs) in developing countries aimed at maximizing efficiency in provision of support to their implementation, which covered 79 countries. The survey identified needs for financial support in the areas of, inter alia: “greening” power sectors; increasing transparency; and developing carbon markets and economic instruments for mitigation action, particularly in Asia and Africa.
The survey also found that developing countries see a role for the Clean Development Mechanism (CDM) and nationally appropriate mitigation actions (NAMAs) in implementing their climate action commitments. If further identified regional differences in the type of support expected, with Latin American countries focusing on strategy design, African and Caribbean countries emphasizing technical and financial support for specific mitigation measures, and Asia-Pacific countries stressing resilience as a priority over mitigation. Launched in 2006, the NFP is an interagency collaboration that focuses on supporting developing countries’ participation in different market approaches, especially the CDM.
Scope of Financing Tools Broadens with Support from Private Sector, MDBs
An increasing number of countries and funding agencies are experimenting with new and innovative climate finance tools and approaches. Development news portal Devex reported on two grants awarded (of a unspecified amount) by Convergence, a private institution facilitating blended finance, to ADM Capital and NatureVest, aimed at supporting the development of scalable climate financing tools. The grants will support the Tropical Landscape Financing Facility, which finances clean energy access projects in the agricultural sector, and the development of a “blue bond fund” to support small island developing States (SIDS) in restructuring their sovereign debt for climate benefits.
In Brazil, a group of Brazilian and US public and private investors met to discuss the further development of three projects experimenting with innovative models aimed at scaling up climate finance: the Green Receivables Fund; climate-smart cattle ranching; and distributed generation for agriculture cooperatives. The cooperation is part of the Brazil-US Climate Change Working Group and is taken forward by the public-private initiative Global Innovation Lab for Climate Finance.
In Africa, the World Bank Group’s Global Index Insurance Facility (GIIF) and the African Reinsurance Corporation (Africa Re) signed an agreement on setting up a risk-sharing facility aimed at decreasing premium levels for farmers, enabling them to build climate resilience. The project is also intended at incentivizing local insurers and regional reinsurers to enter into similar risk-sharing agreements.
Agencies Partner for Agricultural Resilience
The International Fund for Agricultural Development (IFAD) and the International Center for Tropical Agriculture (CIAT) announced a partnership to “boost resilience to climate change and improve the livelihoods of thousands of smallholder farmers around the world.” Through the partnership, the two agencies will make CIAT’s “climate-smart” technologies available to farmers participating in IFAD-supported projects.
Institutional and Other Developments Advance Green Finance
The Green Climate Fund (GCF) released a draft consultative report of the revised terms of reference (ToR) of its Independent Redress Mechanism (IRM). The draft is intended as a basis for further formal and informal consultations with members and alternate members of the GCF Board and stakeholders. The IRM is tasked with receiving complaints related to the GCF’s operation, and make recommendations based on evaluating them. The GCF also invited applications, in the period from 8-20 February, from potential observer organizations, and held a joint seminar with the Asian Development Bank Institute (ADBI) in Tokyo, Japan, on innovation in climate finance.
The ADB and European Bank for Reconstruction and Development (EBRD) released reports on their climate finance-related operations in 2016. The ADB reported a significant increase, with US$3.7 billion in approvals in 2016 compared to US$2.6 billion in 2015, estimating that US$2.65 billion of this went to mitigation and US$1.08 billion to adaptation. The EBRD announced that its donors, which include the Climate Investment Funds (CIF), the EU and a number of bilateral donors, jointly provided more than €250 million for green investments in 2016.
Progress was made in the area of “greening” financial flows through the monitoring and disclosure of social, environmental and economic impacts with the launch of the Principles for Positive Impact Finance by the UN Environment Programme (UN Environment, or UNEP) and 19 global banks and investors totaling US$6.6 trillion in assets.
Project Financing: Support to Climate-smart, Resilient Agriculture Continues
In project-based financing news, countries in Latin America and the Caribbean will receive support for NDC-related planning. In other regions, projects to enhance resilience of the agricultural, water and road sectors were signed, with a project in Indonesia marking the largest in IFAD’s history.
Planning and Mainstreaming
The Nordic Development Fund (NDF) announced €10 million in financing to support ‘climate-smart planning’ in Latin American and Caribbean countries. This will constitute the first tranche of financing to the Inter-American Development Bank’s (IDB) NDC Pipeline Accelerator Trust Fund. The financing will be used for assuming the up-front costs of planning intended at translating NDCs into bankable and actionable projects.
In Tonga, the ADB and the Government of Tonga launched a US$5 million national Climate Change Trust Fund that will finance small, community-based climate action projects and climate components of non-community-based ones. The Trust Fund is part of the ADB-supported Tonga Climate Resilience Project, aimed at mainstreaming climate resilience into government planning and actions.
Disaster Risk Reduction
In advance of the Global Platform for Disaster Risk Reduction, which will take place in Mexico in May, Sweden announced US$5.8 million in additional support to the UN Office for Disaster Risk Reduction (UNISDR), which works to reduce the impact of natural and human-induced hazards.
Climate-smart Agriculture and Food Security
In the agricultural sector, IFAD will provide a US$98.5 million loan and a US$1.5 million grant towards a US$ 852.9 million project focusing on ‘Integrated Participatory Development and Management of Irrigation’ in Indonesia. Marking the largest project IFAD has supported over its 40-year history, the agency’s investment is expected to improve access to irrigation, food security and livelihoods for up to 24 million smallholder farmers who suffer from erratic weather patterns and lack of rainfall, among other challenges. In Sudan, IFAD will provide a US$10.3 million grant and US$3 million loan to a project is expected to support 128,000 people by scaling up an existing efforts to improve livelihoods and drought resilience.
The World Bank approved a US$250 million credit to a project aimed at increasing agricultural productivity and building climate resilience in smallholder farming and pastoral communities in Kenya.
The Food and Agriculture Organization of the UN (FAO) reported it will submit a joint bid with Bolivia for US$250 million from the GCF, which would be used towards efforts to reduce the negative impacts of climate change on food security and rural livelihoods in Bolivia.
Climate-resilient Water Resources, Roads
In Southern Africa, a €3.5 million project supported by the African Water Facility (AWF) and NEPAD Infrastructure Project Preparation Facility (NEPAD-IPPF) is expected to benefit 19 million people through climate-resilient water resources development led by the Orange Senqu River Basin Commission (ORASECOM).
In the Lao People’s Democratic Republic (PDR), NDF will provide €11 million in grants and loans, and the World Bank will provide a US$25 million loan towards strengthening climate-resilient road maintenance in the country through capacity building and improved planning systems and contract management. According to the NDF, Lao PDR’s transport infrastructure is highly exposed to a climate change-related increase in the frequency and intensity of natural disasters.
Assessments, Lessons from Multilaterally-funded Projects
On finance-related assessments, Palau kicked off a national multi-stakeholder climate change and disaster risk finance assessment, which will seek to strengthen the country’s ability to access global climate finance. The assessment is supported by the US Agency for International Development (USAID) and the Pacific Community’s (SPC) Institutional Strengthening for Adaptation to Climate Change (ISACC) project.
On lessons learned, the Climate & Development Knowledge Network (CKDN) reported on the conclusion of a project to support Ethiopia’s climate finance readiness since 2012. The project enabled the country’s Ministry of Finance and Economic Cooperation to be accredited by the GCF and Adaptation Fund, and supported the Ministry’s Climate Resilient and Green Economy Facility in project proposal preparation.
Reflecting, in a short article, on lessons from Bangladesh’s engagements with the GCF, academic Saleemul Huq identifies: the need to build awareness among the National Designated Authority (NDA), National Implementing Entities (NIEs) and the public and private sectors about climate change and the specific characteristics of climate change projects; and the importance of having transparent and robust monitoring systems to track the flows and uses of climate finance.