Latest update on climate finance

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

 

May 2017 Climate Finance Update: Whirlwind of Meetings Bring Multiple Stakeholders Together

Over the month of May, the UNFCCC convened its Subsidiary Bodies’ intersessional meetings, and several development banks and climate funds held their annual meetings. Two new MDB-led funds, aimed at supporting private sector participation and gender empowerment, and infrastructure project alignment with UNFCCC nationally determined contributions (NDCs), were launched.

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 Climate Finance Updates of the SDG Knowledge Hub 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).

New Funds for Private Sector, Women’s Empowerment, Project Delivery

Two funds were launched in May: the Asian Development Bank (ADB) and the Government of Canada agreed to establish a trust fund with the dual aim of supporting private sector participation and gender equality in ADB’s climate change activities. Canada will support the fund with CA$200 million (US$151 million).

In Latin America, the Inter-American Development Bank (IDB) approved a new instrument aimed at supporting the planning, design and preparation of infrastructure projects and portfolios in line with NDCs and sustainable development objectives. The NDC Pipeline Accelerator Multi-Donor Trust Fund is part of the IDB’s NDC Invest platform and will provide support to covering additional planning, design and execution costs. The Nordic Development Fund (NDF) has committed to funding half of IDB’s indicative goal of US$20 million for the fund.

UNFCCC Subsidiary Bodies’ Meetings Issue Finance Conclusions

In May, the UNCCCC Subsidiary Bodies met to review the implementation of the Convention and advance work on the Paris Agreement “rulebook,” and adopted several conclusions related to finance: review of the functions of the Standing Committee on Finance (SCF); third review of the Adaptation Fund; various conclusions related to UNFCCC financial matters, including the programme budget for 2018-2019; and modalities for accounting of financial resources provided and mobilized through public interventions under Paris Agreement Article 9.7 (ex post finance transparency).

Climate finance-related side events in Bonn included an event by the Adaptation Fund, which showcased the Fund’s innovative climate resilience projects in vulnerable communities in Antigua and Barbuda, Morocco, South Africa, Senegal and Honduras.

MDB Meetings, Carbon Pricing Events Bring Together Multiple Stakeholders

The Global Environment Facility (GEF) organized its 52nd Council Meeting, and the African Development Bank (AfDB), European Investment Bank (EIB) and European Bank for Reconstruction and Development (EBRD) held their annual meetings, with the latter offsetting its emissions through a wind farm project in Mongolia. The Caribbean Development Bank (CDB) annual meeting, which also took place in May, included a seminar that reviewed the Bank’s Climate Resilience Strategy 2012-2017.

May marked the first ‘Innovate4Climate Finance and Markets Week,’ organized in Barcelona, Spain, by the World Bank and the Governments of Spain and Germany. The four day-event, featuring a two-day summit, side events, and ‘the Marketplace’ for business opportunities, is intended to become “the premier global platform that brings together public and private sectors on climate financing and investment, new business models for emerging products and technologies, and new financial instruments and markets.”

At an Innovate4Climate side event, the Green Climate Fund (GCF) kicked off a campaign that targets the private sector, offering US$500 million to the best business ideas that address climate action in developing countries. At the summit, Ecofys launched the ‘Carbon Pricing Watch 2017,’ a preview of its ‘State and Trends of Carbon Pricing 2017,’ to be launched later in 2017, which highlights that since 2016, eight new carbon pricing initiatives have been established, almost doubling the pace of the past five years.

In the run-up to the Group of Seven (G7) meeting at the end of May, 282 investors launched an appeal to the group to drive the implementation of their commitments under the Paris Agreement. In the final G7 communiqué, despite the leaders’ inability to agree on a joint statement of support to the Paris Agreement due to the US’ ongoing review of its climate change policies, all seven leaders agree on the importance of supporting developing countries in this context.

Also in May, the World Bank’s Carbon Pricing Leadership Coalition (CPLC) organized its second High-Level Assembly, which heard success stories and new private sector commitments, including an announcement of intent by a group of banks to explore addressing portfolio climate risk through internal carbon pricing.

Samoa’s first National Climate Finance Forum, an initiative by the Samoan Government and regional US and German entities, reviewed local climate resilience support projects and stressed the importance of a well-coordinated approach at both national and regional levels.

GCF, PMR Build Capacity for Access, Carbon Markets, World Bank Convenes Finance Ministers

In capacity building-related news, the GCF organized a three-day workshop at its headquarters in Songdo, Republic of Korea, aimed at enhancing the Fund’s direct access entities’ capacity to develop project proposals.

Also in May, the Partnership for Market Readiness (PMR) organized two technical events, on ‘New Perspectives on International Cooperation: Carbon Markets and Climate Finance under the Paris Agreement’ and on the PMR’s Carbon Tax Guide. Presentations delivered at both are available on the PMR website.

The ADB announced it will provide US$1.5 million to the Fijian UNFCCC COP 23 Presidency, which will go to technical advice on green transport and natural resource-related insurance.

The World Bank reported on the first meeting of the Climate Action Peer Exchange (CAPE) forum, which took place in April and was attended by finance ministry stakeholders from 19 countries. A capacity-building forum for peer-to-peer knowledge sharing and advisory support, CAPE is a joint initiative by the World Bank and the Moroccan UNFCCC COP 23 Presidency. During the meeting, ministers shared success stories and information on climate change plans.

IMF Enhances Financial Safety Net for Developing Countries Facing Natural Disasters

The International Monetary Fund (IMF) Executive Board adopted proposals to enhance access to IMF financial support for countries hit by large natural disasters. As a result, the annual access limits to IMF’s Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI) are elevated from 37.5% to 60% of a member’s quota in the Fund in cases where urgent balance of payments needs stem from a natural disaster that occasions damages of at least 20% percent of the member’s GDP. An IMF staff paper details the proposals.

In other institutional news, the GCF and Deutsche Bank signed an Accreditation Master Agreement. In its 2016 Development Effectiveness Review, the ADB reports that close to half of all ADB projects supported climate change adaptation and mitigation efforts, and the Bank’s climate change mitigation and energy projects achieved 100% of their intended outputs.

Project Financing: Kazakhstan Increases Irrigation Efficiency, Zambia Tackles Deforestation

Multi-purpose loan

In the Caribbean, the EIB and CDB signed a US$110 million loan agreement, intended at providing support for projects that address climate change mitigation, adaptation and resilience in the areas of renewable energy, energy efficiency, road transport, water infrastructure and community-level physical and social infrastructure.

Mitigation

The Nordic Environment Finance Corporation (NEFCO)-administered Arctic Council Project Support Instrument (PSI) approved two projects aimed at reducing the release of short-lived climate pollutants (SLCPs) in the Russian Arctic. The projects (of an undisclosed amount) will address oil and gas sector flaring and phasing out of fluorinated greenhouse gases (HFCs) and ozone-depleting substances (ODS) at a fish and seafood processing plant.

In Egypt, an US$11 million EBRD loan will support a petrochemicals producer in enhancing energy efficiency and reducing nitrous oxide (N2O) emissions to below EU Best Available Techniques levels.

Infrastructure Resilience

In Africa, the NDF will provide €5 million towards programme activities of the AFRI-RES facility, a partnership of international and regional institutions, which supports climate proofing of ‘long-lived’ infrastructure investments, including in the energy, water, transport and agriculture sectors.

The CDB and CCRIF SPC (formerly the Caribbean Catastrophe Risk Insurance Facility) launched the ‘Integrated Sovereign Risk Management in the Caribbean Project,’ which will support Caribbean countries in adopting a proactive approach to country risk management that goes beyond planning for natural disaster risks and recognizes linkages between disaster risks and economic, technological and financial risks. The CDB also approved a €538,000 grant for a climate risk and vulnerability assessment of coastal road infrastructure in St. Kitts and Nevis.

Forests, Agriculture

In Kazakhstan, the EBRD will provide a US$180 million loan package, under its Green Economy Transition approach, towards upgrading and increasing the efficiency of irrigation systems in three regions of the country where climate change is expected to reduce water availability through altered precipitation patterns. Through also broadening access to water, the project is expected to help create 40,000 new jobs.

In Montenegro, the International Fund for Agricultural Development (IFAD) will provide a €3.9 million loan and €1.9 million grant for a project aimed at increasing 16,000 smallholder farmers’ economic competitiveness and climate resilience, including through capacity building and knowledge management.

In Zambia, the World Bank approved a US$32.8 million financing package (of which US$15.8 million are in grants) that will be used to improve rural livelihoods, and reduce deforestation and unsustainable agricultural practice in the country’s Eastern Province. A total of 215,000 people are expected to benefit from the financing.

Project Lessons

The GEF reported on an innovative water management solution in drought-affected Somalia that is delivering short- and long-term solutions by providing a stable source of water. A sand dam implemented by the UN Development Programme (UNDP) helps stabilize the effects of seasonal droughts and climate change, and allows local livestock herders save money through reduced water costs.

The Adaptation Fund published an ‘Adaptation Story’ that explains how a small grants facility in South Africa is supporting mainstreaming of adaptation strategies into local practices and, by doing so, protecting assets, livelihoods and ecosystem services from climate-induced risks.

The World Bank has been supporting work in West Africa to avoid deforestation-inducing cocoa production. The Bank published a working paper that analyzes existing sustainability projects and best practices in the sector, and presents a first set of principles and strategies for the sector, which include: protection of natural primary and secondary forests; legality; transparency; integration into long-term strategies; and operation at scale.

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