Smart climate financing doesn’t just look at climate funds

With the global costs of climate change adaptation estimated as up to $500 billion annually by 2050, it is vital that countries — particularly low- and middle-income countries — are able to source the finance needed to meet the challenge posed by future costs that require an investment today. While climate funds have traditionally been considered primary financing options, they only provide only a small percentage of the funds needed to address loss and damage costs emanating from climate change; we believe that a more comprehensive financing solution is necessary.

Financing Framework for Resilient Growth

Efforts to finance much needed climate change adaptation and mitigation programs in low- and middle-income countries all too often focus on international climate funds, arguably because climate impact has been seen as a niche concern requiring discrete funding channels. The limited size of climate funds and the large amounts of financing required for adaptation to eliminate damage related to climate change result in a financing gap. Climate funds for adaptation are currently pledged at only $17 billion, and are often slow to disburse; we have no option but to identify a more comprehensive solution that makes funds less central to financing if we are to successfully combat the predicted costs associated with climate change. By replacing small-piece, project-based climate finance from funds with holistic financing frameworks for resilient growth, and thereby not simply seeking additional and external sources of climate finance, it is possible to take a much broader outlook with less restriction in terms of applicability and budgeting. Financing Frameworks for Resilient Growth (FFRGs) offer a means of mainstreaming climate change into national budgets and planning.

Vitally, this starts with existing national budgets. We discovered during the OPM-led Action on Climate Today (ACT) programme, which trialled FFRGs, that differences in climate change expenditure (for instance, Nepal’s, Bihar’s, and Kerala’s is 0.2–0.3% of GDP while Assam’s is 1.3%) are chiefly caused by differences in sectoral priority within the budget. By working closely with governments and developing domestic capacity to integrate climate change into planning and budgeting (and to better measure and monitor relevant public expenditure), it is possible to use existing resources more effectively. This also gives greater national ownership and autonomy, as well as avoiding too much contingency on unpredictable funds.

This doesn’t solely mean ensuring, through appropriate analysis and monitoring, that scarce resources are allocated to proposals with the highest net benefits. It also means integrating climate change into a broader budget, emphasising the cross-cutting relevance of climate change to development policy and thereby helping to change common perceptions of climate change as a fringe issue. Resilient growth would thus (for example) combine budgetary considerations coherently from ministries of finance, planning, and environment, rather than just the third of these ministries. FFRGs can enable governments to monitor the adaptation benefits of budget spending and prioritise budget resources for resilient growth. In turn, this can feed into the successful implementation of the Nationally-Determined Contributions (NDCs), which are currently often too dependent on international funding.

Achieving Sustainable Development Goal (SDG) 13

Financing frameworks with greater nuance, and with national ownership, can also lead towards success with SDG 13 — ‘take urgent action to combat climate change and its impacts’ — and with the reporting on it. One of the indicators for this goal is the number of countries that have a national adaptation plan (NAP), for instance, and there is an important opportunity to integrate the NAP process with the SDG process in terms of country-level policies, planning, and activities. FFRGs can have the most impact in the implementation part of the NAP process, as well as at reporting, monitoring, and review stages. The greater focus there is on national budgeting and autonomous planning, the more coherently this financing will be with NAPs and NDCs, which are intrinsically and importantly nationally-determined.

Once we start thinking about climate financing more broadly and innovatively, not restricted to international funding options, it is possible to create greater national autonomy, more evidence-driven prioritisation, and ultimately a significant reduction in the environmental and financial damage and loss caused by climate change. Thinking outside of the box is the only way to ensure resilient growth.

Marcela Tarazona is a principal consultant in our Climate Change and Disaster Risk team. She is the climate finance lead for ACT and the Director of the Energy and Economic Growth Programme, and recently led a discussion at the Development and Climate Day at COP 2017 on the use of FFRGs to increase accountability and transparency of adaptation finance.