Climate finance: is it making a difference? A review of the effectiveness of multilateral climate funds

Submitted by Julia Barrott 29th December 2015 21:34

Introduction

Finance has a pivotal role to play in supporting developing countries to reduce emissions, decarbonise their economies, and adapt to the impacts of climate change.

For millions of the world’s most vulnerable people in developing countries, international climate finance has the potential to support the policies that can build resilience against the threats posed by a changing climate. It follows that finance for action on climate change should occupy a central position in post-2015 development goals as well. Multilateral funds are a particularly important piece of the global climate finance architecture as they are direct products of international policy processes.

But are climate funds making a difference? Governments of contributing countries need evidence that climate funds are making good use of their scarce tax dollars if they are to justify a continuation or scale-up of commitments.

This report* provides a critical review of the climate finance architecture. It examines more than a decade of experience of multilateral climate funds including the Global Environment Facility (GEF), the Climate Investment Funds (CIFs), and the Adaptation Fund (AF). It also considers the experience of national funds created to receive international funding such as Brazil’s Amazon Fund and the Indonesia Climate Change Trust Fund (ICCTF). We ask whether the existing architecture is fit for the purpose of delivering finance to the right countries on the scale, terms and conditions required. Our findings draw on the first global ranking of recipients of multilateral climate finance.

*download available from right-hand column. Links to the full report, the executive summary and a 2015 update can be found under Further Resources.

ODI’s Global Ranking of Climate Finance

This report presents the first comprehensive break-down of how multilateral climate finance has been spent in 135 countries over the last decade. It shows that Morocco, Mexico, Brazil, South Africa and India are the top beneficiaries, each receiving over half a billion dollars, largely as loans.

The pool of funds available for climate change adaptation is smaller: Bangladesh, Nepal and Niger have been the most successful low-income countries, each receiving more than $110 million to invest in early warning systems and other resilience enhancing activities. But some countries have been left behind. Fragile states such as the Ivory Coast and South Sudan, gained much smaller sums - $350,000 and $700,000 - respectively, reflecting the difficulty of spending funds in these environments. Several middle income countries, highly vulnerable to the impacts of climate change, such as Namibia, El Salvador and Guatemala also received much smaller volumes of finance, less than $5 million.

Saudi Arabia and Oman, with high per capita incomes, have benefited least from climate funds. These countries have the potential to contribute to climate funds, as other richer developing countries such as Mexico and Korea have begun to do.

Half of the $7.6 billion approved to date has been concentrated in the top ten countries, largely reflecting the focus of the Clean Technology Fund to provide large loans to support countries with fast growing emissions. 


Figure 1 from page 12 of the report: Expected results of climate finance for India's Super Energy-Efficient Equipment Program (SEEP)

Methods: How was the data gathered?

This report draws on data gathered through the ODI and Heinrich Böll Foundation’s (HBF) Climate Funds Update (CFU) which compiles data on how much finance climate funds have raised, where it is spent, and what the projects funded seek to achieve. CFU is the world’s leading source of information on climate funds: our data is updated quarterly and available at www.climatefundsupdate.org.

The report also draws on ODI's work on the effectiveness of climate finance, including a series of reviews of international climate funds, which were informed by interviews with fund administrators, contributors and recipients. We reviewed more than 880 projects and programmes funded between 2003 and September 2014 by funds analysed in this report. We used data on national greenhouse gas emissions from WRI’s Climate Analysis Indicator Toolkit (cait2.wri.org) and data on vulnerability from the 2013 ND-GAIN (http:// index.gain.org/) to understand whether climate finance was targeting mitigation opportunities and vulnerabilities. 

Key Messages

  • Multilateral climate funds have helped countries begin to confront the challenges that climate change poses for development. They have largely channelled finance to the places where emissions are significant and growing fast, and vulnerability to climate change is substantial. But their modest financial capitalisation has constrained what they can directly achieve.
  • Funds must become more flexible and less risk averse if they are to support the innovative approaches that will likely be required to green the development trajectories of fast growing economies and foster resilience for the most vulnerable.
  • Funds and their implementing entities need to work more closely with a wider range of national stakeholders in order to strengthen the policy and regulatory frameworks that enable scaled-up investments in low-carbon solutions.
  • Improved measurement, reporting and understanding of impact is essential, and can help build the case for continued and increased contributions of climate finance.
  • The climate finance architecture is too complex with insufficient resources spread thinly across many small funds with overlapping remits. The current operationalisation of the Green Climate Fund provides an opportunity to take the best of the experiences of existing funds.

Figure 21 (cropped) from page 42 of the report: The geography of climate adaptation finance - heat map showing climate finance and national vulnerability. 

Further resources

  • Lead authors

    Smita Nakhooda is a Senior Research Fellow in the Climate and Environment Programme, where she leads the International Climate Finance team: s.nakhooda@odi.org. uk

    Marigold Norman is a Senior Research Officer in the Climate and Environment Programme: m.norman@odi. org.uk 

     

    Contributing authors  

    Sam Barnard is a Research Officer in the Climate and Environment Programme. Charlene Watson is a Senior Research Officer in the in the Climate and Environment Programme.

    Romilly Greenhill is a Research Fellow in the Centre for Aid and Public Expenditure

    Alice Caravani is a Research Officer in the Climate and Environment Programme.

    Nella Canales Trujillo is a Senior Research Officer in the in the Climate and Environment Programme

    Graham Banton is the Programme Manager for Climate Finance in the Climate and Environment Programme. 

     

    Suggested citation

    Nakhooda, S., Norman, M., Barnard, S., Watson, C., Greenhill, R., Caravani, A., Canales Trujillo, N., Hedger, M. and Whitley, S. (2014) Climate Finance: Is it making a difference? London: Overseas Development Institute