Overcoming Global Distrust on Climate Financing

November 11, 2021

The Unmet Promise

As the COP26 draws to a close with countries embarking on ambitious goals, the pledge to mobilise $100 bn a year for climate finance has fallen short of expectations yet again.

Financing has been one of the most contentious matters along with enhanced climate ambitions this year. Considering the trillions of dollars required for climate action, unlocking of global financial flow to developing countries is the oil for the negotiation machinery. It is not surprising therefore that at the ongoing 26th session of the UN climate conference in Glasgow, the most critical issue in focus is that of “Money”. So where is the money and how is it accounted?

In 2009 in Copenhagen, developed countries pledged to source $100 billion a year by 2020 for mitigation actions and to cope with climate change impacts. Six years later, the Paris Agreement on Climate Change formalised the Copenhagen pledge and stipulated that developed country “Parties” shall raise financial resources to assist developing country “Parties” for both climate change mitigation and adaptation in continuation of their existing obligations under the Convention.

Time and again, developed countries have committed to increasing and improving climate finance. This has not translated into action as developed countries continue to be close-fisted to put the cash on the table. As a result, the progress on financing in the last ten years has been nowhere near  expectations. In the first week of deliberations during COP26 in Glasgow, developing countries have very strongly and aggressively reminded the developed block of their broken promise.

According to the Organisation of Economic Co-operation and Development (OECD) report, Asia has been the largest recipient of the climate finance. So far, the highest mark reached by developed nations was USD 79.6 Billion in 2019, as estimated by OECD. Out of this, 25% was allocated for adaptation activities and 64% for mitigating emissions. Notwithstanding, there is some disbelief about these numbers.

The 10-year-old commitment of $100 Billion is not enough to address the developing countries’ needs. According to the UNFCCC’s standing committee on finance, developing countries need almos$6 trillion up to 2030 to implement their nationally determined contributions (NDCs) under the Paris Agreement. The idea behind the seed money of $100 billion was to catalyse trillions of public and private sector financing and amplify impact, which seems to be failing.

The Missing Ledger

It is pertinent to note that the pledge made by developed countries stated this funding will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance” but unfortunately, they did not specify the accounting framework. More than 10 years later, it is still not clear what can and cannot be counted as climate finance and how it should be accounted. Considering that no precise definition of climate finance exists, even as it becomes the centre of global negotiations and the COP presidency goal; the task seems to be enormous.

The recent report published by OECD clearly highlights the Copenhagen pledge will not be met until 2023. This has widened the trust gap between Parties.

While all eyes are on the developed world to meet their commitments, parties to the Paris Agreement need to agree on certain frameworks and modalities for making climate finance effective.

Climate Finance Registry

Currently, climate finance is registered through multiple and non-standardised reporting systems. Apart from the multiple data sets provided by different institutions and UNFCCC’s Standing Committee on Finance, OECD data is generally used to measure the climate finance outflow. COP 24 requested the Standing Committee on Finance to prepare, every four years, a report on the determination of the needs of developing countries and collaborate with the operating entities, the subsidiary and constituted bodies, multilateral and bilateral channels, and observer organizations.

To re-establish trust and solidarity on a long-standing commitment between developed and developing countries, a standardised approach of accounting is required that is transparent and inclusive. There needs to be an “International Climate Finance Registry”, serving as a clearing house, centrally validating and recording climate finance provided by developed countries and received by developing countries. The validation of this finance as legitimate climate finance should be based on a common and a globally accepted set of parameters.

Fair Share of Climate Finance

There is no standardised approach[5] to determine how much developed countries should contribute. So far, the share of financing has never been agreed upon for the $100 billion goal among developed countries. In the absence of a standardised approach, it is difficult to hold countries accountable for their fair share of financing responsibilities. The metrics for calculation to determine the contribution from countries should take into account a combination of indicators, including cumulative emissions, Gross National Income (GNI) and population.

Addressing “Additionality”

Most of the agreements adopted by Parties to the UNFCCC since the beginning of the climate finance dialogue have been consistent in agreeing “additionality” as a condition to financing. The negotiations in Glasgow may, in fact, clarify this concept. Defining and agreeing on additionality is one of the priorities in the development debate, as the continuing lack of an internationally agreed definition makes data recording and policy analysis difficult.

Some countries consider grants as climate finance, while others also count loans, that need to be repaid, as climate finance.  France, Japan and Germany have raised most of their climate finance through loans. France and Germany provided 74% and 41%, respectively, of their climate finance through concessional loans and other instruments in the year 2017-18[7]. 

The 2020 OXFAM Climate Finance Shadow report quotes, “Rising levels of public climate finance are largely the result of the increasing provision of non-concessional loans and other non-grant instruments”. Moreover, current contribution is heavily skewed towards mitigation activities (nearly 3/4th) and less towards adaptation activities, which is a greater need for developing countries. It is unfair for the world’s poorest countries who have the responsibility to adapt to climate change, to be financed in the form of loans to protect themselves from the excess emissions of rich countries.

We cannot rule out the fact that COVID‐19 pandemic has had a significant impact on the world economies and therefore it may impact the quantum of financing. The pandemic has also provided the world an opportunity to strongly reinforce inclusive solutions with environmental imperatives for sustainable economic growth world over. The $100 billion target needs to be seen as a floor and not as a ceiling. We have a long way to go on climate financing.

The author is Saba Kalam, Programme Manager- Climate Change and Energy at UNDP India.


10. World Bank: Transformative Climate Finance
12. OXFAM Climate Finance Shadow Report 2020