10 things to know about climate finance in 2014






Highlighting the ten most noteworthy insights from our efforts over the past year to monitor climate finance on Climate Funds Update (CFU).
The 20th Conference of the Parties to the UNFCCC turns our attention to Peru this year. These two weeks in Lima will lay the groundwork for a new climate agreement to be signed in 2015. Climate finance is central to a new agreement. It is important to build on the momentum of climate finance pledges and action generated this year by the UN Secretary General’s Climate Summit in New York in September, and at the Green Climate Fund pledging meeting in Berlin in November. ODI and HBF have compiled the ten most noteworthy insights from our ongoing efforts to monitor climate finance on Climate Funds Update (CFU) over the past year.

In 2014 governments, business and the financial sector committed significant sums to help address climate change, galvanised in part by the UN Secretary General’s climate summit in New York this September. The summit refocused leaders’ attention on climate change and set the stage for major new commitments of more than $200 billion. Global efforts to divest from fossil fuels also gained momentum: the $850 million Rockefeller Brothers Fund announced that it too would divest from fossil fuels, joining a global movement that includes local governments, philanthropic foundations, universities, faith-based organisations, non-governmental organisations (NGOs) and individuals.


 

Finance approved for new projects to address climate change has increased by almost 50% since November 2013. A large share of this increase can be attributed to the Climate Investment Funds, which approved $2.3 billion for projects (many of which had been in the pipeline for some time). $1.6 billion came from the Clean Technology Fund for projects in Morocco, Ukraine, Turkey and Chile. While funds are clearly getting to work, increased disbursement within countries is the real test of implementation. Although there is some evidence of progress, it is incomplete: we don’t have disbursement information for more than 46% of the projects that have been approved so far.


 

Mitigation finance continued to increase in 2014. The Clean Technology Fund, Scaling Up Renewable Energy Programme and the Global Environment Facility approved $0.9 billion for mitigation activities. The largest share, $346 million, supported new credit lines and financing facilities for low carbon technologies, as well as mini-grids and other infrastructure that enable the use of energy generated by remote technologies, followed by support for the deployment of solar power. But while funding has increased, it remains small relative to continued investment in conventional energy, including by developing countries. For example, China and Mexico recently launched a new fund which may invest as much as $5 billion in conventional energy.


 

Finance to help developing countries reduce emissions from deforestation, forest degradation and related activities (REDD+) reached $1.9 billion in project approvals. In September countries, companies, civil society organisations and indigenous peoples agreed to ‘cut natural forest loss in half by 2020, and strive to end it by 2030’. Peru, the host of this year’s climate conference, received more than $350 million in pledges and approvals in 2014; of this, $300 million was from Norway, and $200 million will only be paid when emission reductions are demonstrated. But expanded investment in extractive industries and other environmentally damaging economic activities across Latin America are creating new pressures on remaining forests. Continued REDD+ finance will be critical for their preservation.


 Adaptation finance has now reached $2 billion, after 2014 saw a further $214 million approved for adaptation projects. The largest sum, $54.6 million, went towards incorporating climate risk and resilience measures into national development planning. This year a further $34 million went to disaster risk reduction (DRR) efforts such as early warning systems, bringing the total to $202 million since 2003. Of this, least developed countries (LDC) and small island developing states (SIDS) received 95% – the top recipients being Dominica, Niger, Grenada, St Vincent and the Grenadines, and Samoa. But investment in disaster risk reduction is much bigger than it appears, as other adaptation sectors – such as water management, or efforts to increase the resilience of agriculture – often include a component that addresses disaster risk. A full 43% of the adaptation finance approved this year included a disaster risk reduction component.

 
Under the oversight of the Standing Committee on Finance of the UNFCCC, the first Biennial Assessment of international climate finance identified $40-175 billion flowing from developed countries to developing countries annually between 2010 and 2012. While total climate finance flows may be falling, in 2014 multilateral climate finance increased to $2.9 billion, almost doubling the estimated average approvals of $1.5 billion a year between 2010 and 2012. Despite growing efforts to monitor climate related spending by major data providers, (the Organisation for Economic Cooperation and Development, multilateral development banks, the Climate Policy Initiative, and Climate Funds Update), huge uncertainties remain around climate-related spending. Reporting of underlying data needs to become more complete, and more precise definitions for adaptation and mitigation finance are needed.
 
 

A large proportion of climate finance continues to be channelled through multilateral development banks, but funds are increasingly partnering with developing country institutions. There are now about 40 implementing agencies – a fourfold increase over the past five years – including regional development banks, international organisations, developing country ministries, trust funds and NGOs. The Adaptation Fund pioneered this shift by offering developing country based institutions direct access to its finance and now has 21 institutions accredited as national or regional implementing entities. The Global Environment Facility has also expanded its implementing partners, accrediting the Development Bank of South Africa, Brazil’s biodiversity fund (FUNBIO) and several international NGOs.


 
 The Green Climate Fund is now the largest and fastest-growing climate fund, with $9.7 billion pledged ahead of the Lima climate conference in December 2014. Of this the United States pledged $3 billion, Japan $1.5 billion, the UK $1.2 billion, France $1 billion, and Germany $1 billion. Developing countries also pledged support, including South Korea ($100 million) and Mexico ($10 million). As a financial mechanism of the UN climate negotiations, the speedy fulfilment of pledges will help foster trust in long-term negotiations to secure ambitious climate action. As the Green Climate Fund prepares to fund its first projects, it must build and improve on the achievements and experiences of existing funds and set a high bar for programme implementation. To do this, it will need to find better ways to support national stakeholders and priorities; take a gender sensitive approach; and improve engagement with the private sector.
 
 


There are more than 10 multilateral funds supporting climate action today. Smaller funds were instrumental in catalysing wider action on climate change, but there is now substantial overlap. Successful operationalisation of the Green Climate Fund (GCF) could present an opportunity to simplify, consolidate and increase efficiency, as finance scales up.


 
 

The next 12 months are critical for global action on climate and efforts to eradicate poverty. Governments will agree a new climate deal in Paris in December 2015; before then, the international community is due to agree the new set of Sustainable Development Goals (SDGs) and establish a new partnership for Financing for Development (FfD). Climate and poverty eradication agendas have to converge – and finance is key to unlocking low-emission and more resilient development solutions. Meetings and dialogues throughout 2015 should seek consensus on the role of public finance for an integrated framework that supports environmentally sustainable development.




Ten things to know about climate finance in 2013 is available here.