International climate finance is often accounted for in terms of megawatts of renewable energy or tonnes of carbon emission saved but everyone needs to ensure that those facing direct climate change impacts get much more of the money
Thanks to recent political changes in some developed countries, climate finance for developing countries is likely to be scarcer than was forecast during the heady days of the Paris Agreement in 2015. Despite the ray of hope from the Netherlands elections last week, there is a strong possibility that support from the US and Britain will dwindle.
In this situation, it becomes even more important to ensure that every bit of it is used as effectively as possible.
Delivering Real Change, a recent report by the International Institute for Environment and Development, looks at how much international public climate finance reaches local levels. We are looking at this because finance that reaches the local level has greater accountability to communities – giving them voice to prioritise investments in what will have greatest impact on their resilience to handle climate change impacts.
Climate finance is needed at the national level – for low energy transport networks, renewable energy for the grid or shock responsive social protection.
But it is even more crucial at the local level. Giving poor people influence over decisions means the root causes of their vulnerability and poverty can be tackled – investments have more sustainable impacts. It also appears to be more efficient, as local communities and other actors draw on their own resources and their collective action to reduce costs, and make the money spread further.
Little money for local
The study finds that overall, local action is relatively poorly financed.
Our rough estimate suggests that just 10% of international climate finance is intended to reach local levels. This is clearly far too little. US Agency for International Development (USAID) introduced a target that 30% of their development finance should be for local partners. They are yet to achieve it, but having this target led to a slew of reforms to simplify how they fund smaller organisations. And Nepal set itself the target of 80% of their international climate finance reaching the local level – which led to Local Adaptation Plans of Action. These two examples show what might be the right sort of percentage of climate finance reaching the local level: a lot more than 10%.
We then did further analysis of a number climate and development funds, to understand what in their design acts as a block and what supports finance reaching the local level. We came away with these insights:
- The metrics of success have to be about numbers of people reached, finance reaching local partners and so on, not just megawatts or gigawatts of renewable energy, or tonnes of carbon emissions reduced.
- More effort is required to support delivery partners beyond the UN and the multilateral development banks, who are largely not themselves set up to reach local partners. When results are measured by locally specific indicators – such as numbers of households improving resilience – more funding flows to local action.
- Further innovation in financing instruments is needed to ensure access to local entrepreneurs, local governments and communities – guarantees, equity and debt finance could be deployed better to incentivise local action, but require a greater risk appetite initially. The UN Capital Development Fund (UNCDF) has been demonstrating through a project called Local Climate Adaptive Living Facility (LoCAL) that having fund windows for smaller grant sizes and encouraging a number of small delivery partners to join up in a consortium or a number of projects to be funded under a programmatic approach enables more finance to reach local communities. Small grants provided to local partners, such as the County Climate Funds of Kenya, can mobilise significant local public finance and community collective action behind investments for resilience.
- Building local capabilities in finance, management and business skills requires significant investment, but only by starting now will things improve. The Forest Investment Programme has developed simplified funding frameworks for local partners, while USAID are using third party spot checks to reduce upfront due diligence requirements and focus more on performance in delivery.
- The focus of climate finance on mobilising co-finance should be thought through for the local level, so communities’ own time and resources can be counted, rather than just up front commitments by government and private co-finance.
- Policies that do exist to encourage multi-stakeholder oversight of finance or other forms of community engagement need stronger monitoring. The funds that have been most successful at the proportion of their finance reaching local levels are those with stronger multi-stakeholder participation requirements in their governance structure.
From this experience, we have seven recommendations for the reform of climate finance:
- Donors should identify the baseline of climate finance that reaches the local level and involves community participatory processes.
- They should use this baseline to set a goal for local financing.
- And then earmark a proportion of flexible, grant-based finance specifically for local partners.
- They should revise the policies of international climate funds to increase risk appetite for innovative financial instruments for local governments and entrepreneurs, offer greater flexibility on co-financing, and use locally appropriate results frameworks.
- They should invest in tailored support to strengthen local institutions’ capabilities to manage climate finance.
- And all partners should insist on national and local level platforms for donors, governments, NGOs, and representatives of the climate vulnerable to oversee climate finance flows, ensuring they respond to the priorities of the poor to achieve climate-positive development.
- And finally, national climate finance focal points need to be supported to ensure the principle of subsidiarity (i.e. of devolving decisions, finance and action to the lowest possible level) is enshrined in climate action.