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COP26

UNTYING THE CLIMATE FUNDING KNOT Iseoluwa Akintunde on how to ease the flow of $ bn aid to cut global warming

There is never a good time for a financial crisis. It is a double tragedy when it comes amid a health and climate crisis. We have heard that the consequences of not acting on climate include death, disease and destruction on an unprecedented scale. But such conditions exist in developing countries – the poorest of which tend to bear the earliest and heaviest burdens of climate change, despite contributing the least to greenhouse gas emissions.

Consequently, the global response to climate change by and in those that have rests on the logic of justice: developed countries should provide developing countries with the financial resources for mitigation and adaptation efforts.

In , donor countries recommitted to mobilize $ billion each year for climate finance in developing countries by . In - , it had reached an average of $ . billion a year. While a remarkable achievement, this falls short of the target.

Needless to say, climate finance has not flowed at anywhere near the speed required.

In reality, it is governed by a number of institutions with different rules, weighed down by the double-counting of development assistance as climate finance and is notoriously difficult for countries with low institutional capacity to access.

As the financial system readjusts to the pandemic’s long-term impact, there is already evidence of a dip in resources available to address climate change. For example, Indonesia saw a . per cent drop in its budget for climate change, Bangladesh a per cent fall despite the devastating losses from cyclone Amphan, and Nigeria a per cent cut to its capital budget.

In addition, traditional donors have become lethargic, as shown by Britain cutting international aid by per cent.

Even multilateral development banks saw their climate finance plummet in as they redirected resources to regular budget finance and healthcare interventions.

To receive climate finance directly from the multilateral channels – namely, the Green Climate Fund and the Adaptation Fund under the United Nations Framework Convention on Climate Change (UNFCCC) – developing countries are required to have their institutions accredited by the funding institution. In theory, this allows countries to develop local capacity, reducing their reliance on external institutions.

Ye t t he p r o c e s s o f a c c r ed i t a t i on i s s o c umbersome and expensive many poor countries have opted to allow international agencies to implement projects. Those developing countries that have gone through the process say it is ‘excruciatingly painful’.

As a Nigerian official told me: ‘I know it’s nothing personal, but it feels as though the Green Climate Fund does not like us.’

A dizzying array of actors and channels involved in paying out climate finance poses further challenges. Although set up to be the primary vehicle under the UNFCCC, total pledges to the Green Climate Fund are only about $ billion. The rest flows through decentralized systems comprising several multilateral and bilateral institutions, complicating the tracking of funding towards the $ billion target.

Asking developing countries to seek funding through institutions with dissimilar decision-making systems has adverse effects. When they know they must compete for limited climate finance, it creates a survival-of-the-fittest mentality.

The climate finance system places an undue burden on developing countries’ shoulders. Until the system is fixed, it will not be effective. It needs to shift from piecemeal project-based funding to being more broadly integrated with funding for national climate goals. The current direct-access procedure may be sound in principle, but has proved challenging and slow.

Countries should not have to choose between a cumbersome direct access and an ineffective international access process.

There is a middle ground, however. Virtually all developing countries receive some form of budget support from multilateral or bilateral donors. Many do so directly through finance, planning and development ministries that comply with fiduciary standards and are already familiar with managing significant development funds.

These institutions should not have to undergo a parallel accreditation process. They should be allowed to receive and implement climate finance directly. This will embed climate change into the development process. With respect to a coherent international system, the climate funds under the UN Framework Convention should centralize their operations under the Green Climate Fund. This will eliminate the exhausting access process and eradicate developing countries’ need to outbid one another.

Iseoluwa Akintunde is Academy Associate in the Environment and Society Programme, Chatham House

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