TWN Info Service on Climate Change (Jul18/03)
16 July 2018
Third World Network

UNFCCC’s Finance Committee holds forum on climate finance architecture

Kathmandu, 15 July (Prerna Bomzan)- The UNFCCC’s Standing Committee on Finance (SCF) organized a two-day forum on “The Climate Finance Architecture: Enhancing collaboration, seizing opportunities,” on 5-6 July in Songdo, South Korea.

The forum saw a lively and rich exchange of views that showed the complexity of the climate finance architecture, including in, not having a clear definition of what is climate finance.

The objective of the forum was to identify trends, developments and challenges under the climate finance architecture at the international and national levels in order to improve climate finance flows from international to national levels; to enhance collaboration between the UNFCCC climate funds and other actors; and to exchange experiences and identify opportunities for further collaboration at the international and national levels.

Co-facilitator of the SCF forum, Pieter Terpstra (Netherlands) moderated the opening session and introduced the 2018 forum to around 130 participants from public and private organisations, civil society, academia, think-tanks, multilateral and national banks and other stakeholders. The idea of the forum, he said, was to “bring outside expertise into the process.”

He explained the sessions of the forum which were structured around five themes: state of climate finance; the UNFCCC funds (the Green Climate Fund [GCF], the Global Environment Facility [GEF], the Adaptation Fund, the Least Developed Countries Fund [LDCF] and the Special Climate Change Fund (SCCF)] and others; new climate finance instruments; national climate finance architecture and national governance.

The SCF Co-chair, Georg Boersting (Norway), provided welcome remarks through a video statement and introduced the SCF to participants. He said that the SCF bears the “heavy task of advising” the UNFCCC Conference of the Parties (COP) on all matters related to the Financial Mechanism of the Convention. He said that the forum endeavoured to “go beyond just depicting” the climate finance architecture and to facilitate discussions among actors and practitioners on “how to make it work better,” since the architecture is “obviously quite complex” involving many actors, institutions, processes and activities, both at the international and national levels. “There needs to be a conversation on the role and contribution of different actors and on how everyone can work together to improve climate finance flows”.

The other SCF Co-Chair, Bernarditas Muller (Philippines), in her welcoming remarks said that the topic was “very timely” with the current state of play looking into deeper implementation for all climate actions, both to “adapt” and to “reduce and limit emissions.” She said that the forum provided the opportunity to share experiences from both, local and international levels, including the interaction between the two. In terms of mobilising and delivery of climate finance, Mueller said that the “two” things developing countries are asking for is “not only the scaling-up of climate finance” but also “predictable and accessible” climate finance for climate actions. “We need to ensure equitable access to climate finance to all developing countries and not on a pick-and-choose basis,” she added further. “Three years into the Paris Agreement, developing countries especially are working hard to take more ambitious actions and therefore, scaling up of support is necessary for their actions which includes, the nationally determined contributions (NDCs) and National Adaptation Plans (NAPs).”

Ayman Shasly (Saudi Arabia), moderated the first scene-setting plenary session which was to provide an overview of the state of climate finance architecture at the international and national levels, using the outcomes of the SCF’s Biennial Assessment and overview of climate finance (BA).

The other Co-facilitator of the SCF, Mohamed Nasr (Egypt) made the first presentation from the international context, focusing on the issues of scale, sources and instruments of finance including challenges faced. He underlined that “before going into numbers and big billions”, it is important to understand that the SCF was established mainly to “enhance outreach and communication between the process of negotiations and what’s happening outside with the different stakeholders”. “The idea was to have an identity under the UNFCCC to provide outcomes that bridges the gap between the inside and the outside, the flow of information being two-way.”

Nasr said that the main outreach product of the SCF is the BA and as per the 2013-2014 BA, 33% of the finance flows from the developed to the developing countries came from the UNFCCC funds, mainly, the GEF and the SCCF and did not include the GCF disbursements, which has a current portfolio of USD 3.7 billion. He said data from other sources showed that flows from multi-lateral development banks (MDBs) have increased from USD 23.4 billion in 2015 to USD 32.9 billion in 2017 while flows from the UNFCCC climate funds increased from USD 1.4 billion in 2015 to USD 2.4 billion in 2016.

Nasr further elaborated on the various climate finance instruments which not only comprises grants but also loans including concessional loans, stressing that climate finance is “not 100% grants.” He added that it is important to highlight that the UNFCCC funds are usually provided in the form of grants except for the GCF, while other multi-lateral funds have a mix of 53% grants and 47% loans. The bilateral institutions provide 49% grants, 2% loans, 47% concessional loans, 2% equity while the MDBs providing the bigger chunk of funding comprise 9% grants, 83% loans, 2% equity and 6% other forms of instruments. He also highlighted the challenges of climate finance data in terms of “quality and accuracy,” the foremost reason being the lack or absence of “clear understanding or agreement or definition of climate finance” as well as of enough sources, reports and clear methodology. Data from the “private sector” especially is challenging as it could be related to “development, climate or investments,” he added further.

Co-facilitator Terpstra presented from the national context on how finance flows are channelled in different forms at the national level. “The BA does not only look at the international flows but also looks at the trends at the national level and also at interactions between the different actors including challenges in accessing finance,” he added. From the trends and assessments, “about 70% of finance is used for mitigation” at the national level, while “a quarter to 30% for adaptation,” he said further. He also said that the BA shows low levels of capacity in developing countries to design and develop projects and programmes, including to monitor and evaluate them, and that some countries have difficulties in accessing funds due to different procedures and “donor” requirements.

Shasly concluded by underlining the “complexity” of the climate finance architecture and its definition being the “greatest challenge of all times”. “Is it a mix of development and climate change elements, or of climate change with co-benefits of development,” he asked, adding that with more finance flows going into mitigation, questions arise as to “whether mitigation can be achieved without adaptation co-benefits and vice versa.”

A live online poll among participants conducted during the forum revealed the following expressions that climate finance is “complex, inadequate, fragmented, evolving” and “unpredictable” at both national and international levels, and also has a “political” dimension to it.”

The second session on climate finance architecture comprised three break-out groups on mobilizing international public finance, unlocking private finance and determining country needs and priorities.

Issues shared and raised at the plenary discussion centered around the lack of public funds and political will to deliver on financial commitments; dominance of the profit-oriented private sector; challenges of accessing finance accompanied by policy conditionalities; the need to enhance country ownership and country-drivenness over the prevailing situation of having domineering international consultants and expertise, and sustaining local capacity; imbalance between mitigation and adaptation actions and the dichotomy with sustainable development.

The third plenary session focused on the role of the UNFCCC funds, multilateral and bilateral institutions and other actors in delivering climate finance.

In her scene-setting presentation on “The State of Climate Funds,” Preety Bhandari (Asian Development Bank), said that “taking into account the annual fluctuations, the average climate finance flows across 2015/21016 of USD 410 billion were 12% higher than during 2013/2014”. “In 2015-2016, East Asia and the Pacific remains the region with the largest climate investments accounting for 32% of global investments equivalent to USD 132 billion.” She further informed that “in 2017, around USD 35 billion was contributed by the MDBs in climate finance with around USD 51 billion in co-financing.” As regards scaling-up of finance by the MDBs, the Asian Development Bank, for instance, has announced its target of “doubling climate finance to USD 6 billion annually by 2020 (own resources only), of which USD 4 billion is for mitigation and USD 2 billion is for adaptation.”

Bhandari also highlighted that from the “nationally determined contributions (NDCs) of 21 emerging economies alone”, under the Paris Agreement, there is “USD 23 trillion” in investment opportunities; stressing the importance of building country programmes based on the priorities of developing countries, of which the NDCs were an entry point.

The fourth plenary session focused on the deployment of new climate finance instruments to support the goal of the Paris Agreement. The session explored opportunities and challenges in the use of new climate instruments, including green bonds, to scale up the level of climate finance. It also looked into how the UNFCCC funds, multilateral and bilateral institutions and other international support providers can assist countries with utilizing the new climate instruments to meet the goals of the Paris Agreement.

Surya Sethi (India), former Principal Adviser, Energy and Core Climate Negotiator, stressed that “the transformative quotient of a climate finance initiative must only be established in the context of a locally driven development pathway that is boosted with new and additional funding to deliver mitigation and adaptation objectives across a range of measurable long-term outcomes and co-benefits. Top-down global initiatives, bereft of local ownership, are conditionalities in the garb of transformative paradigms created by wordsmiths and not practitioners of sustainable development”.

Sethi further said that “the story on green bonds is not any different. Credible standards for determining what is green is missing. Little, if any, money is new and additional, disclosure norms and regulatory provisions certifying environmental quality of underlying financial assets are inadequate. Thus, green bonds often primarily assist the sustainability image of investors and apart from the apparent green-washing; investors exploit the less developed regulatory regime to extract safer and higher returns,” he added.

Sethi concluded that “decarbonization requires lowering resource consumption through progressive dematerialization. The surpluses released need to be redistributed to the bottom 2 billion plus, including 800 million poor Indians, to deliver a universal threshold level of development and concomitant adaptive capacity”.

The fifth and final session of the first day comprised three break-out groups on country experiences in utilizing new climate instruments, complementarity of climate funds and the role of multilateral and bilateral institutions and other actors in delivery of climate finance. The groups discussed available international support that countries can avail themselves to utilize the instruments; efforts to simplify the process of accessing resources and enhancing coherence of policies across the funds and ramping up the delivery of climate finance by the multilateral and bilateral institutions and other actors to ensure that priority needs of developing countries are addressed.

The second day focused on the national climate finance architecture and governance at the national level. The first session comprised three break-out groups on mobilizing climate finance at the national and sub-national level, accessing climate finance and building capacity and budgetary planning and devising climate investment plans. The groups discussed experiences in establishing national climate funds and local government efforts to finance climate projects and programmes at the local level; ways to build effective intermediaries at the local level and to strengthen and sustain local capacity to mobilize and deliver climate finance as well as experiences in tracking climate-related expenditure through climate budget tagging and development of climate investment plans.

Omar El-Arini (Egypt) reiterated that national institutional capacity building is very critical rather than relying on international expertise which is not effective. National capacity will only be established if the needs and priorities of countries are taken into account. He added “we need to set the terminology right; country ownership does not jive when we keep saying donors,” he stressed, adding emphasis on “country-drivenness” and related to the example of proposals for new policy conditionalites for the GCF replenishment which would only “kill country-ownership”.

The next plenary session on global climate finance architecture from the perspectives of the national and sub-national actors, aimed to focus on how national policies and domestic investments are aligned with the NDCs, National Adaptation Plans (NAPs) and national development strategies. It also explored the role of international climate finance in generating domestic finance. The key issue of country-ownership featured again with some lessons learnt shared, where the preparing of intended NDCs (INDCs) prior to the NDCs by some international consultants for developing countries, had resulted in a mismatch of some countries’ needs and priorities.

In relation to the role of the private sector, Carlos Ivan Zambrana Flores (Bolivia) moderating the session said that “strong” regulations by the government are needed to make the private sector comply with the principles of the UNFCCC.

The third plenary session on climate finance governance at the national level focused on good practices in establishing a mechanism for coordinating the efforts of various government agencies and non-government stakeholders in the mobilization and delivery of climate finance.

In her scene-setting presentation ‘Experiences and Lessons in the Governance of Climate Finance’, Joanne Manda (United Nations Development Programme) said that the key areas that provide strong entry points for strengthening the governance of climate finance at the national and sub-national levels are in institutions and governance (institutional arrangements and coordination, decision-making and reporting processes, transparency systems including on measurement, reporting and verification [MRV], accountability and oversight); policy coherence (policy assessment and alignment, alignment of targets and scales); financing (accessing finance, analyse and track existing funding, leveraging private sector financing); data generation and management and capacity development.

The final session comprised break-out groups on national coordination mechanism on climate finance, role of stakeholders in the mobilization of climate finance and engaging micro, small and medium-sized enterprises in climate finance.

The groups discussed experiences and benefits of establishing a national coordination mechanism to enhance inter-ministerial/agency communication; ways of enhancing the engagement of national and sub-national stakeholders in the development, delivery and assessment of projects and the role of micro, small and medium-sized enterprises in financing climate actions and in serving as delivery channel of climate finance including their access to international and domestic climate finance.

The forum co-facilitator Nasr, in summarising the two-day deliberations, stressed on the need to operationalize country-ownership; how to retain capacities within institutions in developing countries and on how to fulfill the requirements of climate finance, given the trends and challenges of the climate finance architecture.

He added that from the forum, a draft report with recommendations will be prepared which will be submitted to the COP at the end of the year, and will be reflected in the guidance to be provided by the COP to the SCF.

Co-chair Mueller said in her closing remarks that the SCF is “committed to transparency” and that the forum “had been very stimulating”.  She also said that the report from the forum will be made available online and it will be used in the climate finance negotiations, carrying clear recommendations to the COP, at the end of the year in Poland.