CFU 10 Things to Know About Climate Finance in 2017

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THINGS TO KNOW ABOUT CLIMATE FINANCE IN 2017

Charlene Watson Neil Bird Liane Schalatek December 2017

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$2 BILLION CLIMATE FINANCE APPROVED IN 2017

In 2017, multilateral climate funds approved close to $2 billion across 152 projects and 70 countries. This was driven by the accelerating project approvals of the Green Climate Fund (GCF) that alone approved over $1 billion.

This year, fund approvals did not continue to rise as they did in 2016. Nevertheless, more funding is going towards adaptation, addressing the previous bias towards mitigation projects. However, the significant growth in the number of projects reporting both adaptation and mitigation outcomes,1 largely driven by the GCF, makes this picture more complicated in the absence of more transparent reporting.

Annual approved finance ($ millions) 3,000

Cross-cutting Adaptation REDD+ Mitigation

2,500

2,000 1,500 1,000

500 0 2012

2013

2014

2015

2016

2017

2

4

Source: Climate Funds Update, 2017 2

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THERE IS A GAP BETWEEN NATIONAL NEEDS AND CLIMATE FINANCE

In Ghana, Kenya and Uganda Nationally Determined Contribution (NDC) implementation will rely on significant additional international financial support, as already highlighted in the conditional elements of these countries’ NDCs.

Ghana 987.7

Analysis also suggests that large NDC-related projects are heavily dependent on international support via the multilateral development banks rather than from multilateral climate funds.2

Kenya 2,866.5 Estimated annual spending on climate action $ millions Domestic budget finance International public finance Total public finance NDC financing need

4

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Disaggregated data on domestic and international flows not available, total amount represents both.

Uganda 591.1

Source: Bird, 2017 1

2

3

4

5

6

7

8

9

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Least Developed Countries (LDCs), although also given priority in the UNFCCC Paris Agreement, receive much less approved funding in per-capita terms from the multilateral climate funds.

Average amount approved since 2003 ($ millions per country)

In recent years, Small Island Developing States (SIDS) have received increasing support from the multilateral climate funds. On a per-capita basis, over two-thirds of the top 40 countries receiving project funding since 2003 are SIDS.

350

Average amount approved since 2003 ($ per capita)

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CLIMATE FUNDS HAVE STRENGTHENED THEIR SUPPORT FOR SMALL ISLAND DEVELOPING STATES

16,000

300 12,000

250 200

8,000 150 100

4,000

50 0

0 SIDS

LDCs

All countries

Not a SIDS or LDC

Source: Climate Funds Update, 2017 6

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ASIA AND THE PACIFIC RECEIVE OVER A QUARTER OF APPROVED FUNDS

South Asia, East Asia and the Pacific receive over a quarter of approved finance from the multilateral climate funds.

Sub-Saharan Africa and Latin America and the Caribbean (LAC) follow closely behind.

The nature of climate finance is not the same between regions, however. While both Asia and LAC receive around 40% of their finance as concessional loans, sub-Saharan Africa receives over 75% as grant finance.

Percentage of total project approvals of the multilateral climate funds (2003–2017)

Middle East and North Africa 9%

Global 7%

Regional 1%

South East Asia and the Pacific 27%

Europe and Central Asia 11%

Latin America and the Caribbean 22% 8

10 THINGS TO KNOW ABOUT CLIMATE FINANCE IN 2017

Source: Climate Funds Update, 2017

Sub-Saharan Africa 23% 1

2

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4

5

6

7

8

9

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CLIMATE FUNDS’ SPENDING IN THE WATER SECTOR REMAINS LIMITED

A fraction of total multilateral climate fund spending has been allocated to water projects – just $639 million, or 4%.3 The Green Climate Fund and Pilot Programme for Climate Resilience comprise over half of this funding.

120

Water issues feature within many sectors, however. Support for the sector could be larger than this figure suggests and better ways to report projects’ water objectives are needed.

80

40

Amount approved ($ millions)

160

0 2006

2017 Source: Climate Funds Update, 2017

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REDD+ SPENDING SLOWS BUT GREEN CLIMATE FUND SUPPORT IS PROMISING

Costa Rica’s REDD+ investment plan costs 2016–2025 $1.5 billion Mitigation climate funds flows in 2017 $1 billion

Finance for reducing emissions from deforestation and degradation (REDD+) reached a total of $1.7 billion since 2003 this year, one fifth of the funding received for all other mitigation sectors. But in 2017, climate fund spending on REDD+ slowed down to a trickle with only $54 million approved. Costa Rica alone will need $1.5 billion to fulfil its REDD+ investment plan.4

$1010 million

2017 did provide a glimmer of hope, with the Green Climate Fund putting aside $500 million for results-based REDD+ projects. This GCF pilot programme could reinvigorate REDD+ spending.

REDD+ finance $54 million

2006 Source: Climate Funds Update, 2017 12

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NATIONAL AND REGIONAL INSTITUTIONS MAKE UP OVER HALF OF GREEN CLIMATE FUND IMPLEMENTING ENTITIES

To complement project management by international agencies the Green Climate Fund is increasing direct climate finance access to regional and national implementing entities.

These now constitute more than half of its current 59 accredited partners.

However, project approvals and approved funding continue to be dominated by international agencies, with UNDP, EBRD and IDB managing 54% of GCF approved projects and programmes by the 2017 year end.

International entities Regional entities National entities

Implementing partners 27

2017

11

24

2016 11

2015

4

5

21

9

14

59

47

20

Project approvals 40

2017 25

2016 2015

5 1 2

4

6

5

54

9

36

8 Source: Climate Funds Update, 2017

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CLIMATE FUNDS ARE SUPPORTING CLIMATE ACTION BY SMALL BUSINESSES

Approved finance for MSMEs ($ millions) 0

100

200

300

400

500

600

Green Climate Fund The Global Environment Facility (GEF) has the most sustained engagement with micro, small and medium enterprises (MSMEs). The Green Climate Fund has programmed the greatest volumes, predominantly through its $387 million global project that will pass on funds to borrowers including MSMEs.5 Support has been concentrated in renewable energy and energy efficiency sectors. Support for MSME adaptation is given a further boost by their recent inclusion in the Adaptation Fund portfolio. The GEF has also committed to increase adaptation actions in the private sector.

Global Environment Facility Clean Technology Fund Pilot Program for Climate Resilience Adaptation Fund Forest Investment Program Scaling-up Renewable Energy Program for Low Income Countries Least Developed Countries Fund 0 Source: Climate Funds Update, 2017

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30

40

Number of projects 1

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TRACKING OF NON-CLIMATE ALIGNED FLOWS IS INCREASING

Reporting and tracking of non-climate aligned financial flows increased this year. Between 2013 and 20156 G20 countries spent $72 billion annually on fossil fuel energy production, in some cases dwarfing ‘green’ spending.

Multilateral development banks are increasingly shifting to whole portfolio reporting, but investments resulting in high levels of emissions remain embedded in their portfolios.7 It remains to be seen whether the World Bank’s commitment to end funding for exploration and extraction of oil and gas by 2019 will set an example to other public finance institutions.8

Annual average public investment ($ billions, 2013-2015)

Japan 16.47 2.66

China 13.53 0.09

South Korea 8.91 0.09

US 6.01 1.27

Germany 3.46 2.36

Brazil 2.99 1.17

Canada 2.95 0.17

Argentina 1.42 0.00

Saudi Arabia 1.28 0.01

Russia 1.09 0.00

UK 0.97 0.17

France 0.61 0.65

India 0.42 0.02

South Africa 0.35 0.23

Mexico 0.29 0.24

Italy 0.22 0.02

Australia 0.05 0.52

Indonesia 0.02 0.02

Source: Oil Change International, 2017

Fossil fuel energy projects Renewable energy projects Nuclear and large hydro are not included given their overall environmental impact is not always positive 18

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INITIATIVES SUPPORTING A SUSTAINABLE FINANCIAL SYSTEM ARE GROWING

Initiatives encouraging a sustainable financial system have strengthened over the past year,9 accelerating the shift from brown to green finance.

National actions are also accelerating across banking, capital markets, insurance and investment.10 In 2017, the London Stock Exchange Group released guidance on how to incorporate the recommendations of the Task Force on Climate-related Financial Disclosures and the French Treasury supported banks in developing climate-related risk expertise. It is not just developed countries leading the way: the Brazilian Central Bank issued guidelines on integrated risk management this year and the Securities and Exchange Board of India (SEBI) issued disclosure requirements for the issuing and listing of green debt securities.

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10 THINGS TO KNOW ABOUT CLIMATE FINANCE IN 2017

Adapted from UN Environment Inquiry into the Design of a Sustainable Financial System 2017

DISCLOSURE Carbon Disclosure Project

International Integrated Reporting Council

Global Reporting Initiative Natural Capital Finance Alliance

BUSINESS PRACTICES

Task Force on Climate-related Financial Disclosures

Sustainability Accounting Standards Board

Principles for Responsible Investment Equator Principles UN Environment Inquiry

Sustainable Banking Network

Cross-cutting G20 Green Finance Study Group

Sustainable Insurance Forum

Sustainable Stock Exchange Initiative

Green Bond Standards

Green Digital Finance Alliance

FINANCIAL INSTRUMENTS

KNOWLEDGESHARING NETWORKS

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REFERENCES 1. The criteria the Green Climate Fund Secretariat will use for allocating funding under cross-cutting proposals to either adaptation or mitigation for calculation of the overall balance remain unclear, with cross-cutting proposals generally spending more on mitigation than adaptation: Schalatek et al. (2017) ‘Green Climate Fund’, Climate Finance Fundamentals. Climate Funds Update. Online, available at: http://bit.ly/2BMY3Co

5. Estimates are based on assessment of project titles and descriptions. Only projects explicitly mentioning (micro) small-medium enterprises were included as defined by each fund rather than with a global definition.

2. Bird (2017) Budgeting for NDC action: initial lessons from four climate-vulnerable countries.

CDKN Working Paper. Available at: http://bit. ly/2EtPkWC

7. The Economist (2017). ‘Multilateral lenders vow openness about their carbon footprints’, The Economist. Online, available at: http://econ. st/2gTz7wX

3. Estimates are based on classification of project titles to match OECD sector classifications. Only explicit water sector projects are included and therefore projects where water is a component but not the key focus might be omitted. See http://bit. ly/2t0RMPT for a more in depth discussion of water sector spending from the multilateral climate funds.

8. Watson, C., Genscu, I. and Simmonet, C. (2017).

‘One Planet: was Macron’s summit value-added?’

Overseas Development Institute (ODI). Online, available at: http://bit.ly/2nSF4x3

4. Estimate based on Costa Rica’s Forest Carbon Partnership Facility Emission Reduction Program Document covering investment over a 10year timeframe, including both domestic and international, public and private finance: see Climate Focus (2017) Progress on the New York Declaration on Forests: Finance for Forests. Online, available at: http://bit.ly/2C4B6q2

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6. Doukas, A., DeAngelis, K., and Ghio, N. (2017) Talk is cheap: how G20 countries are financing disaster.

Oil Change International. Online, available at: http:// bit.ly/2toX5VN

9. UNEP and World Bank Group (2017). Roadmap for a sustainable financial system. UNEP and World Bank Group. Online, available at: http://bit. ly/2Ea8365 10. UNEP Inquiry (2017). Green Finance Progress Report. UNEP. Online, available at: http://bit. ly/2ungAAO

10 THINGS TO KNOW ABOUT CLIMATE FINANCE IN 2017

Acknowledgements The authors would like to thank Katharina Keil, Sejal Patel, Merylyn Hedger, Jessica Brown, Joe Thwaites, Chris Little and Steven Dickie.

Design: Steven Dickie - stevendickie.com/design © Overseas Development Institute (ODI) and and Heinrich Böll Stiftung (HBS) 2017. This work is licensed under a Creative Commons AttributionNonCommercial Licence (CC BY-NC 4.0).

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