The finance question

With COP28 only three months away, there is much noise in the climate finance arena. The landmark Africa climate summit (Sep 4-6) along with the ‘Africa Climate Week’ recently concluded with the ‘Nairobi declaration’. This event was followed by the G20 moot, which culminated in the ‘New Delhi leaders declaration’, which focused on climate financing and action.

Down the line is the ongoing 78th United National General Assembly Session, the 2023 SDG summit and the climate ambition summit. Climate finance seems to be at the heart of all that is going on globally at this point in time.

As part of the proposed UN fund to unlock at least $100 billion by 2030 to address irreversible damage caused by climate change, the transitional committee (TC) in Santo Domingo in the Dominican Republic concluded its third meeting (Aug 29-Sep 1) on the much-touted ‘Loss and Damage (L&D) Fund’. The meeting has been critical in articulating the first draft of the recommendations.

For now, the L&D fund is nowhere to be seen nearer a consensus and also marred with a rut of developed countries over where the money should come from, who will be eligible, and how the countries will access it. We are yet to see decisions at COP28 that need unanimous backing from nearly 200 countries, including the powerful wealthy nations that have so far failed to fulfil the pledge made in 2009 to provide $100 billion per year from 2020 in climate finance to poorer nations.

The G77+ China again reiterated its commitment during the two-day summit (September 15-16) in Havana, while seeking to promote a ‘new economic world order’.

The lingering indecisiveness on a robust fund for the climate crisis calls for an urgent need to mull over a mosaic of the existing climate, development, and humanitarian finance options. This is because of the gigantic challenges being faced by humanity when climate change is feared to push some 132 million people into extreme poverty by 2030.

Add to this the factor wherein the crushing debts of low-income countries have made things worse and highlighted the urgency. This calls for ‘better, bigger, and more effective’ institutions with firm and efficient financial commitments by ‘the haves’ targeted for the have-nots.

The existing climate finance architecture includes a blend of bilateral, multilateral, and specialized institutions as well as regional forums. For instance, the climate investment fund with $11.1 billion pledged is one of the largest active climate finance mechanisms in the world with its funding only accessible through multilateral development banks (MDBs).

However, the current modus operandi of MDBs proves less compatible with the current challenges and requires a comprehensive revamp of the original mandates.

Setting aside the associated impedimental mechanics of instruments and the debate on grants or debts, their potential can be a point to deliberate over. The World Bank (WB), the International Monetary Fund (IMF), Asian Development Bank (ADB), and the Islamic Development Bank (IsDB), all run several relevant progammes and respective emergency response considerations. Overall, MDBs’ climate finance to low- and middle-income economies showed an upward trend in the past few years which rose to $38 billion by 2022.

The special drawing rights (SDRs), a reserve asset held by the IMF, is a possible source of finance for countries to address the climate crisis. It is yet to be channelled towards vulnerable countries. Like the IMF’s climate goals, the WB’s Climate Change Action Plan (CCAP) has specified targets to set aside $25 billion on average in annual financing between FY21 and FY25 for initiatives that lower GHG emissions and foster adaptations.

For this, the WB has announced a target for an average of 35 per cent of its financing to be climate finance over the period from 2021 to 2025. The Global Shield Financing facility is another initiative of the WB that is meant to support ‘the Global Shield Against Climate Risks’, a joint initiative launched by the G7 and V20.

As the documents show, the climate finance from the ADB resources is likely to reach $ 80 billion for the period 2019-30. For the period 2019-24, the ADB is to provide $35 billion for climate finance from its resources. Similarly, the IsDB has mainstreamed climate finance by introducing a climate change policy and action plan. It also sets out modalities for achieving IsDB’s climate finance target of 35 per cent by 2025, in line with the Paris Agreement and the MDB Paris Alignment Framework. Likewise, the African Development Bank (AfDB) has climate-specific finance options at hand.

With the introduction of the European Green Deal, the EU is also at the forefront of driving its climate finance through the European Investment Bank (EIB) and the European Bank of Reconstruction and Development.

Following the EU’s footsteps, the German government – through the Federal Ministry for Economic Cooperation and Development (BMZ) – has jacked up funds for climate action more than tenfold. Similarly, the Canadian government – through its Global Affairs Canada (GAC) – has announced the doubling of its international climate finance, from $2.65 billion (2015 2021) to $5.3 billion (2021 2026).

The Green Climate Fund (GCF), a specialized funding entity under the umbrella of the UNFCCC, is the world’s largest climate fund – currently over $12.8 billion. The UK government just recently announced a GBP1.62 billion pledge for its second replenishment (GCF-2). To fully realize the potential, there is an urgent need to bring about reforms in the governance model to enhance the efficiency of the GCF accreditation and re-accreditation process.

The GCF’s present governance model is painstakingly cumbersome and lengthy, ultimately rendering countries and development organizations unable to tap this critical resource. Yet, its newly introduced project-specific accreditation approach (PSSA) provides a quick way forward to access finances in a shorter period. Quite recently, the GCF concluded its Asia-Pacific regional programming dialogue to discuss ways to accelerate access to climate finance in a region.

Then, there is the Global Environment Facility (GEF) which operates two funds on behalf of the climate change convention, the Special Climate Change Fund and the Fund for the Least Developed Countries (LDCs). The Adaptation Fund (AF) helps vulnerable communities in developing countries adapt to climate change.

Since 2010, the Adaptation Fund has committed over $1 billion to climate change adaptation and resilience projects and programmes in different parts of the world.

The list is long, and the world must design a new financing architecture by signing a global climate finance pact. One critical aspect for countries is to define their financial access pathways by developing practical frameworks grounded on vulnerability and impact assessments. All this requires solid data sets, clear mapping of resources, requisites, and efficient processes.

Clearly defined roles and responsibility within state institutions is another critical concern, especially in Pakistan – the consistent bickering among the Ministry of Finance, Planning and Development, and the Ministry of Climate Change and Environmental Coordination needs to end.

It is highly important for Pakistan to become part of regional and global forums such as ‘the Vulnerable-20 (V20) or the ‘Climate Vulnerable Forum’ (CVF). We also need to explore innovative options internally – emissions tax, green bonds, urban resilience tax on real-estate, industry and others.

It is also pertinent that MDBs and other financial institutions are aligned with the UNFCCC, which needs to find a way to control their climate funds to be available as grants for the LDCs, SIDS, and the most vulnerable nations. It is also significant on the part of the UNFCCC to take steps to operationalize the Santiago Network for Loss and Damage so that technical assistance can be provided to developing countries.

The writer is a climate governance expert who works for global

development organizations in the fields of research, advisory, policy analysis, and legislative reforms. He tweets/posts @razashafqat