Mobilising finance for climate change adaptation

The Germanwatch Climate Risk Index 2014 has identified Pakistan as the third most vulnerable country to climate change. The impacts of climate change in Pakistan are difficult to deny. Scientists, experts and even the layperson can vouch for the increased incidences of climate induced disasters in the country in the last decade.

Under the circumstances, adapting to climate change impacts is the need of the hour and developing climate resilient biological and social systems, and infrastructure is imperative. However, building climate resilient systems in the country is no small feat. Vast sums of money are required for disaster preparedness, disaster risk reduction and for spearheading research for climate change adaptation.

The good news is that money is available for developing countries to meet these adaptation needs. The parties to the United Nations Framework Convention on Climate Change (UNFCCC) have agreed to support developing countries in their efforts to combat climate change by providing financial resources and technical know-how for mitigation and adaptation initiatives. To date, several funding mechanisms have been proposed and made operational under the Convention including the Adaptation Fund, the Least Developed Countries Fund and the Special Climate Change Fund.

The Green Climate Fund (GCF) is a comparatively new funding institution, having come into operation in 2014.The UNFCCC conference held in Paris last year confirmed climate finance for developing countries for up to $100 billion per year, channelled mostly through the GCF. The decision of the GCF Board to allocate 50 percent of the fund’s resources to adaptation, makes the GCF the largest multilateral funder of climate adaptation activities.

But even though large quantities of climate finance are available, Pakistan has been unable to tap into and access even a small fraction of quantities available. Focused and concentrated efforts are required to mobilise and scale up the flow of adaptation finance to the country. Some steps that may be taken to improve Pakistan’s access to climate finance particularly for adaptation initiatives are outlined below.

The UNDP has identified that for any country to be ‘ready’ to access climate finance, the first step is to identify the national priorities for action followed by an assessment of its needs – the volume of finance required to fund these actions. Also important is the identification of existing and possible sources of adaptation finance as well as an assessment of the barriers (such as institutional, regulatory, technical) for accessing both domestic and international finance.

In Pakistan, the Framework for Implementation of Climate Change Policy developed by the Climate Change Division of the government has outlined the strategies and recommended priority adaptive actions in each sector to combat the impacts of climate change. This is a step in the right direction and it is envisaged that this assessment will form the basis of a National Adaptation Program of Action (NAPA) as well as provincial and local adaptation plans.

Without an intelligent, well-thought-out climate investment strategy, progress on accessing adaptation finance will be severely curtailed. It is important for Pakistan to have a climate smart investment strategy that is in sync with existing national developmental policies and plans. Financial support for developing this strategy can be requested from the GCF as part of its readiness support to countries.

The variety of options for accessing climate finance has increased over recent years, particularly for public finance from multilateral sources. For direct access, national or sub-national entities need to undergo an accreditation assessment that requires strong fiduciary capacities, compliance with environmental and social safeguards, as well as capacities associated with the roles and functions of an implementing entity. Once accredited, the implementing entity is able to put forward project proposals to funding bodies such as the Adaptation Fund and the Green Climate Fund and directly access climate financing.

In Pakistan, there are some international accredited entities such as International Union for Conservation of Nature (IUCN) and UNDP, working on adaptation projects in the country. However, no national entity from Pakistan has so far received accreditation either by the GCF or the Adaptation Fund. Accreditation of organisations both at the national and provincial levels is important to enhance the flows of climate finance to the country.

A study carried out by Vivid Economics in 2013 for the government of Pakistan explored and identified two models that can potentially leverage international climate finance in Pakistan: setting up a Climate Change Fund or alternatively a Climate Change Facility.

In April this year, a bill for the establishment of a climate change authority was drafted that has proposed the setting up of a Pakistan Climate Change Fund to attract and disburse international climate finance. If this fund is to access funds from the GCF, it will have to apply for accreditation to the GCF and meet the required fiduciary and environmental and social safeguards standards.

Accessing finance requires recipient countries to be able to formulate ‘bankable’ project and programme proposals – that is, projects that are sufficiently robust, have appropriate risk management mechanisms, and have a favourable internal rate of return and so are financeable – from local to sector-wide scales. This is particularly important when applying to GCF and Adaptation Fund.

Capability is currently limited in Pakistan to develop this pipeline of bankable projects that not only meet GCF requirements but are also in line with Pakistan’s national development goals, investment strategy and adaptation priorities. Capacity building and training for this is therefore required particularly in institutions that are potential candidates for accreditation.

The major focus of the private sector to date has been on supporting mitigation activities. More recently, there is an emerging market for raising new finance from the private sector for adaptation and large institutional investors suggest that further capital could be raised specifically for adaptation activities, provided the right investment products are available. The Green Climate Fund also has a special Private Sector Facility.

In Pakistan, the agriculture and forestry sector are more suited to private sector needs, than other adaptation projects, such as infrastructure and coastal protection, which do not typically generate revenue flows. For these and other adaptation initiatives, public-private partnerships can also be explored to draw in funding from the private sector.

De-risking or risk transfer instruments help investors reduce or manage investment risks, typically in exchange for a fee, and thus, improve the perceived risk-reward profile of an investment. These may include insurance and guarantee products that protect investors from a borrower’s failure to repay as a result of pre-specified events.

In Pakistan, risk insurance companies can play a significant role in protecting investor interests. In addition, public finance for country risk guarantee schemes could help redirect private finance for adaptation projects.

Delivering finance refers to the implementation and execution of activities at the regional, national, or local level to ensure that climate finance contributes to effective and transformative actions at the national level.

Pakistan currently needs capacity building at multiple levels to ensure that the adaptation finance is used not just to deliver the project/programme objectives in a timely, effective and transparent manner, but also that they are catalytic in leveraging additional finance particularly from the private sector.

MRV systems are needed to monitor adaptation finance – that is, understand which financial resources are flowing where, for what purpose, and how effectively they have contributed towards climate resilience, reducing poverty, and meeting national development priorities.

To summarise, Pakistan needs a strong focus on building and strengthening policy tools, institutional capacities, and technical skills both at the national and local levels to improve its ability to plan for, access, deliver and monitor climate finance. Only then will it ensure that climate finance is used in an effective and catalytic manner integrated into the overall development priorities of the country.

The writer works as team leader, Climate Finance Readiness in the Climate Action Programme of Lead Pakistan.

Email: Email: fovais@lead.org.pk