Integrated finance for climate and poverty vulnerability

The ultimate successes and failures of climate finance will have diverse consequences for populations living in poverty

Climate change induced risks are undermining efforts towards sustainable development of the planet, including progress on the eradication of poverty especially in LDCs, and it has posed significant threats from the global to the local level economic, social, and human development. Climate change related adverse impacts, for instances floods, droughts, degraded agricultural productivity disproportionately affect developing countries, and both urban and rural poor people who generally have limited access to economic, social, and institutional resources.

Of the estimated 897 million people of the earth living in extreme poverty (PPP$1.90/day, 2012), around half (46%) are located in climate vulnerable countries and lack of adaptive capacity that is increasing the potential for adverse impacts.

For obvious reason, the 2030 Agenda for UN Sustainable Development and the Paris Agreement was signed in 2015 that set the landscape of sustainable global development through effective climate actions for the next decade.

The links between climate change and poverty are recognized in both the SDGs and the Paris Agreement, and integrated approaches is fundamental for poverty reduction and climate change action. However, in ending poverty and combating climate change, intensely inter-related daunting challenges remain in developing countries.

In compliance with the commitment of developed countries to provide 0.7% of their GNP and to the obligation under the decision of the Paris Agreement mobilizing at least $100 billion per year as climate funds, it is a pressing challenge of financing climate and development action as quick as possible.

Climate change adaptation — by definition a longer term solution to prevent the worst consequences of climate shocks and to strengthen the resilience of the poorest people — is crucial for sustainable development.

Mobilizing adequate climate finance for desired adaptation, integrating with the development activities as well as equity or vulnerability-based distribution is a challenging task.

Putting the horse before the carts, with a common and specific definition of climate finance fund is channeling for less carbon-intensive economies, and adapting to reduce the impacts of climate change.

Due to the absence of a common definition of climate finance and the complexity of its sources, estimates vary of how much is available. Consequently, there is a variation in the sources, fund types, and practice, and it includes a mix of local, national, and international resources (both grant and loan) from public and private sources, an ever-evolving landscape.

Moreover, in the name of climate finance multiple sources exist, but a single repository of data does not exist which are counter to improve transparency and accountability of the actors.

The Climate Policy Initiative (CPI) provides that estimates a total volume of $392bn of the global climate finance in 2014 from private sources, development finance institutions (DFIs), and other international public finance excluding the domestic public resources.

Of the total amount, the amount of public sources from developed to developing countries is quite low, that ranged from 12%-16%, only in 2014. Though some LDCs secured around $1bn from different sources to implement some of their NAPA-prioritized actions, but a minimum of an additional $4bn is required to implement all of the LDCs’ NAPAs.

In reality, the OECD predicts that public finance will increase to $67bn in 2020. Surprisingly, in contrary to the UNFCCC’s polluters’ pay and aid principles, the majority of support (66%) provided to developing countries was in the form of loans over 2013–2014.

Multilateral climate funds provided primarily grants and a smaller share of concessional loans. Support towards adaptation consists primarily of concessional loans (44%) and grants (44%), with a small proportion of non-concessional loans (9%), and “other” and unspecified finance (3%).

Vulnerability to climate change and poverty are deeply related at the individual, community, and country levels. Given this interplay and linkages between poverty and vulnerability to climate change, it is important to consider the distribution of adaptation support for LDCs, mentioned specifically in the Paris Agreement.

And adaptation finance should align with and prioritize countries and places where such needs are concentrated. However, climate–poverty linkages are not reflected in the allocations of climate finance, and allocations of adaptation finance do not prioritize the most climate vulnerable LDCs as well.

Over half of adaptation support in 2014 was to countries with relatively low depths of poverty and vulnerability, but the 14 countries including SIDs of Micronesia, Lesotho, and Togo with the higher poverty (over 20%) received among the lowest amounts of total adaptation finance in 2014.

Moreover, LDCs with highly vulnerable and relatively low levels of government spending received even less support for adaptation (17% of total finance and 31% of adaptation support). This scenario has been bleak in 2017, and the top seven most climate vulnerable countries including India (Haiti, Zimbabwe, Fiji, Sri Lanka, Vietnam, India, Bolivia, according to the Global Climate risk Index 2018) received only around 7% of total adaptation finance.

Even from the Green Climate Fund (GCF), among top ten climate vulnerable LDCs, only Bangladesh and Pakistan were awarded four adaptation projects, and till-to-date, around 31% funds was disbursed for adaptation only.

International adaption finance in aggregate remains low and underfunded relative to requirements. It clearly shows that vulnerability is still undermined in allocations and considering the reality of poor governance standards GCF didn’t develop alternative mechanism to mobilize the funds to climate vulnerable LDCs.

It is also noted here that by giving due priorities to climate vulnerability in some cases, the climate vulnerable LDCs have not been able prove the efficiency in allocation of the funds from their national climate exchequer.

Given the evidence on the potentially devastating impacts of climate change on those in extreme poverty, the above funding mechanism raises important questions about whether climate finance to focus on those most in need, for instances ODA, could be better targeted when it comes to adaptation.

GCF, LDCF, Adaptation Fund should develop alternative mechanism to channel required funds as grants for adaptation in the most vulnerable countries where needs are greatest.

The ODA should not be merged as CF — that must be “new” and “additional” to the ODA, as agreed in Copenhagen in 2009 by all parties of UNFCCC. Mitigation finance does not have a mandate to target that in poverty, it is vital that mitigation strategies are developed in such way so that over-arching goals of the Paris Agreement and Sustainable Development Agenda are achieved — particularly where mitigation needs overlap with high rates of poverty.

The ultimate successes and failures of climate finance will have diverse consequences for populations living in poverty. That’s why, better understanding on both the provision of resources and their impact, and the distribution of poverty and vulnerability is required, especially the comparative advantages of the multitude of climate finance mechanisms and programming, and appropriate targeting of the optimum mix of financing to achieve both climate and poverty goals.

Above all, enhanced transparency and meaningful accountability mechanism especially for developed countries to meet the financing commitments and effective utilization of received funds must be ensured for the cause of climate victims.

This article was originally published in The Dhaka Tribune