The Fundamentals of Climate Finance

The Fundamentals of Climate Finance

Smita Nakhooda introduces the updated Climate Finance Fundamentals publication series, released for the COP in Durban on Climate Funds Update. The series offers short, introductory briefings on various aspects of climate finance.   

As parties to the UN Framework Convention on Climate Change gather in Durban this week, the issue of how to mobilise and channel the finance necessary to help developing countries respond to climate change is central to negotiations. Against this backdrop, we’ve released a new series of Climate Finance Fundamentals that analyse major trends in climate change finance, with a focus on understanding what kinds of projects and programmes are receiving finance, and which countries are getting the money.

Climate Finance Fundamentals are based on data from Climate Funds Update, a joint initiative of the Overseas Development Institute (ODI) and Heinrich Böll Siftung (HBF), which monitors dedicated climate change funds from the stage when donors pledge funding through to the actual disbursement of financing for projects in an effort to increase transparency. The website has just been updated with the latest data on the approval and disbursement of the 22 climate funds that we monitor.

Since 2003 $5.65 billion has been approved for climate change projects through dedicated funds, of which $390 million was disbursed in 2011. The global climate finance architecture is complex: finance is channelled through multilateral funds – such as the Global Environment Facility and the Climate Investment Funds – as well as increasingly through bilateral channels. A growing number of recipient countries including Bangladesh, Brazil, Guyana and Indonesia have set up national climate change funds that receive funding from multiple developed countries in an effort to coordinate and align donor interests with national priorities. There is generally much more transparency about the status of implementation of multilateral climate finance initiatives than of bilateral climate finance initiatives.

The largest volume of climate finance to date – $2.97 billion since 2004 – has been directed to mitigation, particularly in Asia. And a substantial volume of finance is now directed to countries in the Middle East and North Africa for clean technology deployment. Nearly $450 million in financing has been approved for activities that reduce emissions from deforestation and degradation in developing countries, with a focus on Latin America. Over the past year we have observed a marked increase in the number of projects to support adaptation to the impacts of climate change, as well as the volume of finance from less than $600 million in 2010 to nearly $1 billion in 2011. Despite its severe vulnerability to the impacts of climate change, sub-Saharan Africa continues to receive a very small share of global climate finance. Our dedicated policy brief on climate finance in Africa considers the distribution of climate finance in the region, and the role of a range of international actors including the African Development Bank in the delivery of climate finance.

Targeting poor people within developing countries who are most vulnerable to climate change is an enduring challenge. Sensitivity to gender and social issues in the design and implementation of programmes that receive climate change finance can help enhance their impact and development benefits.

While there has been an increase in climate finance, the proliferation of mechanisms further increases the challenges of coordinating and accessing finance. It remains to be seen how the global Green Climate Fund (GCF), whose scope and modalities are under negotiation in Durban this week, affects the global climate finance architecture.

View the Climate Finance Fundamentals publications