Money on its own is not enough – countries need to learn how to use finance more efficiently and transparently
By Adis Dzebo
With last-minute pledges by several countries at the UN climate talks in Lima, including Australia and Belgium, the Green Climate Fund succeeded in reaching its target to mobilise at least US$10 billion for the next 4 years.
Yet that is just the beginning: now the GCF needs to look ahead to its next milestone.
The fund will now prepare to disburse funds to adaptation and mitigation projects.
However, that is only part of the task; the GCF also aims to achieve a paradigm shift in climate finance, reduce fragmentation, scale-up overall finance to cover unmet needs, and integrate climate and development planning.
Moreover, there are several outstanding issues that need to be settled before the fund can be fully operationalised.
These include setting up the necessary enabling environments, delivery mechanisms, direct access and implementing entities. It also needs to define the role of private sector in leveraging additional funding for climate activities.
Taking a step back from the climate regime, there are other important questions to consider as well.
One of the complexities surrounding climate finance is the simultaneous development of three global negotiation processes and governance systems, all due for completion in 2015.
First, in March 2015, governments will meet at the Third United Nations World Conference on Disaster Risk Reduction to agree on a successor to the Hyogo Framework for Action 2005–2015.
Later in 2015, the United Nations is expected to launch the Sustainable Development Goals.
Third, in December 2015 countries hope to agree on a protocol, legal instrument or agreed outcome with legal force under the United Nations Framework Convention on Climate Change (UNFCCC).
Implementing each of these expected agreements will require the provision of financial resources.
Climate change is a critical issue for both disaster risk reduction and sustainable development, and thus there is scope for complementarity, but there is also a risk of overlap among activities funded under the three agreements.
At the same time, existing governance models for climate finance are coming under increasing criticism for their inability to meaningfully address some of the most pressing global challenges, from financial insecurity to biodiversity loss and climate change.
A particular concern is the fragmentation in channelling and delivery of public finance for climate and development, which creates challenges for developing countries seeking to access finance for activities that reduce vulnerability to climate change.
There is also a lack of coherence between climate finance and official development assistance on the one hand, and wider policy and investment landscapes on the other.
At the same time, the United Nations Environment Programme (UNEP) Adaptation Gap report released at the COP concludes that the costs for adaptation may be two to three times higher than previously estimated.
The problems associated with fragmentation in climate finance are often highlighted – particularly by developing countries themselves – as a barrier to developing countries being able to productively access and use international finance to catalyse long-term structural change.
The proliferation of funds creates a situation in which developing countries – many of which have limited technical capacity and manpower to work with international funds – are expected to negotiate with, manage and report to a whole host of different donors and funds and their associated methodologies for accounting, monitoring and evaluating the use of finance.
This does not mean that less fragmentation will necessarily be better, as it encourages more experimentation, which can improve learning.
Moreover, lack of capacity and the risk of corruption in many developing countries endanger effective, efficient and fair use of climate finance.
Nevertheless, more fragmentation and the lack of a streamlined strategy between climate change, disaster risk reduction and development processes risks creating even bigger barriers for developing countries’ access to finance and financial investments.
The questions in the end are not only whether we need more climate finance, but also how we can develop a cross-cutting climate-approach to financial investments in order to catalyse large-scale transformation – systemic change in energy systems and in social and economic development pathways.
Only then can the GCF achieve the paradigm shift that is a core part of its mission.
Adis Dzebo is a research associate at the Stockholm Environment Institute, focused on climate finance.