Climate finance could fail those most at risk – report

By John Parnell

Countries most vulnerable to climate change could miss out on the funding they need to cope with the impacts of climatic shifts and extreme weather under current finance frameworks.

That’s the warning from a number of NGOs ahead of a donor government meeting on climate finance next week. Observers fear a preference for private rather than public funding could skew investment away from projects to help countries feeling the effects of climate change.

And a report from NGO Tearfund this week says private sector interest in helping countries to cope with changing climatic patterns is minimal, warning that the emerging climate aid regime could leave a gap in funding for adaptation projects.

The US-hosted climate finance conference is scheduled to start next week, and is set to focus heavily on leveraging private flows of capital.

Investors are typically keener on more bankable projects to reduce greenhouse gases, rather than those coping with the aftermath.

Karen Orenstein, international policy campaigner with Friends of the Earth US puts it more bluntly: “Many areas in need of funding, especially adaptation efforts in the poorest countries, simply will not turn a profit.”

Projects to reduce emissions through renewables and energy efficiency programmes can generate tangible returns from fuel savings, carbon credits and offsetting schemes. This has made them the focus for private sector investment.

But as Tearfund’s report observes, these returns are less obvious for projects to protect against coastal erosion for example, where the benefits might be longer term such as avoided infrastructure investment, protection of livelihoods and biodiversity.

“Evidence for private sector engagement with adaptation is minimal, and what little there is indicates a number of problems in relying on private finance to deliver adaptation for the poorest communities,” says the Private Gain, Public Interest report.

Terraced fields in Bhutan. Agriculture is an important focus for climate adaptation efforts (Photo: Curt Carnemark/World Bank)

A State Department spokesperson told RTCC they were confident that next week’s meeting could break new ground on what is a difficult issue.

“This meeting will bring together – for the first time – countries that made a commitment to mobilizing long term finance to promote cleaner, sustainable growth and climate resilience globally,” they said.

“Developing countries are key actors in climate finance and we will continue to work together to implement our international commitments,” they added.

The private sector is also more interested in middle income economies where there are larger emissions to be mitigated and a safer investment environment. Tearfund warns this could further marginalise the countries most in need.

A report by the Overseas Development Institute (ODI) found that 99% of a sample of climate finance was used for mitigation and 84% went to middle-income countries. This imbalance is not helped by the guest list at next week’s meeting says the WWF.

“Only developed countries are invited. This would be acceptable if they were talking about how to share the responsibility for dividing up their commitment to mobilize the $100bn for the Green Climate Fund, but clearly that’s not what they are doing,” Mark Lutes, policy coordinator, WWF Global Climate and Energy Initiative told RTCC.

“They are talking about ways to mobilize private finance in developing countries, without any developing countries at the table,” said Lutes.

“It is hard to see how this meeting will do anything but breed cynicism about the willingness of developed countries to deliver on their financing commitments,” he added.

The leaked agenda of next week’s climate finance meeting in Washington reveals that it is dominated by private sector issues. The document includes just one mention of adaptation. The word private features 16 times.

Green Climate Fund

The UN’s main climate finance tool, the Green Climate Fund (GCF) is currently under development with arguments brewing over how much private sector investment should be encouraged. The GCF aims to raise $100bn annually by 2020 to help reduce emissions and fund projects to defend against the impacts of climate change.

The UK government has vocally backed as much private sector involvement as possible claiming that this is essential given the spending constraints placed on many donor governments.

“The private sector will be more interested in investing in emerging markets and middle income countries than they are in the least developed countries,” Steve Herz of the Sierra Club told RTCC after the GCF’s latest meeting in Berlin last month.

“On the mitigation side that’s not such a problem because that’s where the emissions are [in the emerging markets]. The bigger problem is on the adaptation side where the poorest countries are in the worst position to respond,” he said.

Loss and damage

In the absence of adequate support to defend against the impacts of climate change, many nations, including the low lying islands, have turned their attention to a loss and damage mechanism.

Put simply, this would provide compensation to those hit by climate change, although the word ‘compensation’ was surgically removed from the negotiating text at the international climate negotiations last year.

“It’s not just about getting money out of developed countries. Mitigation has failed, adaptation is limited and that’s what leads to loss and damage,” Harjeet Singh from ActionAid told RTCC at the talks in Doha, where the concept of loss and damage rose to prominence.

“Let’s create a mechanism to decide how we will deal with that. The draft text is a step in the right direction, even if it is not quite as strong as we would like it to be,” added Singh.

World Bank President Jim Yong Kim told an audience of students yesterday that dealing with climate change would be key to meeting the organisation’s new goal of ending extreme poverty by 2030. He firmly believes there is an important role for private investment.

“I was once asked by some high school students what opinion I had changed my mind on in the last 20 years and I told them without hesitation, the importance of the private sector,” Kim said.

The World Bank has been criticised for its record on climate change in the past, in particular for its funding of fossil fuel projects. In 2010 it gave a $3.75bn loan to South African utility Eskom to build a coal-fired power plant.

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