Accessible climate finance for developing countries

The debates surrounding climate funding consistently take center stage at the annual climate negotiations, and this reverberated prominently at the latest COP28 held in Dubai. Considerable efforts were made both in the lead-up to and during this year’s COP, marked by a commitment from global business leaders and philanthropists to mobilize $5 billion in collective funding, as well as the significant mobilization of resources by governments directed towards climate finance funds. Among these crucial funds were the Loss and Damage Fund, Green Climate Fund, Adaptation Fund, Least Developed Climate Fund, and Special Climate Change Fund, all of which attracted new pledges. While this underscored a clear commitment to addressing climate change through focused attention and resource allocation, a crucial aspect lies in ensuring that these funds are accessible to low and middle-income countries (LMICs), which often encounter challenges in securing financial support. 

In the face of escalating climate challenges, developing countries urgently require swift and flexible access to climate finance. The $100 billion climate finance pledge made by wealthy countries is just a fraction of what is needed in low- and middle-income countries to combat the looming threats of climate change. Initially set for 2020, this commitment symbolizes a global consensus to assist vulnerable regions. However, the reality is that not only has the commitment gone unfulfilled, but climate finance in its current form lacks accessibility and primarily focuses on mitigation rather than adaptation, thereby challenging the effectiveness of climate finance flows. It falls short of addressing the widening gap in adaptation finance, estimated between $194 billion and $366 billion annually. 

UNFCCC estimates that countries require roughly $600 billion annually to fulfill their national climate pledges, known as Nationally Determined Contributions. This substantial figure does not include the costs incurred by vulnerable countries in addressing the impacts of extreme climate-induced disasters such as floods and droughts. While the agreement to establish a dedicated Loss and Damage Fund marks a pivotal acknowledgment of damage and climate injustices, the likelihood of this fund materializing in a manner befitting the needs of vulnerable countries seems uncertain. Through various COP summits, consensus has been reached to create dedicated funds such as the Green Climate Fund and the Adaptation Fund. These funds notably prioritize providing targeted support and enabling “direct access” to finance through national institutions. However, even these funds have grappled with delivering money where they are most needed, largely due to resource-draining processes that hinder accessibility. Setting up financing terms that do not work for developing countries and mobilizing climate finance that remains undeployable should not persist. This imperative extends to the forthcoming operationalization of the Loss and Damage Fund, too.

It does not make it any easier for developing countries that climate finance is still predominantly in the form of loans. As highlighted in a report by Oxfam, despite claims of mobilizing $83.8 billion in 2020, the actual expenditure totaled a mere $24.5 billion. Additionally, the Global Landscape of Climate Finance 2023 underlines that debt remains the primary global financial instrument for climate finance, constituting 61 percent, while grants represent only 5 percent. The high-interest rates accompanying these loans often render funding inaccessible for developing nations. Consequently, a concerning cycle emerges, whereby countries burdened with debt spend more on servicing debt than climate adaptation. Addressing this issue necessitates a substantial effort to diversify accessible and debt-free financial resources.

Climate outcomes are most effective when climate finance is predictable, accessible, and driven by local communities. Unpredictable funding streams impede effective long-term planning and the systematic changes necessary for lasting impact. Furthermore, streamlining processes to access financing directly is crucial. Empowering local actors by transferring power and resources ensures effective climate outcomes, granting them a voice in allocating and utilizing funds.

Ensuring the accessibility of climate finance demands the utilization of context-specific financing tools and easily accessible disbursement platforms. This necessitates the provision of financing instruments that go beyond grants; de-risking mechanisms and innovative financing models, like blended finance, tailored to local contexts and risks, are pivotal to making climate finance more accessible. Their effectiveness relies on strategic partnerships, flexible structures, and alignment with the specific needs and capabilities of developing countries. 

The responsibility lies not only with donor nations but also with developing countries to invest in readiness programs and enhance their local climate ecosystems. Ultimately, as underscored in the recent findings of the Climate Policy Initiative’s Global Climate Finance Landscape 2023 report, these countries can better prepare themselves to efficiently absorb the increasing flux of climate finance by strengthening institutional capacities and regulatory frameworks.