Climate Finance: Between Promise and Delivery

At the close of the G7 Summit on Sunday, the leadership of the Group of Seven departed Cornwall with a clear mandate to “build back better.” Specifically, wealthy nations are attempting to navigate both the ongoing turmoil of the COVID-19 pandemic and the ever-present reality of the climate crisis. In doing so, they must confront certain core aspects of these crises, and the approaches that they take set an important precedent for the COP26 summit in November.

As the first in a series exploring these issues, the following blog takes a deeper look at US$100 billion that wealthy nations have promised to less-developed economies. As we explain, the challenge has not only been getting wealthy nations to commit their share to this sum, but in delivering this aid so that it can be effective.

Showing the Money

A common thread in the G7 meeting was the discussion of climate finance—the funding pledged by developed countries, including all members of the G7, to aid the developing world in mitigating and adapting to the impacts of climate change. Back in 2009, developed countries jointly agreed to mobilize US$100 billion in finance by 2020 and committed to support these efforts through 2025.

It’s 2021 and we’re not there yet.

As Rachel Kyte, Dean of the Fletcher School at Tufts University, puts it to Axios, “This is beginning to look like diplomatic ineptitude amongst the rich countries, because $100 billion really in the scale of things is not an extraordinary amount of money, and it is not beyond our capability to meet that promise, keep it, and then extend it.”

Of course, the global pandemic and the economic upheaval it wrought played a significant role in missing this target, and countries are redoubling their commitment to the US$100 billion. Canada is doubling its pledge to CAN$5.3 billion through to 2025, increasing grants to countries who need the support. Germany too has committed to an increased pledge, as has Japan, with an additional focus on enhancing adaptation.

These commitments are significant and raise the bar of expectations for other developed countries. At the same time, a further question arises: has the money already pledged done its intended work? And is the primary issue one of amount of capital?

Many in the climate finance world say no. Even falling short of the US$100 billion itself, according to the Climate Funds update, close to $50 billion has been pledged to developing countries. This is not an insignificant amount. The volume of finance itself has increased over the years, as countries push closer to that desired target. And yet, of all that amount, some estimates indicate that only about US$7.6 billion had been disbursed as of 2019—less than 20%.

Clearly, as Mafalda Duarte of Climate Investment Funds put it, “Capital is not the problem.” Access is—and so is urgency. Getting trillions of net-zero investments to flow into emerging markets requires not only a realignment of the global financial system but also securing finance, fast.

The Problem of Access

In a series of in-depth surveys and interviews with representatives of developing nations, climate finance funds and institutions, and climate finance initiatives, RMI has worked to identify the bottleneck in climate finance flows to developing countries. As the system of accessing climate finance has become obstructively complex, countries increasingly lack the capacity to navigate the channels needed to access all those dollars that have been pledged to them.

And as complexity increases, so too does urgency. When it comes to adapting to the worst impacts of climate change, time is of the essence, and developing countries have little to spare in navigating complex systems of bureaucracy and aid. Vulnerable countries are repeatedly hit with extreme events worsened by climate change, and the ability to weather these becomes an issue of equity. How can countries worst hit by these impacts, and lacking the support and capacity to do so, be expected to respond?

And beyond the moral obligation and historical responsibility of developed countries to provide financial support to developing countries in fighting climate change, what is at stake is the successful implementation of the Paris Agreement’s goals. Even if members of the G7 and other developed economies hit their $100 billion target, there is a very real risk that it will not make it to where it is most needed unless the critical issue of access is addressed through new approaches and mechanisms.

As one CFAN Country Demand Survey respondent put it, “The issue is not mobilization. The issue is access.”

The Climate Finance Access Network (CFAN) arose from the understanding of the twin issues of access and equity, and the willingness to provide a practical solution to that challenge. Coordinated by RMI, CFAN seeks to tackle the problem of access directly by recruiting and training financial professionals who can navigate the climate finance process and help build national capacity by deploying them in the nations that need help the most.

Introduced at COP25 in 2019, and operationalized in 2021 by a grant from the Government of Canada, CFAN is currently actively soliciting requests for these “climate finance advisors” by eligible nations in the Pacific, Africa, and the Caribbean. Driven entirely by the needs identified by countries requesting support, these advisors will be placed in country, adding and building lasting capacity and work directly on bringing project proposals to the finish line—effectively unblocking the bottleneck.

CFAN has already received requests for advisors from ten Pacific Island nations, several more from Africa, and will be beginning outreach in the Caribbean shortly.

A Moral Responsibility

Nations in the Global South are among the least responsible for climate change and have contributed a small amount of the cumulative carbon emissions that are warming the planet. Yet they are already suffering from its effects, with hurricanes, droughts, flooding, and crop disruptions wreaking havoc on communities from Ethiopia to Central America. Increased flows of both public and private sector finance to developing countries is critical, not only to accelerate the transformation to net zero, and achieve a just transition to sustainable energy, but also to strengthen resilience to climate shocks .

The developed economies have a moral responsibility to help their neighbors deal with a crisis that they did not create. But assisting these nations does not only mean making large sums of money theoretically available—it means helping this necessary aid get from concept to reality by providing the technical assistance to enable developing nations to access their fair share of climate finance. RMI’s CFAN does not solve all of these problems on its own. But it is one vital piece of making sure that the developed economies deliver on their promises to the world.