Delivering high-quality, predictable and accessible climate finance for least developed countries
Increasing climate finance is high on the COP26 agenda; but for climate finance to bring lasting change it must be provided over the long term, be accessible and go towards strengthening governance systems.
Issued last month by heads of the Least Developed Countries (LDCs) Group climate negotiating bloc, the Thimphu Call for Ambition and Action on Climate Change (PDF) underlines serious ramifications of developed countries failing to meet their US$100 billion climate finance pledge.
It notes that finance is committed largely as loans rather than grants, prioritises mitigation over adaptation, and that procedures for accessing funds are complex, lengthy and bureaucratic. Money is not reaching countries that need it the most.
The call reiterates the LDC 2050 Vision (PDF) for “high-quality, predictable and accessible finance to help [LDCs] deliver the Sustainable Development Goals and Paris Agreement” where at least 70% of climate finance flows to support local action by 2030.
What is high-quality, predictable and accessible finance?
Extensive evidence (PDF) shows that climate programmes deliver the most effective outcomes when climate finance is high-quality, predictable and accessible. But what does that look like in practice?
- High-quality: ensuring resources are channelled through a strong governance system for decision-making where local communities have a say in how money is allocated and spent. This shift, to local actors having greater power and resources to build resilience to climate change, is also captured in the widely endorsed principles for locally-led adaptation.
- Predictable: climate programmes supporting LDCs are typically provided over very short timeframes − commonly 1-3 years. It is often unclear if initiatives will continue until after funding has stopped. Short-term programmes do not allow for the systemic changes needed to ensure lasting impact. Instead, financing should be allocated for long periods, ideally 10 years and above, ensuring predictable and reliable access from year to year.
- Accessible: In 2020, LDCs received only 21% of climate finance (PDF) due in large part to the cumbersome and resource draining processing for accessing climate finance. Climate financiers must remove the barriers, and the funding focus must shift from outputs to outcome delivery, through significant investment in institutions, governance and capabilities.
Business as usual
So why isn’t this already happening?
Making this shift would require a fundamental change in the power dynamics of funding, on untangling the conflation of adaptation and mitigation finance, and on moving away from ineffective 'business-as-usual' approaches.
This is exactly what the LDC Initiative for Effective Adaptation and Resilience (LIFE-AR) – the LDCs’ initiative for a climate-resilient future – is working to do.
'Business unusual' – spotlight: Malawi
Malawi is one of six ‘frontrunner’ countries in LIFE-AR’s first cohort.
With a weak public financial management (PFM) system, Malawi has been unable to effectively manage funds and fiduciary risks. Support from some donors has consequently been delivered outside of government systems, only in short-term flows, and with no intention to support and strengthen the national PFM system.
Malawi’s central objective for the 10-year implementation period is to strengthen its national system for managing public finances for the long term.
As part of this, international finance flowing into Malawi must be assessed to check that it is not inadvertently reinforcing existing inefficiencies and locking in ineffective delivery approaches.
Given the need for routine due diligence when receiving international funds to support LIFE-AR, Malawi is taking the opportunity to look more rigorously at the various mechanisms for channelling international financial flows.
This is to assess whether the finance aligns with the LIFE-AR principles for short-term delivery – for addressing urgent and immediate needs – as well as supporting the long-term objective of strengthening the government’s financial system so that Malawi will be able to continue to access and use finance to support communities vulnerable to climate change.
In reviewing the options, and through discussions with funders, Malawi elected to explore whether using a financing facility based on a project implementation unit (PIU) – would meet both current funder fiduciary requirements and support Malawi’s short- and long-term objectives. Malawi is tailoring the financing facility to ensure greatest alignment with LIFE-AR principles.
Taking two key measures will ensure the facility builds capabilities within the government financial system – including technical expertise and human capital − that last and are retained beyond the duration of the initiative, long after the financing facility has done its work:
- Government officers are seconded to work with the facility specialists. This will build the skills and capabilities that can be retained in government after the initiative has finished
- Undertaking a comprehensive assessment of the public financial management system:
- To identify gaps and ensure the facility’s ongoing alignment with LIFE-AR principles
- To identify the bigger, systemic, and long-term capacity building needs for the government financial management system, and to build a workplan to support those needs under a broader national mandate.
The facility will work closely with whole-of-society governance structures, which will be strengthened by LIFE-AR. This mechanism will be a fundamental step in strengthening Malawi’s public financial management system so that support channelled through the system can resume, and for improving Malawi’s track record for directly accessing climate finance.
This will also help strengthen the national system for getting high-quality climate finance to flow to the local level.
LIFE-AR Compact: calling for 'business unusual' at COP26
A new long-term climate finance goal is high on the COP26 agenda. Now, the international community must reflect on how to make this finance high-quality, predictable and accessible.
The LIFE-AR Compact signing event at COP26 this week is a key opportunity for the international funder community to show its support for reimagining the way climate finance is delivered.
COP25 saw six LIFE-AR frontrunners countries and eight development partners sign the compact; at COP26 we hope more members of the international community, both state and non-state organisations – including governments, funders, private sector, civil society and community based organisations − will step forward and show their commitment to this 'business-unusual' approach to delivering effective climate finance that supports lasting change.