Climate change finance: Funds, funds everywhere, but where is all the money?
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Climate change finance: Funds, funds everywhere, but where is all the money?

There is an abundance of funds seeking to channel money into climate finance projects in vulnerable countries, with the Green Climate Fund in the vanguard. But why is so little money reaching the countries that need it?

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There is no shortage of funding available for climate-related projects. Climate Funds Update, a data website, provides details on 26 operational climate-related funds, from the Congo Basin Forest Fund to Australia’s International Forest Carbon Initiative. 

Among the multilaterals alone, there are funds backed by the United Nations Development Program, the World Bank, the Global Environment Facility – itself a product of UN and World Bank predecessors – the regional multilaterals of Asia and Africa, and the Adaptation Fund that came out of the United Nations Framework Convention on Climate Change (UNFCCC).

Choice and diversity are usually good things, but only to a point. 

“From a recipient perspective, it is often a maddeningly complex array of funds,” says Frank Rijsberman at the Global Green Growth Institute (GGGI).

Oxfam notes: “The drawbacks of this multitude of funding sources are that finding the most suitable source becomes more difficult and the different administrative requirements and timeframes impose additional reporting burdens on recipient countries.”

Funding mechanisms do not often take into account the size and capacity of smaller countries, particularly Pacific islands


Preety Bhandari, Asian Development Bank

“All these funds come with their own policies and procedures and formats,” says Preety Bhandari, director of the climate change and disaster risk management division at the Asian Development Bank (ADB). “What is the capacity of these countries to access these funds?”

Institutions like the World Bank and Asian Development Bank can help, but as Bhandari says: “Even if they go through the ADB, there is that extra hoop you have to go through to meet the additional requirements. It all adds to the transaction cost.” 

Issues like this have come to the fore with the Green Climate Fund (GCF), set up by the parties to the UNFCCC, which predates the Paris Agreement but became important because of it. The pledge to mobilize $100 billion a year by 2020 into climate change finance specifically mentioned the GCF, with a share of new funding to be channelled through it. 

It is distinguished from other funds in several ways. It is intended to run a balanced portfolio, with a 50:50 split between mitigation and adaptation investments and to have at least 50% allocated to particularly vulnerable countries like those who make up the Vulnerable Twenty Group. 

It manages this project portfolio alongside what are called accredited entities, which develop funding proposals and manage projects and programmes for applying countries. There are 54 of them so far and 190 seeking accreditation, most of them in a very early stage of the process. 

Of the 54 to have met the grade, 24 are direct access entities, 22 are international access entities and 8 represent the private sector. An accredited entity can be private or public, national, regional, international, governmental or non-governmental, provided it meets the standards of the fund. 



International access entities would include the ADB, African Development Bank or private-sector banks including Bank of Tokyo-Mitsubishi, Deutsche Bank, HSBC and Crédit Agricole; direct regional agencies would include the Caribbean Development Bank, Development Bank of Southern Africa and the Micronesia Conservation Trust; and direct national agencies would include the Korea Development Bank, Rwanda’s ministry of natural resources, the Environmental Investment Fund, Mongolia’s XacBank and Kenya’s National Environment Management Authority.

So, for example, if you look at the Tina River Hydropower Development Project in the Solomon Islands, a $234 million project in which GCF will provide a $70 million loan and a $16 million grant alongside a host of multilaterals and a private investor, the Solomon Islands does not apply to the GCF directly, but through an accredited entity, in this case the World Bank. 

And where Tajikistan has raised $133 million for the development of its own hydro sector, including a $27 million loan and $23 million grant from the GCF, the accredited entity is the EBRD. For the Simiyu Climate Resilient Development Programme in Tanzania ($153 million, including a $109.6 million GCF grant), it is KfW. 

The fund is also considered unique for its ability to engage directly with public and private sectors in climate-sensitive investments. It has a private-sector facility and can bear big climate-related risk, so it can leverage additional financing. It can offer grants, concessional loans, subordinated debt, equity and guarantees. 

It is also distinct for its model of country ownership, which means ensuring that developing-country partners exercise ownership of their climate-change funding plans. Each country appoints a National Designated Authority to act as the interface between their government and the GCF.


The numbers look pretty good at first glance: $10.3 billion has been pledged. Some $2.2 billion has been committed, creating a total of $7.5 billion of mobilized investment including co-financiers; 43 projects, 20 of them in Africa and 17 in Asia Pacific; 125 million beneficiaries in terms of increased climate resilience; 981 million tonnes of carbon dioxide-equivalent avoided. 

But it is important to understand that $2.2 billion of commitment is not the same as $2.2 billion of money reaching the countries that need it. That figure is rather different. As of mid-August, GCF had disbursed just $52.25 million to its accredited entities, including $26.4 million from the private-sector facility. How much has then left the accredited entities and gone to the projects is unclear. Certainly, none of those projects mentioned – the Solomons, Tajikistan and Tanzania – have received any of their committed financing yet. 

Disbursement is finally starting to happen – a total of $15.5 million in August alone, to projects in Armenia, Sri Lanka and Samoa. 

“Disbursement has been picking up pace during the past few months,” says a spokesperson in written answers to queries from Euromoney. The fund declined an interview but said its July board meeting had adopted a series of decisions designed to improve the approval process. 

There is frustration among recipient countries wanting money they urgently need and supposedly among some GCF insiders who want to put money to work. 

Those familiar with the process describe a logjam. 

“There is no shortage of proposals piling up through the ADB, EBRD and UNDP, but we badly want direct national access entities,” says Rijsberman. “And even if they are accredited, 80% of them are not functioning. They are not actually submitting.”

It is all a little misleading. 

“You read these approvals from the GCF and they think they have got the money, then there are three to five conditions that all have to be met before the money can be sent,” adds Rijsberman. “It means another three years before the money is dispersed.

Frank Rijsberman, director general of the Global Green Growth Institute

“You can say: ‘We won’t give you the money until you are ready’, or you can say: ‘We approve the money, but you’ve got to do these things.’ But the country thinks they have approval but have still got to have their strategy and so on in place. There’s all that sticky homework that still has to be done. It’s not impossible, but it’s a hard exercise, especially for these small island countries: the capability of those countries is extremely small.

“We do quite a bit in the Pacific and they are all overwhelmed with stuff they have to do.”

The GGGI, originally a think-tank, is now greatly focused on assisting countries to navigate this sort of bureaucracy. “It is almost our raison d’être,” Rijsberman says. 

Initially, the group helped governments to develop green growth strategies, but many of these have since been replaced by National Determined Contributions, which are the pledges each country must make under the Paris Agreement spelling out the actions they will take on climate change.

Now, the group looks at these commitments with a practical eye. “We say: ‘OK, you’ve put your line in the sand with your NDCs, but do you know what it means, what you have to do practically to implement that?’” Then they try to create bankable projects and financial mechanisms to make those things happen, such as changes to Thailand’s automotive industry or a fund in Mongolia to swap low-grade coal burners for something more efficient. In some cases, these can be handled through national finance schemes within the country itself. 

“If you access debt finance or project finance in-country, you don’t have to go through the hoops of the GCF,” says Rijsberman.

But often it means helping countries understand exactly what they are expected to do. 

“The hoops you have to jump through are quite high,” he says. “If you are a commercial bank in Mongolia, navigating the international bureaucracy and understanding what the GCF wants or what the safeguard policies are… the capacity to come up with good proposals is harder than it sounds. Most national banks know how to deal with national loans. International finance is new to them.”

For Oxfam, improving access to the green climate fund is the number one area for strategic action. 

Readiness support

The GCF is not blind to this challenge and has a programme called readiness support, which provides resources to strengthen the institutional capacity of a country (through its National Designated Authority, more often than not a finance or environment ministry), so it knows how to engage with the fund. 

So, for example, in December 2016 Vanuatu in the Pacific Ocean was awarded a grant of $157,000 under the readiness programme, enabling it to “better tailor climate change projects and programmes for optimal impact,” the GCF says. 

Vanuatu got its National Designated Authority – in this case the ministry of climate change – alongside the regional accredited entity, SPREP, to submit a readiness proposal to GCF, asking for support to help it better understand its climate information and the services it needed. 

The funding was used to work out how best to help agriculture, infrastructure, water, fisheries and tourism in Vanuatu by meeting community and national stakeholders, government officials, planners, policy developers. The resulting analysis was used as evidence that Vanuatu should go ahead with a full project proposal. 

Vanuatu was one of the first to have gone through the entire GCF project cycle from readiness to funding approval, and is considered best practice in project development. But all that has only really got Vanuatu to the start line, ready to apply for real money to do real projects to make a real difference.


The lessons of putting a price on carbon

Jonathan Drew, managing director in the infrastructure and retail estate group, at HSBC says that the main question for climate finance is how investment can be scaled up by the multiples required. “It is going to be very difficult to see that happening,” he says, “while the enemy here, carbon, is priced at zero.

“We somehow have to attach a value to carbon if we are going to mobilize market forces and private sector capital to invest in eliminating it.”

We have been here before, of course. The Clean Development Mechanism (CDM), which came out of the Kyoto Protocol in 2007, was an attempt to make carbon tradable by allowing developed countries and companies to meet emission reduction commitments by buying units linked to climate-friendly projects in the developing world. 

It worked to a point: over 8,000 CDM projects were registered, representing $300 billion of clean energy and emissions-reduction investment. It has been estimated that without the CDM, global emissions would be 1% higher. 

But it had problems, too, and now people talk about it in the past tense. CERs, the units of the clean development mechanism, trade for a few cents per tonne of carbon dioxide, many project developers and hundreds of projects have collapsed, and it is no longer considered a functioning market. 

Politically, it is a difficult subject. The EU, one of the few places that took the Kyoto Protocol seriously, suffered reputationally from the failure of the CDM. Australia’s current prime minister, Malcolm Turnbull, lost his first shot at power over a pledge to put a price on carbon. 

It is certainly not coming any time soon in the US. Today, China is taking the lead, implementing a quota system leading to cap and trade between the provinces.

CDM demise

Several lessons came from the demise of the CDM. One was that, lacking specific direction, it was powerless to decide where the money would go in a private market. 

“The issue with CDM was that all the money went where the lowest-cost opportunities were, which meant that 80% went to China,” says Abyd Karmali, managing director, climate finance at Bank of America Merrill Lynch. 

Frank Rijsberman at the Global Green Growth Institute agrees. 

“If you look at the Clean Development Mechanism, who got that? China and India,” he says. “The others, certainly small islands but even Vietnam, could not.”

These lessons have been brought to bear in the design of the Green Climate Fund, now the most important fund in climate change finance. 

“In the Green Climate Fund, for example, there is a specific quota for Africa and Sids [small island developing states],” says Karmali. “That is a good example of learning from what happened with the CDM and making sure there is a more equitable allocation of the fund’s capital. 

“CDM was open to every technology and every eligible country,” adds Karmali. “If there is an intention to try to direct to more needy locations, such as the V20, there would need to be a shortlist created of eligible projects focused on those places.” 

This, indeed, is what GCF is doing. “It’s a smart way to bring in different ideas and test the waters,” Karmali says.

We are still a long way from a global carbon market and may be further away than ever from a workable market based on project credits flowing into an emissions trading system.

But one should not necessarily think of CDM as a total failure. 

“CDM had its pros and cons, but what is often forgotten is that towards the tail end of its life, it was succeeding in attracting capital to more challenging places, and to me that’s reassuring,” says Karmali. “It means if we had the right limitations on where the market mechanism could be eligible, private capital would come.”

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