The Global Climate Climate Finance 2 Finance Architecture Fundamentals Charlene Watson, ODI, and Liane Schalatek, HBS FEBRUARY 2021 limate finance remains central to achieving low-carbon, climate resilient development. The global climate finance architecture is complex and always evolving. Funds flow through multilateral channels – both within and outside of the United Nations Framework Convention on Climate Change (UNFCCC) and Paris Agreement financial mechanisms – and increasingly through bilateral, as well as through regional and national climate change channels and funds. Monitoring the flows of Cclimate finance is difficult, as there is no agreed definition of what constitutes climate finance or consistent accounting rules. The wide range of climate finance mechanisms continues to challenge coordination. But efforts to increase inclusiveness and complementarity, as well as to simplify access, continue. Introduction: climate finance A study commissioned by the French and Peruvian Climate finance refers to the financial resources mobilised governments, in their respective capacities as Presidents to fund actions that mitigate and adapt to the impacts of COP 21 and 20, concluded that USD 62 billion in of climate change, including public climate finance public and private sources were directed to developing commitments by developed countries under the UNFCCC, countries from developed countries in 2014 (OECD, 2015). although a definition of the term ‘climate finance’ is yet to This increased to USD 71 billion in 2017 and USD 79 be agreed internationally. In the 2009 Copenhagen Accord billion in 2018 (OECD, 2019; OECD, 2020). It is notable (UNFCCC, 2010), and confirmed in the Cancun decision that in this wider reading of climate-related funding a (UNFCCC, 2011) and Durban Platform (UNFCCC, 2012), substantial part comes from the private sector and the developed countries pledged to deliver finance approaching additionality of public finance identified is unclear (i.e. USD 30 billion between 2010 and 2012. While contributor how much of this represents effort over and above existing countries at the end of the fast-start finance period self- development finance commitments). Climate Finance reported that these targets were exceeded (Nakhooda Fundamentals (CFF) 1 presents a longer discussion of the et al., 2013), the Paris Agreement (UNFCCC, 2015) principle of additionality. The second Biennial Assessment reiterated that developed countries should take the lead in and Overview of Climate Finance Flows of the UNFCCC, mobilising climate finance “from a wide variety of sources, released in November 2016, recorded USD 41 billion of instruments and channels” in a “progression beyond public international finance flowing to developing countries previous efforts”. The accompanying Conference of the in 2013–2014 (UNFCCC, 2016b). In 2018, the third Parties (COP) decision agreed to set a new collective goal Biennial Assessment recorded that this had reached USD by 2025 by scaling up from a floor of USD 100 billion 56 billion annually in the period 2015-2016 (UNFCCC, pledged in Copenhagen to be reached annually by 2020 2018). These figures remain relatively small, however, (UNFCCC, 2016a). Many countries have highlighted the compared to global climate finance estimates that take into need for scaled-up international support in implementing account all countries and both private and public finance of their National Adaptation Plans (NAPs) as well as USD 579 billion a year in the 2017–2018 period (Buchner increasing the ambition of their Nationally Determined et al., 2019). Contributions (NDCs) (Hedger and Nakhooda, 2015). Figure 1 presents an overview of the global climate Ensuring that finance and investment is available to realise finance architecture, focusing particularly on public these goals will be the major challenge going forward climate-related financing mechanisms. There are a (Bird, 2017). Developing countries have also made the case number of channels through which climate finance flows, for finance to address loss and damage already occurring including through multilateral climate funds that are in their countries as a result of climate change (Richards dedicated to addressing climate change. Several developed and Schalatek, 2017). countries have also established climate finance initiatives Figure 1: Global climate finance architecture Contributors Australia Canada EU France Spain UK Germany Japan Norway US Denmark Others Subnational GCCA ICF IKI NICFI GCCI Bilateral nstitutions Dedicated climate finance FFEM MDG-F DEFRA NAMA BMZ MOFA Ex-Im GCPF funds and initiatives on CFU Facility Implementing MIES BEIS REM GIZ JBIC NORAD DFC agencies DFAT CIDA AFD DFID KfW JICA NMFA USAID Dedicated climate finance funds and initiatives not Multilateral nstitutions monitored on CFU UNFCCC Financial Mechanisms Non-UNFCCC Financial Mechanisms egional Closed dedicated risk pool COP CAFI PMR climate funds previously Carbon mechanisms tracked by CFU JI CDM Standing Comittee Finance MDBs BioCarbon Fund Market on Finance Africa Risk Capacity *The CIFs are UN Agencies FCPF WB CIFs* administered by the GCF AF GEF˚ World Bank Caribbean Non-market IFAD UNDP CBFF ADB CTF Catastrophe ˚GEF serves as Risk Insurance sectrtariat for all the LDCF UNEP AREI AfDB SCF Facility SPC non-market UNFCCC ASAP funds except the GCF SCCF FAO ACCF EBRD FIP NOTE: The schematic is indicative of public GEEREF EIB SREP climate finance flows PRIVATE UN-REDD Programme and does not capture IDB PPCR all climate finance funds and initiatives ecipients egional and National egional and National Funds Accredited and Amazon Fund Benin National Fund Cambodia Climate Guyana REDD+ Mali Climate Fund Rwanda's Green mplementing ntities for the Environment Change Alliance Investment Fund Fund Bangladesh and Climate Trust Fund Mexico Climate Climate Change Indonesia Climate Change Fund South Africa Resilience Fund Brazilian National Climate Resilient Change Trust Fund Green Fund Fund on Climate Green Economy – Philippines People’s Bangladesh Climate Change Ethiopia Maldives Climate Survival Fund Change Trust Fund Change Trust Fund Implementing Agencies and Institutions Multilateral Funds and Initiatives AfDB African Development Bank AF Adaptation Fund (GEF acts as secretariat and WB as trustee) AFD Agence Française de Développement (French development agency) ACCF Africa Climate Change Fund ADB Asian Development Bank AREI African Renewable Energy Initiative BEIS Department for Business, Energy & Industrial Strategy (UK) ASAP Adaptation for Smallholder Agriculture Programme BMZ Bundesministerium für Wirtschaftliche Zusammenarbeit und CAFI Central African Forest Initiative Entwicklung (federal ministry of economic cooperation and development, Germany) CBFF Congo Basin Forest Fund (hosted by AfDB) CIDA Canadian International Development Agency CDM Clean Development Mechanism (implemented under the Kyoto Protocol) DEFRA Department for Environment, Food and Rural Affairs (UK) CIF Climate Investment Funds (implemented through WB, ADB, AfDB, EBRD and IDB) DFAT Department of Foreign Affairs and Trade (Australia) CTF Clean Technology Fund (implemented through WB, ADB, AfDB, EBRD and IDB) DFC United States International Development Finance Corporation FCPF Forest Carbon Partnership Facility DFID Department for International Development (UK) FIP Forest Investment Program (implemented through WB, ADB, AfDB, EBRD and IDB) EBRD European Bank for Reconstruction and Development GCCA Global Climate Change Alliance EIB European Investment Bank GCF Green Climate Fund Ex-Im Export-Import Bank of the United States GEF Global Environment Facility FAO Food and Agriculture Organization of the United Nations GEEREF Global Energy Efficiency and Renewable Energy Fund (hosted by EIB) FFEM Fonds Français pour l'Environnement Mondial (French global JI Joint Implementation (implemented under the Kyoto Protocol) environment facility) LDCF Least Developed Countries Fund (hosted by the GEF) GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH PMR Partnership for Market Readiness (German technical cooperation) PPCR Pilot Program on Climate Resilience (implemented through WB, ADB, AfDB, EBRD and IDB) IDB Inter-American Development Bank SCCF Special Climate Change Fund (hosted by the GEF) IFAD International Fund for Agricultural Development SCF Strategic Climate Fund (implemented through WB, ADB, AfDB, EBRD and IDB) JBIC Japan Bank of International Cooperation SREP Scaling Up Renewable Energy Program for Low Income Countries (implemented through WB, JICA Japan International Cooperation Agency ADB, AfDB, EBRD and IDB) KfW Kreditanstalt für Wiederaufbau (German development bank) UN-REDD United Nations Collaborative Programme on Reducing Emissions from Deforestation and Forest MIES Mission Interministérielle de l’Effet de Serre (inter-ministerial Programme Degradation taskforce on climate change, France) Bilateral Funds and Initiatives MOFA Ministry of Foreign Affairs (Japan) GCCI Global Climate Change Initiative (US) NMFA Norwegian Ministry of Foreign Affairs GCPF Global Climate Partnership Fund (Germany, UK and Denmark) NORAD Norwegian Agency for Development Cooperation ICF International Climate Finance (UK) UNDP United Nations Development Programme IKI Internationale Klimaschutzinitiative (international climate initiative, Germany) UNEP United Nations Environment Programme MDG-F MDG Achievement Fund (implemented by UNDP) USAID United States Agency for International Development NAMA Facility Nationally Appropriate