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Expert perspectives: enhancing equity in climate finance

Expert Comment

Written by Alejandra Lopez, Anoop Poonia, Laetitia Pettinotti, Michai Robertson, Mizan R Khan, Raju Pandit Chhetri, Sara Jane Ahmed, Yue Cao

Image credit:The action zone and globe at the Hydro, COP26. Karwai Tang/ UK Government / CC BY-NC-ND 2.0

Equity is enshrined as a core principle in the United Nations Framework Convention on Climate Change (UNFCCC, or ‘the Convention’), including in the ‘common but differentiated responsibilities and respective capabilities’ principle.

However, the current climate finance system is perceived to be inequitable — and more worryingly, that equity cannot be achieved in the current climate finance system given the perceived double standards, imbalance of power and contradictions throughout.

Upholding equity in climate finance would demand that countries with more historic responsibility for climate change and greater capacity to provide finance to those with lower levels of responsibility and less capability. From there on, the equity question permeates all climate finance dealings: its quantity, quality, modalities of access and accountability, its split between mitigation and adaptation, its linkages with the climate consistency of all finance flows.

For that reason, we have authored a scoping report outlining key perceptions related to equity in climate finance, to serve as a jumping off point for deeper explorations as we work to support enhanced equity in our response to climate change.

This companion blog showcases insights from a range of experts working on climate finance and equity. They share their perceptions on barriers to achieving equity in climate finance and the financing of climate action, as well as on the overall treatment of climate finance under the Global Stocktake (GST), where countries come together to assess progress towards the goals of the Paris Agreement.

These questions are further explored in the related report.

Raju Pandit Chhetri

To work towards equity in climate finance, we have to unpack what equity looks like and better prioritise who receives the funding. Distributive justice requires meaningful engagement across many considerations and complexities. Particularly in the context of negotiations, the issue of vulnerability can be sensitive in relation to equity. Inevitably, the division of resources can be deeply unfair and overlook the ongoing challenges of key country groups such as least developed countries (LDCs) and small island developing states (SIDS).

There is the question of human rights and political concerns in climate finance. Sanctioned countries with climate vulnerability often get very limited funding, for example, Iran. While the Convention does not refer to human rights, the Preamble of the Cancun Agreements adopted at COP16 in 2010 does acknowledge the applicability of a human-rights framing and emphasises the need for all Parties to “fully respect human rights”.

Historically, accountability for climate finance has been structured upwards rather than downwards, with donor interests far outweighing the needs of recipients. The setting of climate finance access criteria is often driven by multilateral development banks (MBDs) and LDC threshold criteria are determined by the UN, all without much perspective or input from developing countries and without consideration of climate change vulnerability.

It is clear that finance deliberations in and processes following the Convention and Paris Agreement have become too complicated. Many bodies have been instituted and committees continue to meet, however, politics have held back progress and action towards equity.

Mizan R Khan

Clear inequities exist in climate finance support. Article 9.4 of the Paris Agreement, the Green Climate Fund (GCF) which pledges a 50:50 balance and the latest Glasgow Climate Pact, have all agreed for a balance between mitigation and adaptation — however, climate finance remains elusive as ever.

This bias for mitigation is evident in private, bilateral and multilateral funding, and even in NGO funding. This is because mitigation anywhere delivers global benefits, but adaptation is viewed with a narrow, territorial framing. Around 25% of climate finance goes to adaptation, of which only 20% is delivered to LDCs — this means only 5% of adaptation finance goes to the countries with least capabilities.

Sara Jane Ahmed

Effective delivery of climate finance requires a fit-for-climate global financial system and institutions enabled to support economies at the frontline of the climate emergency. Considering international volatility and spiking prices of fossil fuels, we need to consider decarbonization as a resilience building strategy — to reduce exposure to inflationary pressures and volatility.

We need to be far more systematic about how the low-carbon transition can be financed, especially in countries facing serious cost of capital barriers and dire debt sustainability challenges. We need to unpack and consider redesigning and improving options such as debt-for-climate swaps, climate-smart debt restructuring and debt relief.

Anoop Poonia

Equity in climate finance is not resolved in a linear fashion — where developed countries only need to pay for historical and future emissions to developing countries, without taking into account the quantified costs of missed opportunities and time lost when developing countries and communities have to adjust their lives, livelihoods and assets as their living environment undergoes an unprecedented change due to a warming climate.

In an imperfect world, equity is not resolved unless it is tied to the strategic interests of all parties — including developed and developing countries. The cooperation needed on climate finance can be suitably achieved if the framing is that of shared security and shared prosperity based on protection of and access to natural resources, mutual trade relations and national defence goals that allow countries to mainstream climate cooperation into global diplomacy.

Alejandra Lopez

Fossil fuel revenues continue to be an important source of public income in many developing countries. A low-carbon transition implies that they will lose these revenues, just when they need to support and reskill their workers, and while they face new climate-induced shocks and stresses. In addition, the actors driving climate finance — donors, MDBs, development finance institutions (DFIs) and the financial sector — are investing far more in fossil fuel and high emitting industries and sectors than in climate finance.

Yet, negotiators and practitioners often implicitly suggest that some countries are less eligible for finance to enable climate transition than others. The GST has to make a realistic assessment of the responsibilities and obligations of developed countries, what they haven’t delivered and what they urgently have to do in the next few years in order to drive the 1.5ºC transition in all developing countries.

Michai Robertson

The origins of the current climate finance goal of USD 100 billion a year were based on inequity, as this arbitrary number was agreed among major powers behind closed doors. At COP26, countries began negotiations on the New Collective Quantified Goal on Climate Finance that will replace the previous 100 billion target from 2025.

The Glasgow Decision outlines that the deliberations will be conducted in an ‘open, inclusive and transparent manner, ensuring participatory representativeness’. However, it is unclear how just or inclusive this process will be.

With the 1st Technical Expert Dialogue for the new goal in March 2022 there were noticeable issues in participation, stemming primarily from a perfect storm of COVID-19 restrictions and standard logistical concerns such as participation costs and virtual participation. This was especially the case for experts from SIDS and the SIDS’ private sectors in general, and such aspects must be addressed.

Beyond procedural equity, substantive equity must be operationalised, principally for SIDS, in the provision of scaled up finance and efficient access under the new goal. This prioritisation is grounded in SIDS’ unique combination of special circumstances, including our size, population, geography, remoteness and particular vulnerability to climate change and other external shocks.

Under the new goal, the responsibilities of developed countries — to maintain their existing financial obligations under the Convention and to take the lead in current mobilisation — would, among other things, require the full and quantifiable operationalization of SIDS prioritisation, in order for there to be truly equitable outcomes.

Conclusion

Climate finance has long been one of the most contentious issues in international climate negotiations. The topic features this June at the 56th session of the Subsidiary Bodies, mid-year deliberations between the annual climate COPs — with discussions focusing on climate finance under the GST of the Paris Agreement and the assessment of progress on long-term goals.

With the GST process conducted ‘in light of equity’, the Independent Global Stocktake (iGST), a consortium of civil society organisations, is driving new research and conversations on equity in the finance themes of the GST. Given the many perspectives on the issue — as seen by the diverse analyses of this blog’s co-authors — the GST process will need to explicitly acknowledge equity challenges and accommodate the many voices and perspectives, in its assessment of progress on climate finance and financing climate action in view of greater collective climate ambition and action.