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The effectiveness of international climate finance

Research report

Written by Smita Nakhooda

Research report

Maximising the effectiveness of climate change finance is an issue of urgency for both the climate change and development communities, focused on finding the best ways to use relatively small amounts of largely public finance to have the greatest possible impact in enabling climate compatible development.

This paper considers the context in which climate finance is delivered, before turning to present a framework for analysing the effectiveness of international climate funds. The framework identifies ten key and interlinked dimensions that are central to understanding the effectiveness of spending and outcomes of dedicated public finance initiatives that have been established to help countries respond to climate change.

It starts by considering the driving objectives of a multilateral climate fund, setting it in its historical context, and the range of instruments that it has been able to offer. It then analyses five components of effective spending, or the integrity of processes by which funds are: (1) mobilised, (2) governed, (3) allocated, (4) disbursed, and (5) monitored and evaluated.

Next, it considers effectiveness of the outcomes of the fund with respect to an additional five components: (6) scales, (7) engagement with enabling environments, (8) catalytic effects, particularly in mobilising private investment, (9) innovation, and (10) national ownership.

Finally, it analyses the role of the fund in the global international climate finance architecture, and the particular value that it has added. The framework emphasizes the enabling role of public finance in creating the conditions under which low carbon and climate resilient development can become economically viable options for diverse developing countries.

Smita Nakhooda