Climate Cash Series (III) : What’s good money?
This is part 3 of our climate finance series. Check out part 1 to know what climate finance actually is, and part 2 to see who needs to pay and how much.
In an ideal world, climate finance would flow seamlessly from rich to vulnerable countries. But fair finance flows for climate are often hindered by the unjust global financial architecture. Let’s look at how the money collected actually reaches the countries needing support:
1. How is the money paid?
United Nations Framework Convention on Climate Change (UNFCCC) Funds
The money promised by Global North countries during COPs is mostly collected, managed and invested through UNFCCC funds. These funds provide support for climate action in countries focusing on environmental and societal challenges such as:
- pollution & biodiversity loss (Global Environment Facility);
- building climate resilient energy, transport and industries (Special Climate Change Fund);
- guarding against losses inflicted by extreme weather events in countries that are ill-equipped (Least Developed Countries Fund);
- accelerating climate action (Green Climate Fund);
- compensating for climate damages (Loss & Damage Fund) and more.
The development of funds have come a long way since their inception like including greater representation of global south countries, rather than the richer-country contributors. However, given their complex and vast nature, it’s almost impossible to accurately track and measure all flows of climate finance or assess if they are enough to make a just impact.
Locals in Manila, Philippines call on the Asian Development Bank, a distributor of UNFCCC climate funds, to push for renewable energy projects needed to meet the goals of the Paris Agreement.
Applying for climate funds: To access these precious and competitive funds, applicants (country governments, financial institutions like public banks etc.) need to submit detailed and complicated mitigation / adaptation or loss and damage project proposals outlining the objectives, expected outcomes, and how the project aligns with the fund’s goals. These proposals are then reviewed by the fund’s managing body to determine eligibility and approval for funding. While the criteria for giving approval has become more inclusive of the local people, requiring community consultation, gender representation and proof that the local country has ownership over the project, there is still a long way to go.
Funding bodies must represented by Global South decision makers, be transparent in tracking and measuring their money flows, and support projects that prioritize inclusion of people, particularly groups that have been historially marginalized; local ownership; and community-led decision-making.
Direct partnerships
Rich countries also directly finance climate investments through ‘private’ agreements called Bilateral or Multilateral Partnerships. These are deals between two or more countries to collaborate on specific climate goals and count towards the UNFCCC finance promises.
Women, primarily from the fishing community, gathered in Saint Louis, Senegal to advocate for fair and ambitious JETPs in October 2024.
The Just Energy Transition Partnerships (JETPs) are an example to mobilize funding and support from France, Germany, the UK, US, and the European Union for countries like Indonesia, Vietnam, South Africa which are transitioning from fossil fuels to renewable energy with a priority on equity and social impact.
Snapshot of the money flows from rich to vulnerable countries.
2. What is good quality money?
Grants versus loans
These funds / partnerships often offer a mix of grants (money that doesn’t need to be returned) and loans (borrowed money with better conditions than typical loans). However loans and their interest payments keep countries trapped in debt cycles when most of these countries are already facing a debt crisis. This means governments have less money to spend on public services like healthcare and education, and forces them to keep extracting fossil fuels. In fact, loans and other investments are often a way to make profit for some of these institutions or countries, exacerbating inequalities instead of helping address the climate crisis.
So here’s where adjectives make the difference: we don’t need any kind of climate finance, we need good quality funding!
To ensure that these financial flows are truly fair for all and contribute to energy independence for those who need it most, we must demand that participating funds, governments, and institutions:
- be transparent,
- prioritize grants,
- involve civil society in decision-making,
- respect human rights,
- and invest in proven climate solutions, rather than ‘for profit’ solutions or untested and risky technologies that extend the lifespan of fossil fuels or pose high social risks (such as coal firing, coal gasification and liquefaction, blue hydrogen, gas, carbon capture and storage, and nuclear energy).
3.The road ahead
Governments, international funds and financial institutions control huge amounts of money. They have a choice: investing their money in a liveable climate for us all, or keep fuelling the crisis. They need to give climate finance that supports greater equality and Global South agency. This can only be done by reforming existing financial systems and institutions rooted in old & colonial power structures.
Reforms such as debt cancellation, tax justice, and financial institution overhauls are essential to address global inequalities, promote justice, and empower vulnerable nations.
Check out this video for essential questions we must ask to determine if climate finance is truly fair.
As activists, we need to demand climate finance that is accountable to the needs of those most vulnerable, and we must continue to push for greater transparency of these funds. Whether we’re campaigning for the reform of an institution, or an ambitious money commitment at COP, climate finance must include and represent the needs and agency of those most affected by the crisis.
Join us in our demands for fair and accessible climate finance!
Sources
- https://ndcpartnership.org/knowledge-portal/climate-toolbox/guidebook-writing-green-climate-fund-funding-proposal
- https://www.iisd.org/articles/insight/just-energy-transition-partnershipshttps://100re-map.net/conditional-and-unconditional-climate-action-in-ndcs/
- https://www.adb.org/news/green-climate-fund-accredits-adb-tap-key-finance-asia-pacific
- Climate finance campaigning
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