How effective is climate finance in assisting farmers in low- and middle-income countries adapt to climate change?

Bernard Namanya knows first-hand the complexity involved in helping people living in rural Uganda adapt their livelihoods to conditions surfacing as the result of climate change. “Sometimes, the money disbursed by donor institutions does not even reach the targeted projects and people,” said Namanya, who works with a civil society organization, the Center for Resilient Development, in Kampala, Uganda.  “How can we achieve anything if we do not even know where the money goes? To improve effectiveness, we need to be able to track this money and ensure it arrives at its intended destination.”

These questions underline the importance of SEI’s work in a new Centre of Excellence for Development Impact and Learning (CEDIL) project, which seeks to better understand the mechanisms that boost or hinder the effectiveness of financial instruments intended to support climate change adaptation and mitigation in the Global South.

SEI embarked on the project by soliciting insights from a group of people who work on agricultural adaptation issues in three East African countries – Kenya, Tanzania and Uganda. The online workshop, “How effective is climate finance in delivering adaptation in the agricultural sector?”, gave participants a chance to share information and concerns from their own experiences with related implementation, investment and research efforts.

The issues that arose in the workshop offer a glimpse of problems surfacing even as funding for climate adaptation flows to low- and middle-income countries of the Global South. Participants stressed the importance of finding ways to raise internal, public funding to better leverage external funding opportunities, and to demonstrate political will to address key issues. For example, some sub-national governments in Kenya have formulated climate change legislation that mandates allocation of 3% of annual budgets to climate change issues within their jurisdictions.

Enormous gains have been made in agricultural productivity over the past 50 years in East Africa, according to the Food Production Index by the Food and Agriculture Organization. Yet, the social welfare benefits resulting from decades of advances in the productivity of African farms are now at risk from the impacts of climate change. Extreme events, such as flooding, droughts and heatwaves, are becoming more frequent. These events threaten crops yields, and compound stresses such as poverty and inequality on already poor and vulnerable populations. The majority of people in East African countries live in rural regions that depend on agriculture for their livelihoods.  If no adaptation measures are taken, these countries and other low- and medium-income countries in the Global South are likely to experience long-lasting negative social, environmental and economic effects.

Adaptation to climate change is a growing concern on the international stage. In East Africa, funds earmarked for climate change adaptation planning and implementation are growing, with at least $2.41 billion committed to climate adaptation as a principal objective since 2009, according to Aid Atlas, the online platform of international development finance commitments and disbursements. Data from the Organisation for Economic Co-operation and Development (OECD) show that the majority of funds (57%) targeted agriculture, fishing and forestry.

At the same time, from 2009 to 2018, development finance to East Africa targeting climate adaptation has been characterized by a low disbursement ratio. That is, the amount disbursed as a percentage of the total amount comitted or approved was 52.7% – significantly lower than the 84.4% disbursement ratio for all development finance worldwide over the same period. Low disbursement ratios could indicate that there are challenges implementing projects, or that funding was subsequently re-directed after approval.

Investment decisions in traditional development aid are based on years of intervention and measurement. In the case of adaptation, project implementation is fairly recent, and has been largely characterized by a “learning by doing” approach. New concepts – such as climate-smart agriculture, nature-based solutions, and community-based approaches – try to address the complex interlinkages among sustainability issues. These issues include food security, poverty reduction, protection of local ecosystems, gender equality, and mitigation of and adaptation to climate change.

Such efforts have been going on long enough to begin drawing conclusions on what has actually worked in agricultural adaptation, based on both the academic literature and in-the-field experiences. Answering this “What works?” question is essential to understand what measures offer the most promising interventions, and to ensure the best use of resources targeting adaptation needs in the developing world.

The question has taken on additional urgency in light of the ongoing global COVID-19 pandemic, which is expected to “shape the future of international development policy for years to come”, as a June 2020 UK Parliament committee report on the allocation and administration of UK international development aid underscored. As the Secretary of State for international Development said in the report, “The COVID-19 pandemic threatens to undo 30 years of international development work, with a bleak picture for the world’s poorest”. Moreover, in East Africa, rural populations are facing a “triple threat” of locusts, COVID-19 and flooding  – a stark reminder that future adaptation plans must address complex and overlapping issues.

Evaluation and monitoring of adaptation finance have so far focused mainly on transactional characteristics, such as deployment and access to finance. There is currently no broad consensus on how to measure the effectiveness of financial interventions. Many projects do not put targets in place at the beginning to help to evaluate effectiveness. Moreover, the absence of tracking and transparency of financial flows makes assessing on-the-ground impacts difficult.

Indeed, climate adaptation is difficult to assess, because of its complex nature and its long time horizon. Benefits can be observed only years or decades after the end of a project, and even then they cannot always be attributed to a specific intervention. Projects are often local, targeting a specific group of people or sector, and questions may linger about scalability or applicability in another context. Adaptation has great potential to tap synergies between several sustainability targets. However, when these components are not well integrated, “adaptation” can instead lead to maladaptation. It is therefore almost impossible to design a single evaluation and monitoring framework that could be used everywhere. Depending on the crops, climate, or cultural interactions of a given village, the solutions to a similar problem might be different.

SEI’s work will provide a systematic review of existing, related literature, and analysis of the effectiveness of projects that received financial support from the UK Department for International Development, which funds CEDIL. The project aims to provide insights that will contribute to the expansion of effective climate finance instruments in the Global South.