How can climate finance work better for Small Island Developing States?

Climate finance is the backbone of climate action in many countries.

A recent report estimates that global climate finance reached a record high of US$ 437 billion in 2015.  But this record figure hides a less impressive reality when looking at specific regions, especially when looking at Small Island Developing States (SIDS).

Regional reports on climate finance from the OECD Creditor Reporting System for 2010 to 2015 in the Pacific and the Caribbean, and recent analysis for Indian Ocean and African SIDS show that, with the exception of the Pacific, there is no dramatic increase of flows from developed to developing countries in SIDS regions.

Moreover, while there is a much discussion around vulnerability, most of the funding is going to mitigation rather than adaptation (with the exception of the Pacific).  And it has been focused on a relatively small number of sectors, mainly “general environment protection” and “energy”. The analysis also shows that there seem to be some issues with disbursement specifically for climate change, and that reaching the most vulnerable remains an important challenge.

At the UN climate talks in Bonn in November, representatives from the Pacific, the Caribbean and the Indian Ocean met with SEI to discuss why this is the case and proposed ways forward for making climate finance work better for SIDS. Below are the main takeaways from the discussions.

• Continue support for direct access. SIDS face particular challenges of capacity due to their relatively small populations, as well as high transaction costs simply because some islands are just very remote. Systems where “middle-man” institutions, such as development banks, pay at the end of a project don’t work for SIDS. That’s why direct access is so important, because it will allow domestic institutions to structure the disbursement schedules according to countries’ needs.

• Work in parallel on a pipeline of activities while applying for direct access. Getting direct access to funds, such as the Green Climate Fund, can take a few years after the first contact between the fund and the country. So working in parallel on the actions will buy precious time, and can also redistribute risk because actions can be funded through different sources.

• Evaluate capacity support. While the issue of capacity is always brought up when talking about SIDS, there is little evidence on whether or how capacity support has made a contribution. Evidence on what works and what doesn’t is key to making progress.

• Move away from a project approach toward a programmatic one. Transaction costs are an issue with small or short-term projects, and particularly for SIDS.Allowing countries to propose programmes and establish links with wider development purposes is a smart way of reducing transaction costs. Tonga, for example, has agreed with the Green Climate Fund that they are going to use their Joint National Action Plan Taskforce for Climate Change and Disaster Management as a programmatic framework.

• Share information and use regional institutions. Partnerships with regional agencies are key for small states. They act as extensions of national organizations and it is important to recognize and use that role, and they are able to share knowledge and information at the regional level.

• Make climate finance reach not only vulnerable countries, but also vulnerable communities. We need to look beyond the national scale to ensure that countries use climate finance to reach to those that need the funding the most. While institutions like the Green Climate Fund should be able to support countries to do this, countries need to pursue this kind of shift themselves. At the meeting Lia Nicholson, representing Antigua and Barbuda, said, “We need to look at the GCF as a giant start up, in which we are all stakeholders and we should have a say in helping it to become what we want it to be.”

Nella Canales is an SEI research associate and co-author of recent SEI analyses of climate finance flows in Small Island Developing States.