It’s been 10 years since that well cited pledge by Parties to the UNFCCC in 2009 to mobilize US$ 100 billion annually to support climate actions in developing countries. A decade on, there are various important questions we need to ask about climate finance: at what scale are funds materializing? Is climate finance diverting other development aid? Is climate finance being prioritized for the poorest and most vulnerable communities (a recent SEI paper suggests not)? And, is the funding that is being “mobilized” actually being spent on the ground?
Here, we take up the last question: there are a lot of commitments being made on climate-related activities in developing countries, but are approved projects actually being executed?
While building SEI’s new online platform for analysing global development finance, Aid Atlas, we noticed some interesting patterns in global finance data, including one that suggests there may be problems implementing climate change activities.
Figure 1 shows the disbursement ratio of total development finance (i.e. funds paid out across all sectors, globally) from 2013 to 2017, alongside the disbursement ratios of finance specifically targeting climate mitigation and climate adaptation. This ratio shows the extent to which funding that has been committed (i.e. approved) has been paid out. A low ratio of disbursements to commitments might indicate, for instance, that there are challenges in executing projects on the ground, or that there are other problems in the delivery of funding.
While the disbursement ratio for all development finance was around 86%, for all finance that had climate change as its principal objective the ratio was only 62%. In other words, approved climate change activities are less likely to be implemented than other activities, or are significantly delayed in their implementation. In reality, it is probably both.
This picture needs to change, given the urgency of addressing climate change, and a first step is to look at why the problem exists. Although the data doesn’t tell us why climate change activities are less likely to be implemented, it does provide some clues.
Are the sectors that climate finance targets the cause of the problem?
It does appear that climate activities tend to cluster in sectors that have a lower disbursement ratio than the global average for all development finance.
Figure 2, from Aid Atlas, shows that around two thirds of all financial commitments from 2013 to 2017 for mitigation are in the energy sector and the transport and storage sector. Globally, the disbursement ratio in the energy sector is 62%, while for transport and storage it is 70%.
Figure 3, for adaptation, shows that funding commitments are clustered under the following sectors: general environment protection; agriculture, forestry and fisheries; and water supply and sanitation. Globally, the disbursement ratio in the general environment protection sector is 88%, in agriculture, forestry and fisheries it is 72%, and in water supply and sanitation is 73%.
In other words, the disbursement ratios in those sectors where climate finance is concentrated are indeed significantly less than the global average for all development aid, which is 86% (see Figure 1).
However, while this suggests that the sectors where climate finance is a contributing factor to the very low disbursement ratios, it doesn’t fully explain them.
Are the climate funds to blame?
Second, the multilateral climate funds report very low disbursements. The climate funds are a unique feature in the climate finance picture, because while other bilateral funders and multilateral institutions are involved in financing other activities beyond climate change, the climate funds focus only on activities that have addressing climate change as their main purpose (with the exception of the Global Environment Facility, which has a broader mandate).
All the climate funds report very low disbursement ratios over the period 2013 to 2017. The World Bank’s Climate Investment Funds (CIFs) disbursed only 19% of funds committed for adaptation, and 12% for mitigation. The Adaptation Fund does better at 57%. On the other hand, while the UNFCCC’s flagship multilateral fund, the Green Climate Fund, reports commitments of US$ 2.44 billion between 2013 and 2017, it reports no disbursements at all over this period (note: this does not necessarily mean it has not disbursed funds, but that nothing has been reported to the OECD).
Oddly, the GCF doesn’t tag any of its activities as principally targeting climate change in its reporting to the OECD’s Creditor Reporting System, which is the data set underlying Aid Atlas.
Finally, the Global Environment Facility (GEF) reports disbursement ratios of 16% for activities targeting adaptation, as Figure 4 shows, and just 7% for finance targeting mitigation.
The GEF also implements projects with objectives other than climate change, and for their financial support in total they report a disbursement ratio of 72% – so the problem does seem to be concentrated around their climate portfolio.
That said, while the climate funds all report low disbursement ratios, they make up only a small portion of total climate-related finance reported to the OECD. So, while these institutions do influence the global picture, they don’t fully explain the poor disbursement ratio for climate finance.
Are the major climate financiers just generally poor at disbursing development aid?
We also explored, using Aid Atlas, whether poor disbursement performance by the largest climate finance providers might affect the low disbursement ratio.
All the biggest providers of climate finance – France, the European Bank for Reconstruction and Development, EU institutions, the US, Germany, and Japan – have a much higher disbursement ratio for non-climate projects than they do for climate projects. So, the problem does not seem to lie with how effective they are at disbursing funds in general.
The data highlights problems – now we have to fix them
Developing countries often criticize the vertical climate funds, like the Green Climate Fund, for being difficult to access. But the data revealed by Aid Atlas shows that this is not the only problem with the availability of climate finance: it is also that funding that is being pledged by donors and then approved for projects and programmes is not being disbursed effectively.
We need to urgently figure out why this is happening and address the problem. It is after all in everyone’s interest that the money that donors commit to projects actually gets spent, and spent wisely, so that developing countries are meaningfully supported in tackling the climate emergency.