Understanding the Impact of Climate Finance Transparency
Key Takeaways:
Enhancing climate finance transparency is essential to achieving mitigation and adaptation goals, especially for vulnerable countries with limited resources.
Transparency can assume two directions: First, an ex-ante perspective, which is forecasting climate finance needed in the future to reach climate goals. Second, an ex-post perspective, which is tracking and reporting historical climate finance flows towards mitigation and adaptation objectives to record and analyze spending and determine climate finance gaps.
Reporting on the financial support received is important because it contributes to global transparency and conveys how much climate finance has been provided from developed countries to developing countries. Additionally, reporting assists in mobilizing funding and managing resources for developing countries from (international) investors and donors.
The climate finance transparency guidance currently being developed by CCAP in collaboration with ICAT offers step-by-step approaches and practical tools for developing countries to enhance transparency in climate finance. The forthcoming guidebook will be published in the spring of 2024, and CCAP, alongside ICAT and its partner countries, will be hosting an official COP28 Side Event in December on this topic.
Addressing the Gap in Climate Finance Mobilization
As we continue to approach the upcoming Conference of the Parties (COP28) in Dubai, policymakers should find it beneficial to reflect on and examine key discussions raised during the previous conference convened in 2022. The challenges of climate transparency and tracking were at the forefront of COP27 in Sharm El-Sheik, with substantial discourse centered around the lack of climate finance mobilization.
Party leaders around the globe expressed serious concerns surrounding the goal for developed countries to jointly mobilize $100 billion USD per year by 2020, which has come up short as we prepare to enter the latest iteration of climate negotiations. As a response, under the Sharm El Sheikh Implementation Plan, country Parties urged investors and shareholders of Multilateral Development Banks (MDBs) and International Financial Institutions (IFIs) to define a new vision to address the global climate crisis for the first time, which has been titled the "new reform of the financial system."
Furthermore, parties acknowledged the need to create the highly anticipated Loss and Damage Fund, marking a significant advancement towards providing funding to the most vulnerable countries. This move introduces a new framework of financial architecture and language that will accompany already-existing finance mechanisms.
In addition, country Parties decided to set a New Collective Quantified Goal (NCQG) on climate finance by 2025. The NCQG seeks to accelerate the implementation of Article 2.1c of the Paris Agreement, which aims to shift all finance flows towards low greenhouse gas emissions and climate-resilient development. It specifically opens the door to enhance the transparency of public and private finance alignment to the Paris Agreement.
In response to these climate action initiatives, many countries have submitted Nationally Determined Contributions (NDCs) – self-defined national climate pledges – and have developed national Long-Term Strategies (LTSs) – long-term visions for low-carbon and climate-resilient pathways. Despite implementing NDCs and LTSs, country parties and other stakeholders have acknowledged and expressed concern that financial resources and investments are still insufficient to effectively combat climate change in developing countries.
Considering these novel goals, frameworks and strategies, it is evident that improving the clarity of climate finance flows is imperative to materialize mitigation and adaptation goals, especially for countries that have limited resources and are the most vulnerable to the impacts of climate change.
Insights into Climate Finance Transparency: A Key Tool for Policy Practitioners to Mobilize Funding for Climate Action
Transparency is central to the Paris Agreement. The Enhanced Transparency Framework (ETF) specifies reporting requirements in order to maximize country parties’ efforts in climate action and to support transparency while tracking the progress towards climate finance goals. This includes reporting on the financial support provided as well as the financial support received through Common Tabular Formats (CTF). Reporting on the financial support received as part of the Biennial Transparency Report (BTR) is important because it contributes to global transparency and conveys how much climate finance has been provided from developed countries to developing countries. Additionally, reporting also aids mobilizing resources from (international) investors and donors, since the need for financial support is clear to these constituents.
Enhanced transparency on national spending and the climate finance and investment flows provided by international sources – both from public and private sectors – is essential for developing countries to effectively manage limited resources and strategically mobilize additional funding for essential areas. The concept of transparency describes the acts of ‘making visible’ and disclosing information and is closely linked to the processes of generating, accessing and analyzing data. Transparency is the foremost element in mobilizing climate finance where mutual trust and integrity are vital. It entails gaining clarity about the size of climate finance flows and sources and recipients of climate finance, as well as targeted sectors and contributions to mitigation or adaptation within the national landscape.
As such, transparency can assume two directions. First, an ex-ante perspective, which is forecasting climate finance needed in the future to achieve climate goals. Second, an ex-post perspective, which is tracking and reporting historical climate finance flows towards mitigation and adaptation objectives to record and analyze spending and determine climate finance gaps. Comparing the ex-ante and the ex-post perspectives serves the following objectives:
Enabling countries to quantitatively identify gaps between the costs of their NDCs or LTSs and their current climate finance landscape.
Supporting countries report their financial support needed from international donors and to the UNFCCC to comply with the ETF.
Supporting countries to use these transparency insights to facilitate mobilization of additional resources from international, public and private sources.
Enabling countries to use transparency insights to manage domestic resources effectively.
To put climate finance transparency into practice, multiple tracking methodologies and definitions for classification have been developed to better monitor climate finance flows, both nationally and internationally. There are multiple systems in place that attempt to track accurate inflows and outflows of resources at many different levels within a country. Yet, the lack of an internationally-agreed-upon definition of climate finance has been a barrier to countries tracking climate finance flows in a more accurate and harmonized manner.
CCAP Partners with ICAT to Develop a Climate Finance Transparency Guidance for Developing Countries
CCAP has aligned with the project implementation partner Gauss International to develop a guidance on climate finance transparency for the Initiative for Climate Action Transparency (ICAT). The guidance provides user-friendly instructions and recommendations for developing countries to construct a climate finance transparency framework. It comes with practical step-by-step approaches and actionable tasks that countries can follow. By providing methodologies and tools with consideration of a broader range of applicability from basic to advanced levels, the guidance aims to support as many countries as possible in their efforts to enhance climate finance transparency.
The main objectives of the guidance are:
To develop an overarching climate finance transparency framework that facilitates the integration of climate finance data into the national transparency framework in the context of NDC implementation.
To provide support to policy practitioners in developing a framework to assess the climate finance needed and received as an element to support the implementation of their revised NDCs and reporting under the Paris Agreement’s ETF.
The core section of the guide presents a step-by-step approach to accompany countries through a five-phase process in establishing and operating a climate finance transparency framework.
The step-by-step approach starts with an inception stage (Phase 1 and 2) that guides the country in setting up the climate finance transparency framework and establishing definitions, parameters and institutional responsibilities. The inception stage is followed by an operational stage (Phases 3-5) that includes the ex-ante estimation of the cost required for NDC implementation, and the ex-post monitoring and verification of climate finance flows, as well as the sharing of results for policy making.
Figure 1. The 5 Phases of Climate Finance Transparency Framework
Source: CCAP based on the review of international methodologies and the Integrated National Financing Framework (INFF) framework
This framework is a tool for countries to be used to target Articles 2.1c, 9 and 13 of the Paris Agreement. It could also be useful for stakeholders ranging from policymakers, policy practitioners and climate finance transparency experts to advocate—during climate negotiations—for specific actions to mobilize additional funding for mitigation and adaptation initiatives.
CCAP Endorses Knowledge Sharing and Advocacy for Climate Finance Transparency
As part of the knowledge sharing criteria for the project, CCAP co-organized an Official Side Event during COP27 with ICAT and the government of Nigeria. The governments of Belize, Senegal, Nigeria and South Africa also served as panelists. The event provided a platform for fruitful conversation on countries’ current climate finance transparency challenges, while giving them a chance to discuss best practices learned from their unique experiences.
To date, the Guide was presented three times in 2023 at the ICAT Partner Forum, the Global NDC Conference and at the Climate Finance Tracking Workshop.
To ensure practical applicability of the guidance, Gauss International is starting to implement the guide in four countries – Senegal, Ivory Coast, Belize and Morocco. As a result, this initiative has enabled CCAP to collect feedback from the countries’ practitioners to adapt and reflect on challenges and best practices experienced by them. CCAP and ICAT will co-organize a workshop to congregate climate finance and transparency experts to comment and discuss the guidance for plausible implementation and usage in more countries. The Guidance is projected to officially be published in spring of 2024.
Stay tuned!
Climate finance tracking and transparency is a highly pertinent topic, and with COP28 approaching quickly, it is inevitable that these discussions will continue. CCAP is excited to be hosting discussions and to continue sharing information with interested actors to foster conversations and sustain the momentum with countries and practitioners. In the meantime, please follow along our blog series to discover the intricacies of the Five Phases of the Climate Finance Transparency Guidance!
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CCAP’s mission is to support every step of climate action, from ambition to implementation. A recognized world leader in climate policy and action, CCAP creates innovative, replicable climate solutions, strengthens capacities, and promotes best practices across the local, national, and international levels to accelerate the transition to a net-zero, climate resilient future. CCAP was founded in 1985 and is based in Washington, DC.