Climate Finance Provided and Mobilised by Developed Countries in 2016-2020

Considerations relating to transparency, impacts and effectiveness

Abstract

To complement the findings on climate finance provided and mobilised presented in OECD (2022) and in the previous Chapters of the present report, this final Chapter summarises key challenges and opportunities for measuring and assessing the effectiveness of support provided, as well as information and experience available to date in doing so.

Measuring the levels of climate finance provided and mobilised by developed countries in the context of the USD 100 billion goal has been a focus area of numerous stakeholders and organisations to date, including the OECD. However, as climate finance is a means to an end, it is also important to assess its effectiveness in supporting developing countries’ mitigation and adaptation actions. Moreover, developed countries committed to the USD 100 billion goal in the context of “meaningful mitigation actions and transparency on implementation”. Understanding the efforts of developing countries to create this context, as well as the impacts and uses of climate finance provided and mobilised is key to ultimately maximising the effectiveness of such finance.

The effectiveness of climate finance can be understood as its overall ability to attain its stated objectives. These stated objectives can vary widely, and thus effectiveness may have different meanings in different contexts and for different communities (OECD, 2019[43]; World Bank, 2020[44]; Ellis, Caruso and Ockenden, 2013[45]; Ye Zou and Ockenden, 2016[46]; CIF and Itad, 2020[47]). For example, the climate and development communities may emphasise the importance for climate finance to meet the urgent and immediate needs of climate-vulnerable countries, which may not be a priority for the private sector. Questions of how to achieve the effectiveness of development finance have been at the centre of international discussions on development co-operation. In this context, the Global Partnership on Effective Development Co-operation, endorsed by 162 countries and territories and adhered to by 52 international organisations, identifies four core principles of what constitutes effective co-operation: 1) ownership; 2) focus on results; 3) partnerships; and 4) transparency and shared responsibility (Global Partnership for Effective Development Co-operation, 2011[48]).

Measuring the effectiveness of climate finance provided/mobilised and received is not straightforward – even once stated objectives have been agreed. This difficulty in measuring effectiveness is mainly because there are inherent limitations to establishing causal links between country-level outcomes and international support, as the former depend on a multitude of different factors such as national policy choices and broader macroeconomic conditions. A further key challenge relates to the temporal aspects of measuring effectiveness. Some climate interventions will show immediate results, whereas others will lead to results that materialise after a longer timeframe. Identifying a specific point in time for assessing effectiveness can therefore be particularly complex for climate finance interventions aimed at long-term impacts (Ellis, Caruso and Ockenden, 2013[45]; OECD, 2019[43]; Ye Zou and Ockenden, 2016[46]). This challenge is particularly acute where climate finance is not provided to produce direct outcomes, but rather to enable local actors to take action e.g. through enhanced capacity.

Despite these challenges, it is possible to produce evidence of relevance to assessing the effectiveness of specific mitigation and adaptation interventions by relying on the use of benchmarks and performance indicators. Mitigation interventions usually aim at reducing GHG emissions, and several proxies for measuring the effectiveness of such interventions are readily identifiable and used in many cases, e.g. emission of greenhouse gas (GHG) avoided or tonnes of CO₂ (equivalent) reduced or avoided. Many multilateral and bilateral public climate finance providers now include such information in their annual reports and project assessment documentation. However, aggregation of such information remains challenging as different providers report using different methodologies, approaches and indicators.

The final impacts of adaptation interventions, as well as mitigation interventions focused on non-tangible outcomes such as policy interventions or capacity building, are more difficult to measure directly. Hence, they are typically assessed using broader results indicators (Ellis, Caruso and Ockenden, 2013[45]; OECD, 2019[43]; Assouyouti, 2021[49]; Vallejo, 2017[50]; Lamhauge, Lanzi and Agrawala, 2013[51]). International climate finance providers use a range of indicators in this context, including:

• The number of beneficiaries (e.g. number of people supported in preparing to adapt, anticipate or absorb climate-related shocks and stresses);

• Physical infrastructure and assets improved (e.g. kilometres of roads rendered climate-resilient);

• Increased use of resilience tools, instruments and strategies by public and private actors.

Beyond such broad indicators, assessing adaptation progress also requires sector-specific metrics, mainly because concrete adaptation outcomes differ in different sectors or policy areas. For example, the Global Commission on Adaptation proposed a suite of such metrics, including e.g. the proportion of agricultural area under productive and sustainable agriculture, the proportion of the rural population who live within 2 km of an all-season road, or improvements in human productivity in the face of increasing climatic variability (Leiter et al., 2019[52]).

The availability of data and information needed to measure effectiveness and progress against defined indicators, however, remains a key challenge. The current UNFCCC reporting framework, which will remain in place until 2024 before being replaced by the Paris Agreement’s Enhanced Transparency Framework (see further below), requests non-Annex I countries1 to include in their Biennial Update Reports (BURs)2 a number of elements that can be particularly useful in monitoring and assessing effectiveness of international support. These elements include information on mitigation actions implemented and their effects and on financial support received from developed countries (UNFCCC, 2012[53]). Such regular reporting on mitigation actions implemented could help to better understand their impacts e.g. on national GHG emissions. In addition, the activity-level reporting of information on financial support received can be particularly useful for tracking the use of overall inflows of climate finance in any given developing country.

To date, information on mitigation actions implemented and financial support received is only partially available. It is reported by non-Annex I countries at varying levels of detail (Falduto and Ellis, 2019[54]; Ellis et al., 2018[55]). This can be explained by the difficulty in assessing impacts (particularly of adaptation projects) and the non-mandatory nature of developing countries’ reporting requirements under the UNFCCC on these issues. Moreover, current UNFCCC reporting guidelines for biennial update reports (BURs) do not make an explicit link between the reporting on financial support received and mitigation actions implemented, i.e. they do not provide any indication as to whether developing countries shall or should indicate how any mitigation action reported was funded (UNFCCC, 2012[53]). For these reasons, BURs do not constitute a comprehensive basis for assessing the use and impacts of financial support under the UNFCCC.

Many non-Annex I Parties face significant capacity constraints in tracking, gathering and collating the information needed to prepare reports under the UNFCCC. On the ground, climate finance is directed toward multiple actors at national and sub-national levels. In practice, it is the national governments that are reporting such information. This renders detailed tracking particularly complex and challenging in the absence of sophisticated tracking systems (Ellis et al., 2018[55]). While international support has been provided to some developing countries for the preparation of BURs3, many countries state in their BURs that they do not have the technical, staffing and financial resources needed to be able to compile the information requested. As of August 2022, 75 non-Annex I countries had not yet submitted a BUR (UNFCCC, 2022[56]).

The ETF of the Paris Agreement, which provides new reporting guidelines for Parties to the UNFCCC starting from 2024, can play an important role in incentivising both developed and developing countries' efforts in enhancing transparency. In particular, as part of the new guidelines on the reporting of information on financial support received, developing countries will be requested to include in their Biennial Transparency Reports (BTRs) information on the status of the activity supported by financing received (e.g. “ongoing”, “completed”, etc.) as well as on its impacts and estimated results.

At the same time, developing countries’ reporting to the UNFCCC will likely continue to provide only an indicative and limited picture of the support being received and its use due to the complexity of tracking financial flows, and the non-mandatory nature of reporting of this informational element under the ETF. Many developing countries need to develop or strengthen their ability to effectively track and report information on climate finance received and on the implementation of actions that such finance supports (UNFCCC SCF, 2021[9]). Nonetheless, such information, even if limited, will inform a better understanding of the “context of meaningful mitigation action and transparency of implementation” for the USD 100 billion goal, as well as contribute to an improved understanding of the effectiveness of climate finance for both national and international purposes. More broadly, strengthened efforts from both providers and recipients of climate finance in reporting more comprehensively on the impacts of international support can greatly contribute to these aims.

Importantly, strengthened reporting of information on the use, impacts and results of climate finance interventions is important not only for accountability. It can also help identify developing countries' priorities and outstanding challenges, which in turn can help make international support more targeted to address them. Overall, there is a growing recognition that international action needs to look beyond direct results, to be geared towards supporting, enabling and accelerating the transition towards low greenhouse gas emissions and climate-resilient development (OECD/The World Bank/UN Environment, 2018[39]), which has an impact on the approaches for assessing results. The actions required to achieve the goals of the Paris Agreement are inherently linked to countries’ overall national development plans and processes. Indeed, the UN Addis Ababa Action Agenda, stresses that each country has primary responsibility for its own economic and social development and highlights the role of national policies and development strategies (UN DESA, 2015[57]). Consistent with this understanding, supporting the integration of developing countries’ climate change considerations and policies into development strategies, plans and processes is a basic condition and enabler for effective, country-owned climate action (OECD, 2019[58]). 

Notes

← 1.  Non-Annex I Parties to the UNFCCC are those countries that are not listed in the Annex I of the Convention and consist mostly of developing countries. The list of developing countries considered for the quantitative analysis conducted in the first three chapters of this report includes more countries than those in the non-Annex I list.

← 2.  Biennial Update Reports (BURs) are reports submitted by non-Annex I Parties to the UNFCCC. BUR reporting guidelines are outlined in decision 2/CP.17 (UNFCCC, 2012[53])

← 3.  Notably via the Global Environment Facility Umbrella Programme for the Preparation of National Communications and BURs to the UNFCCC.