Climate finance is a catch-22 in fragile states

Conflict and climate change feed off one another in Somalia, creating unimaginable crises — the worst drought in decades has left the country teetering on the edge of famine. Natural disasters — like drought and flooding — are more frequent and intense than the past. But the odds are against the country as it works to respond and prepare for disasters. The nation is fighting insurgent terrorist group al-Shabab, making huge swaths of the country impenetrable to government and aid actors. Government capacity is limited and fractured. And resource depletion from erratic weather fuels more conflict, further weakening a government already on wobbly grounds. While Somalia desperately needs significant climate financing to build systems that support communities to better withstand weather extremes, it's also one of the most ill-prepared to receive funds because of the bureaucracy built into climate financing mechanisms. “To access any type of funding from the Bretton Woods Institutions, Global Environment Facility, Green Climate Fund and others is not for the fledgeling or the fainthearted,” Somalia’s Minister of State for Environment and Climate Change Adam Aw Hirsi told Devex. “The requirements, conditions and paperwork erected around the climate finances are too many and too intricate that even more sophisticated countries face daunting challenges to get the fundings they apply for.” “Somalia's inadequately capacitated financial system can also present a major challenge in our quest to secure our fair share of climate finances as stipulated by The Kyoto Protocol and The Paris Agreement,” he added. It’s a conundrum facing many fragile countries — countries characterized by having low capacity to provide citizens with basic functions of the state. These countries are often ravaged by climate change yet face obstacles in accessing financing. Somalia is ranked the second most fragile state in the world, just after Yemen. An uphill battle Research has shown that fragile countries receive less per capita and smaller projects from climate financing mechanisms than nonfragile states. Between 2010 and 2018, only 8% of global adaptation finance was allocated to countries in the Sahel and Horn of Africa, according to the report. While Somalia has accessed green climate financing, it's been incredibly complicated, experts told Devex. Of the four main funds in the green financing world, the Green Climate Fund, or GCF, is particularly complicated for fragile countries to navigate. “Being inflexible doesn't solve any problems — sitting on a cache of billions when people do not have food, it doesn't solve the problem.” --— Abdullahi Boru Halakhe, senior advocate for East and southern Africa, Refugees International Countries must undergo lengthy readiness measures to meet the criteria to access larger sums of project financing. This includes strengthening of the national entities that would administer funds, efforts to increase coordination among stakeholders, and development of adaptation plans and metrics for implementation of climate-friendly projects. Experts told Devex this funding favors countries with strong ministries of environment which can effectively push policies through — which fragile countries don’t often have. There is frequent turnover in leadership and civil servants in fragile states — resulting in a loss of institutional memory. And these countries often have few accredited organizations to implement funding. In a March speech, GCF Executive Director Yannick Glemarec said that last year “projects were brought to a halt in two countries that suffered a dramatic deterioration of peace and security.” Somalia has received $1.2 million in GCF funds toward making the country ready to receive more funds. According to the GCF website, the country has thus far only been approved for one project. Carmen Carpio, World Bank senior health specialist, said $4.25 million has been made available to Somalia from a nine-country World Bank Cooling Facility as part of GCF. The government is drafting a concept memorandum, with the help of the bank, for further funding from this facility. The grant will go toward strengthening the cold-chain and solar power for space cooling of health facilities. In comparison, neighboring Kenya, which has a stable government, has received $3.7 million in preparation funds, and is approved for 15 projects worth $229 million. Kenya has just over three times the population of Somalia and yet approved for 13 times more in GFC project financing. And though also very vulnerable to climate change, Kenya falls 38 country rankings behind Somalia in vulnerability. From GCF, South Sudan has received $300,000 in readiness funding; Yemen $283,000; Libya $548,000; and Syria $837,000. These countries are ranked among the most fragile states in the world, but according to the GCF website, they have not been approved for further project-based funding. “The Green Climate Fund is still project driven. It's not nimble enough. There's a whole accreditation process and we still don't see funds getting to communities quickly,” said Gina Castillo, climate policy and research advisor at Catholic Relief Services. Climate finance, according to experts, is often allocated to urban areas, where “elite capture” might happen — the centralization of funds for capacity building at the national government-level that doesn't always reach communities on the front lines. Other funds also are challenging to access, such as the Global Environment Facility, Adaptation Fund, and Least Developed Countries Fund. They are also challenged by problems including not enough organizations accredited to implement projects and requirements around having money upfront for consultants, experts said. Even so, of the four major funds, the Global Environmental Facility addresses conflict most directly, Anna Åberg, research associate of the Environment and Society Programme at Chatham House writes. More than one-third of its portfolio has been spent in countries experiencing conflict. The global community is gearing up for the 2022 United Nations Climate Change Conference, or COP 27, in Egypt in November. Discussions around mechanisms to fund fragile states are not really on the agenda, Christophe Hodder, the United Nations’ climate expert for Somalia said. But ahead of the discussions, civil society is pushing for the establishment of a fund around loss and damage for countries pummeled heavily by climate disasters. If that sort of funding becomes available at scale, then fragile countries should have access, Hodder said. Risk averse Beyond dedicated climate financing, increased engagement of private capital markets is key to reaching the scale of what’s needed to respond to the climate crisis, said Stephanie Segal, a climate finance expert at the Center for Strategic and International Studies, or CSIS. But that’s not an easy answer either. Many in the finance community are conditioned to expect returns and that’s not always possible in fragile settings, said Erol Yayboke, fragile states expert at CSIS. While entities such as the U.S. International Development Finance Corporation, or DFC, have mandates to expand into more challenging settings, there is little demonstrated movement on that front, he said, adding that “it's not hard to see that there are few projects and funding levels compared to other non-fragile contexts.” “If they're taking on more risk, there's the potential for them to lose capital. And then they've got to come back to donors and say: ‘We did what you said, we've invested in these higher risk environments. We are in need of additional capital,’” Segal said. “But then are donors willing to replenish?” And while people working at organizations like the International Monetary Fund and DFC have the requisite financial skills, many are not well-versed in conflict settings, Yayboke said. Also, institutions might not incentivize loan officers, for example, to take risks that may not result in returns. A lack of adequate pipelines of bankable projects is also missing, Segal said. This is because not enough is invested in project preparation — determining whether projects can be developed in a way that manages risks so investors will invest — as well as availability of capital. “Even when you have donors that might be willing to accept below-market returns, or if there's some way to sweeten an investment through guarantees — the project pipeline is lacking,” she said. But while inadequate pipeline issues do exist, Yayboke said he “almost feels like it's an excuse that lots of donors or financial institutions put in place,” adding that more investment is needed to ensure projects can reach bankability. Last December, development finance institutions launched the Africa Resilience Investment Accelerator, or ARIA, which is “designed to boost investment in fragile and conflict-affected states in Africa.” “The ARIA is a very promising initiative but it's too early to tell whether its collective international model will be effective in ‘priming the pump’ in places experiencing fragility,” Yayboke said. “I'm cautiously optimistic.” Inflexibility solves nothing Discussions around whether recipient countries are equipped to handle large amounts of funding and convince donors funding is not misused is an age-old problem in the development sector. And risks around corruption, fraud, and financial mismanagement are not inconsequential. "The challenges to dispersing and executing enormous amounts of money is hard anywhere, and it's much harder in places experiencing fragility,” Yayboke said. Some safeguards to access green financing are needed for the sake of transparency and accountability, Castillo said. For example, the Green Climate Fund has strong gender equality and environmental requirements. It also has an Indigenous Peoples Policy. But some red tape is overburdensome, experts said. This includes screening processes organizations must undergo for accreditation — resulting in many accredited bodies being large organizations and ministries. “They could do better in getting more agencies accredited,” Castillo said, adding that these accredited entities could also work in more inclusive ways, such as across sectors, civil society, and the private sector. Experts told Devex there’s a need to inform lower levels of government in fragile countries, such as federal states, how to access funding. Grants instead of loans should play a key role in providing financing to these countries to avoid burdening them with debt. Chatham House’s Åberg suggests the launch of an initiative across the major climate funds on fragility and conflict which could involve a "toolkit or set of guidelines on conflict-sensitive programming that could be used across all four funds." "How the financing should be accessed needs to be very, very clear and not overwhelmed by suffocating bureaucracy,”said Abdullahi Boru Halakhe, senior advocate for East and southern Africa at Refugees International, adding that if the “principal argument is capacity, we will never move anywhere.” "Should we wait until Somalia has a government that is as good as anywhere — and then we start working? All the while, the country is pummeled with all these problems,” he asked. "Being inflexible doesn't solve any problems — sitting on a cache of billions when people do not have food, it doesn't solve the problem.”