Devex Invested: How the climate finance maze keeps out low-income countries

As calls grow louder for wealthy countries to pony up more money for climate finance, a look under the hood of existing funds reveals a disturbing trend: The most vulnerable countries are also the least likely to get the financing they need to protect themselves from worsening droughts and floods. A big piece of the blame lies with donors, who have created a labyrinth of disparate climate financing mechanisms that are hard for low-income nations to access. That’s according to new research from the Center for Global Development, which we are reporting on here first. Just 5.37% of the $50 billion that donors have put into climate funds administered by the World Bank have gone to the 10 most climate-vulnerable nations, including Niger and Chad. Overall, only 13.1% of the climate funds’ cash goes to low-income countries. • The research looked at the Green Climate Fund, the Climate Investment Funds, and the Global Environment Facility. The complicated maze of funds “rewards countries who are very entrepreneurial in this kind of system,” says Clemence Landers, one of the researchers. Low-income countries end up locked out. • The system also paves the way for an industry of consultants who know how to access the money. “This is all very frustrating for countries who want these concessional funds,” she adds. • As for how to fix it? “The ball is in many ways in the donors’ court,” she tells us, adding that they need to double down on the parts that work and dump the broken bits. There is a good argument to put more funds under a single umbrella. “This is really a system that is ripe for consolidation,” Landers says. “This report should give donors pause about creating new institutions. … We have here a very fragmented architecture.” • In terms of accountability, the lack of a uniform reporting standard means that the researchers found it impossible to assess value for money across the funds — even after eight months of research. Yikes. ICYMI: Fix ‘obsolete’ funding system or risk disaster, warns GCF chief Also read: Climate-vulnerable countries welcome new 'loss and damage' plan Related: Climate finance is a catch-22 in fragile states (Pro) + Start your 15-day free trial of Devex Pro today to access all our exclusive reporting and analysis. All eyes on Silicon Valley Bank 👀 The U.S. government may have stepped in to ensure that companies that banked at Silicon Valley Bank are safe, but the effects of the largest bank failure since 2008 are still unfolding. The institution was heavily invested in startups, including climate technology companies. So, will innovation stall? “If the flywheel of financing for early-stage climate innovation stops during these critical years, that’s going to be a big problem,” Daniel Firger, founder of Great Circle Capital Advisors, which consults on sustainable finance issues, told The New York Times. On the bright side, it seems that African companies are largely insulated from immediate impacts. According to several founders and investors on Twitter, for years SVB wouldn’t lend to companies that worked in Africa. Maybe this time outsize risk perception did them a favor. The larger scale impacts are still unclear. The banking industry is in turmoil. IMF told Shabtai on Monday that it is “following the evolving situation closely and assessing potential global financial stability implications.” Conservative pundits and politicians in the U.S. are blaming SVB’s environmental, social, and governance investing aims for the collapse, adding fuel to the heated political debate around sustainable investments. One thing that seems certain is that further economic shocks and a venture capital slowdown will only make it harder for companies in higher-risk, lower-income countries to raise money. Doing business better The World Bank will bring back its annual flagship report on the ease of doing business worldwide starting next year. You might remember that it scrapped the index in 2021 after a data manipulation scandal. The bank says it’s putting in place safeguards to prevent the same problems. The report will have a new brand, a revised methodology, and a reformed mission focused on capturing a more honest snapshot of conditions for the private sector, Shabtai reports. The previous index was considered a tool to motivate governments to make positive policy changes. Can the new iteration do the same? "I know this is a tall order, but that's what we intend to do,” ​​Norman Loayza, the director of the bank’s Global Indicators Group, which runs the project, tells Shabtai. Read: World Bank’s scandal-hit ‘Doing Business’ seeks redemption with revamp Budget bigshot U.S. President Joe Biden released his budget request last week and one big winner in the proposal is the U.S. International Development Finance Corporation. DFC has struggled to make use of its equity authority as a result of some complex government accounting. The administration’s proposal would give DFC $2 billion to fund its equity portfolio. While this would address the problem, it’s worth noting that there is a cheaper solution: Congress could make legislative changes that would allow DFC to treat equity investments the same way it handles loans. The proposed DFC spending is part of a major push to ramp up U.S. efforts to compete with China, so it will be interesting to see if that would put the agency’s development mandate under pressure to fulfill foreign policy objectives. In the end, all of this comes down to what Congress decides, and the House budget at least is certain to be quite different from Biden’s proposal. Read more: Biden’s $6.8 trillion budget proposal would boost U.S. foreign aid. Here’s how What we’re reading Ajay Banga, the nominee for World Bank president, continues his global tour to drum up support. Here’s how he’s articulating his vision. [Financial Times] The U.S. Agency for International Development has a $150 billion strategy to fight climate change. Here’s how the agency views its role. [Devex Pro] While top fashion brands were happy to be represented on the champagne carpet at the Oscars, Gucci is launching a hub focused on less wasteful fashion as European regulations loom. [Wall Street Journal] USAID’s Development Innovation Ventures recently got a $45 million grant to support its investments in innovative development solutions. How will it spend the money? [Devex Pro]