Opinion: The climate finance system must be faster, simpler, locally led

Red tape is strangling a vital lifeline for the world's most vulnerable nations. As 2024 approaches, there's a pressing need to transform the climate finance system so it can serve those most in need: least developed countries, or LDCs, small island developing states, or SIDS, and fragile, conflict-affected regions. Today, it can take five to seven years for these countries to navigate the complex processes to access support through channels such as the Green Climate Fund. Even then, they are often only able to finance short-term projects that focus on quick wins to demonstrate results, but generally prove to be ephemeral solutions without lasting impact. To compound the problem, intermediaries and administrators are sucking up far too much of the climate finance flows that should be delivering impact on the ground. It is typical to see at least 30% absorbed before money gets anywhere near the country facing the challenge. We know of one project in Central Africa — which is by no means unusual — where as much as 70% of the funding is required to simply meet the donor’s administrative requirements. Although the accounting shows that high-income countries are belatedly reaching their Paris Agreement promises of mobilizing $100 billion a year in climate finance, far too much of this is made up of clean energy investment in middle-income countries. Despite the promise of $100 billion for climate finance, the reality is grim: a reported near 10% drop in adaptation finance and a decrease in funds to LDCs and SIDS in 2021, which exacerbates mistrust, even as the United Kingdom claims to have increased its contribution by redefining what it counts as aid. Instead, these countries need access to long-term funds that can enable long-term projects and rebuild relationships. At events such as the Climate and Development Ministerial — co-chaired this year by the United Arab Emirates, U.K., Malawi, and Vanuatu — leaders from LDCs and SIDS have been advocating for a shift in climate finance, with access to long-term funds that can enable long-term projects. They are calling for investment into their own climate capabilities and leadership, to foster a sustainable, locally-driven infrastructure to respond to climate change. Now that we have passed the $100 billion milestone, in 2024 the world must come together and help implement a bold new version of climate finance that supports these nations’ goals. This is currently being negotiated, in what is known in the trade as the NCQG — the New Collective Quantified Goal. In 2024, we must have our financial structures reflect the kind of visionary planning that’s needed to solve a long-term crisis like climate change. For the outcomes of the NCQG process to offer equitable access to finance for the most vulnerable countries, four significant changes are essential. 1. Fair access To date, “simplified” application processes or “streamlined” accreditations have proved no simpler, no faster. LDCs, SIDS, and fragile states need an approach that works for them, with an offer of support to help them strengthen their capabilities, through locally grown expertise. Their governments often lack the bureaucratic infrastructure to create expertise to manage requirements from multiple different funds, so we need a harmonized process across funders that countries can access directly, rather than through expensive international intermediaries. The Climate and Development Ministerial will be working toward this at this year’s United Nations Climate Change Conference, or COP 28, so expect to see further momentum in 2024. Getting it right means that these countries should be able to directly access funds within six months from application to disbursement, rather than upward of six years that we are seeing today. 2. Programmatic approaches Today the expectation is for countries to put forward an “investment-ready” project pipeline for climate action. But we need to use climate finance to help countries develop the capabilities to build those pipelines. In 2024, we must have our financial structures reflect the kind of visionary planning that’s needed to solve a long-term crisis like climate change. --— A recent review of good practice led by LDCs, SIDS, and Champions Group for Adaptation Finance showed huge benefits from creating broader platforms: a cross-government and whole-of-society vision for climate-resilient development. This involves shaping pathways and unlocking opportunities that can ultimately leverage much larger flows of development and private finance. This is being pioneered through the LDC Initiative for Effective Adaptation and Resilience, or LIFE-AR, which demonstrates the value of behind-the-scenes funding for strengthening domestic governance arrangements and capacity building. Supporting the process, rather than requiring specific results, helps countries to genuinely build long-term resilience and tackle the underlying delivery challenges that can hold back impact. There are emerging examples of good practice in this area, such as the Rwanda Green Fund or Antigua and Barbuda’s Sustainable Island Resilience Fund, which show the value of creating a single place for dialogue with development partners, with a strategy that forges collaboration across domestic partners. 2024 will likely see an uptake of broader whole-of-society approaches for climate action in LDCs, SIDS, and fragile settings. 3. System transformation through locally led adaptation Rather than supporting a series of isolated sectoral investments, the locally led adaptation approach advocates for a transformative strategy. This leverages local knowledge to respond cohesively to climate, nature, and poverty. The provision of food, water, health, transport, and other necessities is often part of a single complex system, with interconnected vulnerabilities. Local groups have deep contextual knowledge about the interplay between these systems, so can identify investments in resilience that have co-benefits across these systems. Building local capacity also enhances overall system resilience, increasing redundancies to prevent any single point of failure. To make this happen, substantial investment is needed to devolve decision-making power and resources to local levels. While some mechanisms for this transfer exist within government structures, they require significant redesign and augmentation to truly empower local partners with the tools and resources they need. On the eve of 2024, we are already seeing continued efforts to attract new countries to endorse the principles of locally led adaptation. Building this alliance of partners as a progressive force to influence together will help drive recognition of these principles of the NCQG negotiations and in the Global Goal for Adaptation process over the coming year. 4. Innovation in the governance of finance and risk Good intentions often falter in the face of practical realities. Climate finance providers, accountable to taxpayers and shareholders, impose stringent reporting and risk management requirements on grantees. These demands trickle down, burdening local partners with overwhelming expectations and bureaucratic hurdles. Excessive requirements not only inflate grant management costs but also ignore local contexts — such as expecting paper receipts in areas without stationery supplies. However, innovations in governance offer alternatives, such as social audits with digital verification, which enhance project design, increase local engagement, and ensure funds extend further. The world needs a paradigm shift: from onerous due diligence to empowering local systems and enhancing accountability. Intermediaries, who channel funds to local groups, must be evaluated based on their capacity to build resilience and support systems, not just on short-term outcomes. With business and philanthropy coming together at COP 28 to set their intentions to be supportive of improving access and delivery of climate finance for the most vulnerable countries, 2024 may be the year this paradigm shift starts taking place.