Study highlights rise in ‘climate finance’ for non-climate projects

High-income nations are increasingly claiming to be giving “climate finance” to lower-income countries for projects that were going ahead anyway for other reasons, according to a new analysis calling for big changes to reporting rules. Funding of schemes where tackling climate change was “not the fundamental driver or motivation” has soared tenfold since the goal of a $100 billion annual climate finance pot was set in 2009, it has calculated. In contrast, the increase was only 200% where the climate crisis was a project’s “principal” objective — and financing of those schemes has been broadly flat since 2017 when non-climate schemes began a precipitous rise. It means almost 40% of bilateral climate finance flowing to lower-income countries in 2021 was for projects that “would have happened anyway,” according to the study by the United Kingdom analysts Development Initiatives. In 2016, that share was under 26%. The calculation comes amid renewed frustration over the failure of wealthy donors to stump up the money the global south says it needs to cope with the harsh consequences of climate change and a rapidly warming world, potentially derailing the 29th United Nations Climate Change Conference, COP 29, in Azerbaijan later this year. High-income countries were accused of “blocking the finance needed to make climate action happen” at recent United Nations climate talks in Bonn, Germany, at the end of which “too many issues were left unresolved,” experts told Devex at the event’s conclusion. Euan Ritchie, a senior development finance policy adviser at Development Initiatives and the report’s author, said the sharp shift to scoring projects with questionable climate gains as climate finance proved the need to switch the focus to their impact. "If the donor can’t explain what impact a project has on climate objectives, for example, a reduction in greenhouse gas emissions, then it shouldn’t be able to count that project as climate finance,” he told Devex. "If the donor has made a very small climate adjustment, but is claiming a large share of the project funding as climate finance, it should report on the expected impact — which would highlight the difference between the small adjustment and the large claim it is making," he said. Ritchie pointed to the example of a World Bank scheme to improve public transport in Chad and Cameroon which is expected to spend $1,734 per every single tonne of greenhouse gas emissions averted. He described that as “terrible cost-effectiveness” — yet around $247 million of the cost of the scheme has been counted as climate finance, as a form of mitigation of emissions. The system for including projects, if climate gain is their “principal” purpose or a “significant” factor (but not the “fundamental” reason), is known as the “Rio markers,” agreed in 2009 when the $100 billion goal was set. They are so named because they are meant to help countries prepare for their reports for the Rio Conventions, the trio of interconnected United Nations agreements on climate, desertification, and biodiversity loss. The study makes a series of other recommendations for change, including: • A stricter definition of future climate finance “commitments” made by donor nations, to “avoid double counting.” • That donors be required to “provide links to project documentation for projects over a certain value.” • A “common benchmark” for assessing reporting, including the use of machine learning to better identify questionable claims. • A strengthened United Nations peer review process, to identify reporting approaches “out of line with common practice.” “Fifteen years on, there is still no common definition of climate finance, leading to inconsistent reporting, a lack of faith in the headline numbers, and a loss of trust by developing countries,” Ritchie warned. The analyst crunched Organisation for Economic Development and Co-operation data to map the bilateral aid scored as climate finance under the “principal” and “significant” markers between 2009 and 2021. The “principal” total rose from $3.87 billion to $11.4 billion, an increase of 195% — while funding classed as “significant” for the climate leaped by 1,010%, from $0.67 billion to $7.49 billion. Bilateral aid makes up only a minority of climate finance, alongside funding through multilateral institutions and private finance mobilized by donors.