Why is so little climate finance going to local organizations?

The vast majority of climate action needs to happen in local communities, where the urgent impacts of climate change are already being felt. Yet accessing climate finance remains a significant challenge for local and grassroots organizations. The way multilateral climate funds are set up favors larger, international organizations with the capacity to navigate complex application processes and big sums of money — but there are concrete steps they can take to change that. While efforts to prioritize locally led climate action have ramped up in recent years, with eight principles for locally led adaptation coming out of the 2021 Climate Adaptation Summit and the agreed text from the last U.N. climate Conference of the Parties, or COP, highlighting locally led action, the current climate finance architecture remains ill-equipped to get money directly into the hands of local organizations. Complicated accreditation and application processes, a lack of midsized grants, and a funding model centered around large international intermediaries create barriers that prevent local groups from accessing the resources needed to implement climate solutions tailored to the needs of their communities. Only 10% of climate finance committed from international climate funds is prioritized for local-level activities, according to a 2019 report from the International Institute for Environment and Development. More recent numbers on how much climate finance goes to local organizations don’t exist, and most multilateral climate funds — which distribute public money as both loans and grants — don’t provide transparent data on how much actually makes it to the local level, according to Paul Mitchell, principal researcher on locally led adaptation and climate finance at IIED. “The climate funds are not built to be nimble and responsive to different [local] impacts, but take a one-size-fits-all approach,” said Mitchell, adding that the current structure of climate finance being channeled through large intermediaries means that 15%-20% of funds might end up as back office costs and not make it to the local level. ADPP Angola — an NGO focused on locally led development — works with communities to ensure climate finance has an impact even after project funding dries up, explained Evaristo Waya, the NGO’s senior partnerships officer who also manages funding applications. “Adaptation should start with people themselves, and whenever we look for climate finance, we need to think about what it will leave behind after four, five years and make sure there’s sustainability and that people feel like owners of the projects.” The current climate finance system and its limitations While the general scale of climate finance is insufficient — financing needs for low- and middle-income countries are estimated at around $600 billion per year up until 2030 — climate funds are aware of the challenges and are looking for ways to make it easier for local organizations to access funding. There are different types of funding windows or mechanisms to channel finance for local climate action, depending on the needs and aims of a project. The Adaptation Fund has recently approved two locally focused funding windows, or funding streams for grants: one for intermediaries and another one for direct access to local communities. This makes it the first climate fund with a funding window dedicated to local organizations. The Global Environment Facility has been running its Small Grants Programme since 1992, but it is limited to projects under $50,000 and requires co-financing, meaning local organizations have to bring money or in-kind contributions to the table too — something that’s often difficult for smaller organizations, Liane Schalatek, associate director at Heinrich Böll Stiftung, a German green think tank, explained. The Green Climate Fund has two types of accredited entities, which are pre-approved organizations that can receive funding. These are Direct Access Entities, or DAEs, which consist of subnational, national, or regional organizations, and International Access Entities, or IAEs, such as U.N. agencies, multilateral development banks, and international financial institutions. At the moment, DAEs receive 20% of GCF funding, while 80% goes to IAEs. When it comes to funding concentrated by an entity, the U.N. Development Programme and the World Bank account for the largest volume – each receiving around 8% of total GCF funding channeled through IAEs. However, “GCF continues to focus on promoting direct access programming while building national and regional capabilities through DAEs,” according to a board meeting document from March. A GCF spokesperson told Devex they know that “getting our money as close to the ground as possible is essential. That’s why we’re targeting DAEs in our 2024-2027 strategy – they are the key connector between GCF and local organizations.” The new strategy is looking to increase the allocation of GCF resources channeled through DAEs to 19% of their investment portfolio. “In the initial years of the fund, it was critical to be able to maximize getting investment out the door, which meant doing business with established organizations who were able to more easily fulfill GCF’s accreditation criteria,” the spokesperson explained. GCF has an Enhanced Direct Access pilot and a Simplified Approval Process for projects below $25 million, but the latter is still complex and slow, according to organizations who have been through the process. Ideally, the funds would be more aligned and complement each other — a local organization might start with a Small Grants Programme from the GEF, and then go on to the Adaptation Fund and scale and build their capacity over time, IIED’s Mitchell explained. There’s also a gap in medium-sized grants and funding windows for smaller, nonaccredited organizations, according to David Kerkhofs, the program coordinator for climate finance and adaptation at Humana People to People. “There’s a gap between the $50,000 [grants] and the $20 million ones. There should be something in between because how far you can reach with $50,000 is limited … a middle way to access half a million, 1 million,” he said, adding that the Adaptation Fund’s new funding window might allow for a bit more scale than the GEF’s Small Grants Programme. Schalatek, who is a member of GCF’s CSO active observer team told Devex: “The GCF always talks about wanting to go where no other fund has gone before and is said to have more risk appetite, but it’s always big risks with big sums of money.” Instead, funds could take big risks with smaller investments in local organizations that might not have the capacity to provide very detailed paperwork but trust them to know how to best use the money in their context, she explained. Barriers faced by local organizations For Nithi Nesadurai, the director and regional coordinator at Climate Action Network Southeast Asia, one of the world's largest networks of climate NGOs, the current climate finance system isn’t fit for purpose. It mostly benefits large international organizations with the capacity and structures in place to go through lengthy project application and accreditation processes. “Only the big logos and names have the administrative capacity, so they end up applying for the projects,” Nesadurai said, adding that “climate finance is full of jargon and local organizations are often unable to present their work in all the terms potential funders are looking for.” This is where international NGOs and United Nations agencies come in as intermediaries. “Many look at it as an income-generating opportunity, they will prepare the proposal for you, but against a fee,” he said. Of about 6,140 Global Environment Facility projects listed on their website, 1,282 have been awarded to UNDP and 1,010 to the World Bank — nearly 40%. ADPP Angola normally comes in as a supporting entity and develops its own project ideas based on consultations with communities and then approaches accredited entities to see who is interested in supporting their project, “and that’s very challenging,” Waya said. However, the difficulties for local organizations start even before applying for funding. “We hear from local organizations in our countries that it takes them five to 10 years to get accredited [with the climate funds] … and the standards to get accredited are very high,” Humana’s Kerkhofs said. While big U.N. agencies have the money to pay consultants to do some of the paperwork, a civil society organization just doesn't have that kind of funding lying around to get high-level technicians to provide the level of documentation that funds are asking for, he explained. “2024 really needs to be the year where we see a shift from a … rhetoric around locally led action for adaptation into real action on the ground backed up by serious finance.” --— Paul Mitchell, principal researcher on locally led adaptation and climate finance, International Institute for Environment and Development If Humana wants to access funding, they need to partner with an accredited entity, but all the big climate funds are managed in the global north and have their own agenda, Kerkhofs said. “So when we talk to these big international organizations it's very often complex to get in a partnership with them because they have other priorities.” How to get more climate finance to local organizations While many intermediaries collaborate with local implementing or executing partners, it isn’t currently a requirement for accessing funds. A 2021 report published by IIED recommends that bilateral donors, MDBs, and climate funds should put in place quotas for how much climate finance can be accessed by international intermediaries — similar to the Adaptation Fund’s 50% portfolio cap — or set a minimum amount which must be accessed by national and subnational institutions. A new collective quantified goal for all climate finance — a previous target of $100 billion per year by 2020 was never achieved — is also due to be agreed upon at this year’s COP 29 in Baku, Azerbaijan. Apart from determining the quantity, IIED’s Mitchell thinks it’s also critical the new goal asks how to make that funding directly available for locally led adaptation. He would also like to see clear commitments from climate funds, agencies, and MDBs to the Least Developed Countries group’s 2050 Vision — which wants at least 70% of finance flows to support local-level action by 2030 — as well as more endorsements of the eight principles of locally led adaptation. For Heinrich Böll Stiftung’s Schalatek, organizations managing smaller grants shouldn’t be assessed against the same investment criteria as those managing $100 million projects. Climate funds should look at the effectiveness and sustainability of outcomes rather than the cost-effectiveness of implementation, she explained, adding that large projects are often seen as more cost-effective. “When you talk about resilience, it’s not just about [investing in] infrastructure but about people and systems,” she said. Slicing funding into silos and projects is also an issue and many large climate funds are very careful to ensure they are only funding climate action and not development projects, ADPP Angola’s Waya explained. For organizations working toward community-led development like ADPP Angola, it’s difficult to separate climate from health and education — the latter being a big part of their work and a prerequisite to building long-term climate resilience. “What can be improved in the process is to combine the development issue and the climate change actions … we need to have a starting point where we can combine all this with climate finance,” Waya said. For Mitchell, what’s needed is patient, predictable funding that flows in manageable chunks that can build resilience. “2024 really needs to be the year where we see a shift from a buzzword and an increasing discussion and rhetoric around locally led action for adaptation into real action on the ground backed up by serious finance,” he said. Dig into Roots of Change, a series examining the push toward locally led development. This is an editorially independent piece produced as part of our Roots of Change series. Click here to learn more.