ADB and 5 other multilateral development banks, along with the International Development Finance Club (IDFC), have taken another step forward in standardizing the way we track climate finance for adaptation. The move is a welcome advance in improving the transparency and targeting of future funding. The other multilateral development banks are the African Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank, and the World Bank. The IDFC is a group of 22 national and sub-regional development banks. We have agreed on 4 common principles that lay the groundwork for a more formal common public disclosure process, and we welcome other finance institutions and organizations to join in the future. The principles seek to define what is—and isn’t—climate adaptation finance: 1. Adaptation must be “material”—not incidental—to the financed activities in question. 2. Adaptation finance can encompass stand-alone projects, multiple projects under larger programs, or project components, sub-components or elements. 3. For finance to be counted as adaptation finance,
- There must be a context of risks, vulnerabilities, and impacts related to climate variability and climate change that motivates the project or project component.
- Project documents must state the intention for the project to address the identified risks, vulnerabilities and impacts.
- There must be a clear link between the climate risks identified and the activities financed.
4. Adaptation finance tracking should be applied to adaptation activities at the finest possible degree of project disaggregation. If disaggregation isn’t possible using project specific data, a more qualitative or experience-based assessment can be used to identify the proportion of the project that constitutes climate change adaptation. A conservative interpretation is used so that when the proportion of adaptation is unclear, climate finance is under-reported rather than over-reported.
Why is this important? From the 1992 Rio Earth Summit onward, the need for developed countries to provide sustainable, predictable and adequate climate finance to the developing world has been reconfirmed through a series of protocols, accords and action plans. These resources are to be new and additional, that is, beyond what would have been provided as official development assistance (ODA). As emphasized by the World Resources Institute, climate finance should not substitute for or divert funding from other goals such as economic and social development.
However, without clear, consistent, and accepted criteria to distinguish adaptation finance from ODA and other financial flows, it is possible for the providers of climate finance to “re-brand” ODA in order to meet their pledges and stated commitments. There is some evidence that this may have occurred during the Fast-Start Finance period (2010-2012). So although these 4 principles are only a first step in standardizing the way adaptation finance is measured, it is nevertheless an important step because by developing a consistent and transparent approach, we will have a clearer picture of how critical climate finance is measured, where it is going and how well nations are meeting their stated commitments. Another reason important to ADB (and likely to other multilateral development banks) is that the governments of shareholding member countries and their representatives are increasingly interested in how the banks are addressing both mitigation and adaptation; and how climate risks are being managed. In a few months time, representatives of over 190 nations will gather in Paris for #COP21 to seek a universal and binding agreement to preserve a livable climate. While greenhouse gas mitigation efforts will be the most visible issue in Paris, effective adaptation to the impacts of climate change has emerged as a parallel and equally urgent priority. This reflects a growing understanding of “committed climate change”—further increases in temperature that are locked in on the basis of emissions that have already occurred—and the impacts we are already experiencing. Unlike mitigation, support for adaptation is less an issue of political will but rather a matter of resources. The price tag for adapting the developing world to climate change has been estimated at $70 billion to $100 billion per year through 2050, and possibly higher. By contrast, the most recent comprehensive estimates of adaptation finance in 2013 suggest that only around $25 billion per year has been mobilized for adaptation from all sources, public and private. Improving our understanding of current adaptation financial flows—from whom, to whom and for what—can help us to close this gap.
This blog was prepared in collaboration with Charles Rodgers, Senior Consultant for Climate Change and Disaster Risk Management.