Photo: Pleuntje

Time to ‘thin out’ the climate funds so they can flourish?

09/04/2018

The 3,300 residents of Balboa Island, off Newport beach in California, face imminent flooding as a result of sea levels rising around them.  They are contemplating a radical solution to their climate change problem,  namely raising  the level of the entire island by about a metre.  This exercise will cost them about $70 million over some decades.

The difference between the residents of Balboa and the residents of almost any island you care to name in, say, the Pacific, is that they are rich enough to pay for this work themselves, through their taxes.  Other communities less fortunate – and in most cases far less responsible for the problem in the first place – have to rely on public funds to get any kind of adaptation of this nature in place.

In most instances, the only source of such funding is one of the climate funds. When communities try to access these, however, they will typically find themselves confronted with a highly complicated maze they need to navigate their way through. A maze, moreover, that has an entry fee payable at the gate, made up of time, capacity and even cash resources.

Depending on your definition, there are as many as 519 climate-related funds out there. That’s the number tracked by the NDC Partnership, which includes technical assistance initiatives as well as cash funds.  At the low end of the scale, Climate Funds Update, which just looks at multilateral funds,  tracks 22 of them.  In between, OECD’s Climate Funds Inventory currently lists 99 funds, ranging from purely private philanthropic funds to fully public ones.

The one characteristic the funds share is a lack of co-ordination

These funds have been established over a long period, and for a range of reasons from climate politics to national or personal missions to solve this, that or another perceived problem.  The one characteristic they share is a lack of co-ordination, so agendas proliferate and application processes differ, resulting in the maze just described.

The typical response of international agencies seeking to be helpful is to provide navigation ‘toolkits’.  But how helpful are these?  If I go to the NDC Partnership Funds and Initiatives navigator and enter ‘Ghana/grants/for adaptation/in agriculture/$1-10 million’ as my search terms, out of the 519 initiatives tracked there is only one result, a USAID fund.  It seems hard to believe that it’s really the case that this is the only initiative in the world covering what’s surely a fairly typical “ask”.  Worse still, if I try the same search on the UNFCCC portal for adaptation funding, I get two results, one for a fund that no longer exists and the other for an initiative that presently seems focussed on gender violence.

Hoop-jumping

The OECD’s ‘toolkit’ for navigating the climate funds suggest 6 approaches that countries can take to improving their chances of obtaining money from climate funds, There are then scores of sub-initiative “boxes” it’s suggested they try to tick to increase their chances in the lottery.

The one suggestion that’s never made is that the problem lies not with the applicants but with the climate funds themselves; and that the solution is not that countries get cleverer at jumping through hoops, but rather to remove the hoops.  

The only rationale for the kind of complexity seen in the climate funds is that they are doing something complicated. But in fact, they aren’t. A quick audit of the 99 funds in the OECD database reveals that they do the following:

  • Mitigation, typically in the fields of energy, forestry and land use
  • Adaptation
  • Capacity building
  • REDD+
  • Disaster risk reduction
  • Technology transfer (arguably an aspect of capacity building)

Why do we need 99 funds to do 5 or 6 things – the same 5 or 6 things, by the way,  that you would probably find the NDC Partnership’s 519 funds and initiatives doing? Quite apart from anything else, the transaction costs of running multiple small funds replicating each other’s functions as opposed to fewer but larger funds operating with focus, is a gross waste of scarce public resources.  Few funds, including the GCF, publish these transaction costs, but we have in the past estimated they may be 8-10% of the funds deployed.  In a private investment fund for emerging markets, costs of 2% would be considered at the very top end of what was acceptable.

Calls for reform are not new

Calls for the climate funds to be streamlined are not new.  The ODI said this in a 2014 paper: “It is now time to simplify, and consolidate the global climate finance architecture, and scale up finance. There are now too many multilateral climate funds, both under and beyond the UNFCCC convention, that support adaptation and mitigation in developing countries. Each of these funds had a particular purpose and function at the time of their establishment, but there is now too much overlap, and too little money available through these disparate channels.

More recently, the Rocky Mountain Institute made a similar call: “Dozens if not hundreds of funds and initiatives have sprouted up alongside the climate negotiations, and these all have different purposes, processes, and nodes of activity that are very difficult for their intended beneficiaries to navigate. Complication leads to inefficiency: the proliferation of institutions and initiatives has seen a large increase in resources flowing into the climate finance system, but the difficulty for recipients to navigate and access resources, combined with duplication of effort and lack of coordination means that money is not flowing out of the system fast enough and is not optimized for impact and innovation. The result is mutual frustration on the part of recipients and donors, neither of whom benefit from the slowness of translating the donor induction of resources into action on the ground.

In an ideal world, we might posit a small suite of climate funds, perhaps with regional sub-funds to allow for local variances. They would focus on four key activities that don’t have any commercial potential and are therefore reliant on grant funding:

  • Adaptation projects with no revenue stream at all, including disaster risk reduction
  • Capacity building, including finance capacity
  • Project readiness (to feed cash-ready projects into other funds)
  • High-risk experimentation with new carbon instruments and similar innovations

These focussed funds would support and feed into a ‘blended finance’ architecture of mitigation funds, DFIs and MDBs.

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There is nothing to stop the necessary streamlining of the climate funds except a lack of political will.  And if donors are concerned that rationalisation could mean a loss of profile, then other means for recognising contributions can easily be established. The problem is that there is no co-ordination function in the Paris finance space, no “finance director” that in normal circumstances would be able to root out these  gross inefficiencies.

There is a concept in horticulture called “thinning out”.  You first plant a row of seeds close together, building in a certain level of redundancy to ensure enough seeds actually germinate. If all the seedlings were then left to grow, however, they would crowd each other out and none would flourish. At a certain stage of growth, therefore, the seedlings are quite radically ‘thinned out,’ allowing a much smaller number of them to thrive.  Counter-intuitively, perhaps, more food is produced as a result.

We are talking about funds merging, not the money disappearing

To pursue this analogy – and to be clear – what we are talking about reducing here is  not the amount of money in the climate funds system, but the petty differences in agendas and processes, and the weedy tendrils of bureaucracy that often clog the funds up.  We are talking about funds merging, not their money disappearing.

The redundancies created by the random seeding of funds in the past may have seemed a kind of insurance policy.  Someone, somewhere, could probably meet your particular need if you could only find them amidst all the clutter. Equally, it may in the past have seemed reasonable to donors to expect applicants to the climate funds to adapt their behaviour to the inefficiencies built into them. The applicants are after all the supplicants. There has even been a sense that these inefficiencies are somehow quaint, something that donors often joke about among themselves.

With the reality of the effects of climate change now stark, and the evidence everywhere that climate funds are not flowing as the badly need to, such attitudes are surely no longer acceptable – the failure of political will is not quaint but irresponsible.  The seas rising may not be too much of a worry for the rich residents of Balboa Island, but it’s existential for  many millions on islands and in low-lying areas elsewhere.  If nothing is done, at best whole populations will have to abandon their homes, and at worst people will die.

Time to learn from nature and thin out the the gross inefficiencies in the climate funds.  More money will assuredly flow as a result.

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