Climate finance is not going where it is needed the most: CSE

New report from CSE says climate ambition in the Global South cannot be unlocked without financial system reforms 

Report comes just before the international summit on New Global Financial Pact kicks off in Paris 

For downloading the CSE report and view the proceedings of a CSE webinar on the subject click here 

 New Delhi, June 21, 2023: “We know that current climate finance is inadequate. We agree that the US $100 billion a year pledged in 2009 is too little, too late.But what we do not know and rarely discuss is that whatever is being given in the name of climate finance is not concessional – in the period 2011-20, only about 5 per cent was given as grants and the rest were loans or equity.It is then no surprise that what is termed as climate finance is not going to the countries where it is needed the most,” says SunitaNarain, director general, Centre for Science and Environment (CSE). 

Narain was speaking at a recently organised webinar where CSE launched its latest report – Beyond climate finance. The webinar, addressed by global experts, and the report, preceded the two-day Summit for a New Global Financial Pact, which will kick off in Paris, France from tomorrow (June 22, 2023). 

Besides Narain, the speakers at the webinar included Anoopa S Nair, director, department of economic affairs, ministry of finance, Government of India; Pepukaye Bardouille, director, Bridgetown Initiative Unit and special advisor on climate resilience, Prime Minister’s office, Government of Barbados; Lola Vallejo, climate lead, IDDRI and UNFCCC co-chair of Mitigation Work Programme; and Rishikesh Bhandary, assistant director, Global Economic Governance Initiative, Boston university. 

Avantika Goswami, programme manager, climate change, CSE says: “Developing countries are the places where losses and damage due to climate change are concentrated. These are also the countries that need finance for the climate transition to help them develop, without adding significantly to the stock of greenhouse emissions.” Goswami will be attending the Paris summit and reporting live from there for Down To Earth (see her contact details below). 

Goswami elaborates further on what Narain said: “Only 16 per cent of total climate finance can be termed as concessional –money given on favourable terms such as grants or low interest loans. The money that is flowing towards climate projects is heavily concentrated in North America, Western EU and East Asia (predominantly China). This is where most of the growth in clean energy investment has been concentrated as well. So, the money is not going to the poorest, most vulnerable countries.” 

Goswami says emerging economies and developing countries (other than China) will need US $1 trillion in external finance by 2030. 

The CSE report points out that developing countries face other financial handicaps that hinder their climate ambition -- such as a growing debt crisis. Data from Debt Justice, an UK-based non-profit, shows that in 2023, 91 of the poorest countries made external debt-service payments averaging 16.3 per cent of their government revenues. CSE’s analysis shows many low and middle-income countries pay more in annual debt servicing costs than what they would need to spend annually to achieve their NDC goals. 

Says Goswami: “Developing countries also face prohibitively high costs of capital, particularly for green technologies, which hinders the economic attractiveness of clean energy investment in these countries, even if they possess rich renewable resources.” 

Multilateral development banks (MDBs), an important source of concessional finance, are risk-averse and provide 80 per cent of the climate finance as loans, which worsens the debt crisis. There is also limited eligibility for middle-income countries to access concessional finance. To add to this, MDBs’ mandate is being expanded to make financial flows “Paris-aligned”;this could be paternalistic and impose top-down criteria that may narrow funding streams to developing countries, says the CSE report. 

Says Narain: “Now, when we view the pressure to decarbonise within the context of larger systemic financial barriers, it looks like the walls are closing in from all sides for the Global South. It is unacceptable that it is being said at UNFCCC forums that developing countries do not want to take on climate ambition. The reality is that most of them simply cannot afford it. This system is broken and needs urgent reform. Climate ambition cannot be unlocked whilst operating in a financial system that is inequitable by design.” 

The way ahead

• The Global South needs additional and concessional finance flows for climate mitigation, adaptation and loss and damage. ‘Additionality’ is crucial -- existing funding pools cannot be repackaged via creative accounting.
• There is a need to stop the ‘divide and conquer tactic’ against the poor. Middle-income countries should be allowed to access more concessional finance and debt-relief.
• Paris alignment of global finance cannot dilute national sovereignty and reduce crucial funding flows for development.
• We need a multilateral, rules-based approach to solving the debt crisis, and wemust stop the creation of new debt.
• We cannot rely on the private sector to solve climate change—climate action is a public good. 

Says Goswami: “2023 must be the year in which civil society and scholars build pressure and scale up demands for the urgent systemic reforms that the Global South needs.” 

See our climate coverage in Down To Earth: www.downtoearth.org.in 

Connect with Avantika Goswami in Paris: avantika.goswami@cseindia.org  

For any other queries and help, contact Sukanya Nair: sukanya.nair@cseindia.org, 8816818864