International climate finance / Gender

Climate and development finance in the context of the COVID recovery

24. November 2020

Climate and development finance needs to secure livelihoods in the COVID 19 crisis. Photo taken from CARE report.

The COVID-19 crisis is having significant impacts on resources available in public sectors. At the same time, responding to it has strong financial dimensions, both with regard to governments’ investment decisions as well as the financial frameworks that affect people’s and corporations’ decisions. Official development assistance (ODA), climate, and humanitarian finance, with a focus on fostering gender equity, are key areas to consider, even though financial aspects of COVID-19 recovery are broader.

Impacts of the COVID-19 crisis

The COVID-19 crisis presents a massive threat to maintaining the quality and quantity of development finance. Financial flows to developing countries have been in stark decline since the start of the pandemic. An ongoing global economic recession, declining public revenue and increased financing needs to respond to the COVID-19 crisis are likely to further increase pressure on flows like ODA. The UK provides a negative example: whilst the target to spend 0.7% of gross national income (GNI) on ODA is a target enshrined in UK law, absolute amounts fluctuate with national income: due to the COVID-19-triggered economic decline, the UK cut its ODA spending by £3 billion, but is still meeting the 0.7% target. Other donor countries, like Germany, have provided increased support to help counter the disproportionate impacts of COVID-19 on the poorest countries: the German government supports a specific COVID-19 rapid action programme, allocating €1 billion from its current development budget and an additional €3 billion as part of Germany’s recovery package measures for developing countries. Other members of the OECD DAC have collectively declared their ambition to ‘strive to protect ODA budgets’ during the COVID-19 crisis. This is a much needed commitment which must be upheld, and which donors must be held accountable to.

Gender-related climate and development finance still too low

Climate finance – support for climate action in developing countries – is based on legally binding obligations set out in the UN Climate Convention and the Paris Agreement. A core component of the Agreement was developed countries’ commitment to mobilise US$100 billion by 2020. Cutting climate finance would mean cutting into the heart of the Paris Agreement. Developed countries have failed to scale-up climate finance appropriately, but the COVID-19 crisis must in no way be used to further step away from those commitments, especially because measures exist that can help tackle the impacts of the current pandemic while building climate resilience and/or reducing emissions. Instead, countries must consider committing to climate finance targets above US$100 billion after 2020, as climate change impacts are hitting harder and earlier than expected.

Funding for women’s economic empowerment has been growing, yet is likely to come increasingly under pressure with tighter public budgets and has not always been fit for purpose. In 2016–-2017, the 30 members of the OECD DAC committed an average of $44.8 billion toward gender equality and women’s empowerment programming. However, among the $1.4 billion in donor funding that was allocated toward gender equality initiatives from 2010-2016, only 20% specifically targeted young women and girls.

With regard to humanitarian assistance, donors contributed only 54% of the US$29.7 billion required in 2019, leaving significant gaps. Less than 1% of total humanitarian finance was for GBV, despite its continued pervasiveness. This reflects a concerning trend – the gap between the humanitarian funding required and the funding received is widening. Nonetheless, one fund, the Central Emergency Response Fund (CERF), saw an increase in donor allocations in 2019, providing US$542 million in high-priority aid to more than 29 million people affected by humanitarian crises in 49 countries and territories. According to OCHA, the CERF ‘has helped drive innovation, including anticipatory action, and encouraged the prioritisation of women and girls, people with disabilities, education in emergencies and other aspects of protection’.

Several common challenges exist across these different streams of international support. Overall, there is the need to increase the share of ODA and climate funding that also targets gender equality objectives. CARE’s recent research found that, for example, that all G7 countries spend less than 10% of their support on adaptation programmes, which also pursue gender equality as a priority objective. Furthermore, a recent evaluation of European Commission development funding found that the percentage of ODA funding dedicated to strengthening gender equality remains very low, around 3% in the period of 2014–18.

New and innovative sources of finance

Within climate discussions, and to some extent the sustainable development finance debate more generally, there are proposals that, over time, could generate tens of billions of US dollars in support of actions in developing countries. These include levies on air or maritime transport, and fossil fuel extraction.

The still massive amounts of fossil fuel subsidies present a key opportunity to redirect financial support. According to the IMF, estimated annual fossil fuel subsidies were at US$5.2 trillion in 2017, or 6.5% of the global economy, illustrating the scale of the challenge. This is approximately 30 times the lower end of the estimated climate change adaptation costs in developing countries (by 2030). It is also worth noting that such subsidies tend to benefit wealthier parts of a society. Experience shows that there are indeed ways to change the subsidy structure so that it is not the poorest who end up paying the price.

Every dollar of a fossil fuel subsidy not only works against countries’ obligations and goals under the Paris Agreement, but further fuels the climate crisis and undermines the prospects of young people and future generations to live in a world where major climate disruptions can be contained. Thus, the call to ‘end fossil fuel subsidies and reset the economy for a better world’ must be at the core of the COVID-19 response. Redirecting these subsidies can help fund, for example, coupons for energy efficient goods, green infrastructure development and just transition efforts.

Fossil fuel subsidies of US$5.2 trillion (annually) equal

8 times what would be needed to compensate for the external private finance reduction (estimate) to developing economies due to COVID-19 impacts (US$700 billion),
11 times the estimated annual costs of converting global electricity generation to mostly (ca. 86% by 2050) renewable energies (excluding benefits from avoided climate damage),
20 to 30 times the estimated climate change adaptation costs (US$140–300 billion) in developing countries for 2030,
170 times estimated annual humanitarian finance needs (US$30 billion).

Protecting vulnerable communities

The implications of COVID-19 on financial assistance to developing countries go far beyond ODA. The effect of the pandemic on external private finance (such as remittances) in developing economies is estimated to be a reduction of US$700 billion, and could exceed the impact of the 2008 financial crisis by 60%. Meanwhile, a potential economic recession in developing countries threatens to further reduce the potential of domestic resource mobilisation towards poverty reduction and sustainable development efforts, which is the key source of funding needed for public essential services, such as health, care and education.

To protect poor and vulnerable communitieis from the combined impacts of climate change, marginalization and COVID-19, it needs strong incentives for public sectors and financing of equitable recovery.

Donors and national governments should:

put in place ambitious domestic recovery plans, accompanied by international solidarity and support for the global response. Donor countries should maintain and where possible increase the absolute levels of ODA that they provide, and in either case should aim to exceed their commitment to provide 0.7% of GNI on ODA.
use ODA primarily to focus on ending poverty, tackling inequalities and accelerating sustainable development for the benefit of developing countries, in line with the OECD definition. Any attempts to open up the ODA definition to accounting for in-donor-country COVID-19 measures, which do not directly benefit developing countries, should be rejected. In line with this criterion, funding for vaccine distribution in least-developed countries should count as ODA, while generic scientific research should not.
increase climate finance and Advance gender equality within external public finance as a priority. Developed countries should fulfil their commitment to provide US$100 billion per year by the end of 2020 and beyond to support climate action in developing countries, through increasing new and additional climate finance for mitigation and adaptation (at least by 50%), and for addressing loss and damage. They must not divert climate finance nor backtrack on commitments made for future finance (such as into the Green Climate Fund or for raising climate finance after 2020), as this support will be critical for many developing countries. Highly indebted and least-developed countries should receive grant-based support. The strongest social, environmental, climate and human rights standards must apply to all financial support.
implement new and innovative finance sources to fund the COVID-19 response in relation to achieving climate change and the Sustainable Development Goals, which have the potential to generate truly additional resources (such as levies on air or maritime transport, fossil fuel extraction), linked, for example, to bail-out measures. Relatively small amounts per unit can generate billions of dollars, varying by the type of the finance source.