Climate finance for adaptation needs more honesty and ambition

The impacts of drought in Somaliland. Photo: CARE/Georgina Goodwin.

In the Paris Agreement, developed countries commit to providing significant financial resources, which are to strike a balance between mitigating and adapting to the impacts of climate change. In 2009, developed countries pledged to mobilize climate finance of USD 50 billion annually for adaptation to climate change by 2020. Official OECD figures indicate that donors had committed only USD 16.8 billion by 2017.

Several studies (e.g. by Adaptation Watch or Oxfam) have examined the accuracy of donor countries’ climate finance reporting, mostly based on quantitative analyses of OECD databases, in the past. A new report by CARE (Climate Adaptation Finance – Fact or Fiction?) complements these studies with an analysis featuring concrete, country-specific observations. Together with civil society organizations in Ghana, Uganda, Ethiopia, Nepal, Vietnam and the Philippines, CARE assessed whether the reporting of adaptation finance by developed countries was accurate and whether these projects between 2013 and 2017 truly targeted adaptation. Individual reports are also available for each of the countries. The CARE analysis of 112 projects in six countries accounts for about 10 percent of adaptation finance projects between 2013 and 2017 and covers the largest projects during this period.

Accounting of many donor countries is too generous

Overall, the findings show a clear overestimation of the funds allocated to adaptation. If the degree of over-reporting identified in this analysis were applied to all developing countries receiving adaptation finance in 2018, OECD estimates of adaptation finance provided would fall from USD 16.8 billion to a mere USD 9.7 billion.

The results also show that large amounts are credited toward climate finance from projects that are unrelated to adaptation, and that donors exaggerate the adaptation component of their projects and thus the amount they actually spend on climate adaptation. Examples include:

• Japan overstating its funding for climate adaptation by more than USD 1.3 billion; its reporting includes USD 432 million for projects not related to climate adaptation, such as the “Nhat-Tan Friendship Bridge” and the “North-South Expressway Construction Project” in Vietnam
• the World Bank over-reporting by a total of USD 832 million, including USD 328 million for an earthquake housing reconstruction project in Nepal (although the project is primarily a response to a geohazard unrelated to climate change, 86 percent of its budget is earmarked as funding for climate change adaptation)
• France over-reporting by a total of USD 104 million; this includes USD 93 million for Subprogram 2 to finance and fiscally decentralize local government in the Philippines to strengthen local governance, although only five percent of the program budget is earmarked for climate adaptation goals.

Japan’s reporting practice has some special weaknesses. These include the reporting of non-concessional loans at face value and the failure to distinguish between projects with adaptation as a primary or a secondary objective in financial reporting. In other words, 100 percent of each project’s budget is reported as adaptation finance, regardless of the extent to which it actually addresses climate adaptation. The study’s findings suggest that, based on Japan’s reporting practices alone, the annual amount for adaptation finance is actually 10 percent below OECD figures. The largest volume of over-reporting occurs in countries that receive the largest loans by volume. One example of this is the post-disaster standby loan that Japan provided to the Philippines. USD 220 million of the USD 470 million loan may represent an excess of reported adaptation finance. In contrast, projects where grants have been awarded, as in Ghana, show much less over-reporting.

Potentials for synergy in adaptation, gender equality and poverty reduction not sufficiently exploited

The CARE report shows that adaptation is inherently linked to broader development goals and poverty reduction and can be addressed synergistically. The six country studies also examined whether projects adequately addressed gender equality and poverty reduction. The Paris Agreement calls for adaptation action to “follow a country-driven, gender-responsive, participatory and fully transparent approach, taking into consideration vulnerable groups, communities and ecosystems”. However, 47 percent of adaptation projects in all six countries do not take gender equality into account. Of further concern is that the largest project financing measures often fail to adequately address the poorest in society. This is particularly true for infrastructure and market-based projects, which are often financed in the form of loans. For projects assessed in Ghana and Ethiopia – both at high risk of a debt crisis for the countries – 28 and 50 percent of the total funding respectively was provided as loans.

Where does Germany stand?

Out of a total of 112 projects studied, only six are financed by Germany – a relatively small number compared to Japan (13 projects) or the World Bank (16 projects), for example.

Overview of the evaluation of the projects financed by Germany

Source: Country-specific reports in the study “Fact or Fiction?”

Due to the small number of projects, the specific results are significantly less representative than those of other reports. These projects total about USD 56 million in reported adaptation finance. The analyses come to the conclusion that around USD 5 million are overvalued here, but that around USD 6 million are actually undervalued, leaving a net undervaluation of around USD 1 million. Thus, at least for the projects studied in these six developing countries, Germany ranks in the group of donors that tend to undervalue. These are the EU, the Netherlands, Denmark, Sweden, Australia and the Global Environment Facility (GEF).

More extensive analyses of German climate finance, some of which were conducted by the organizations involved in this website and that studied a significantly larger number of projects, come to much more critical conclusions. The objective of providing improved and more accurate reporting thus remains for Germany, even though other donors show significantly worse practice.

Sven Harmeling / CARE