Stable and predictable funding for the Adaptation Fund: What can Germany do?

The Adaptation Fund NGO Network (AFN) has accompanied the work of the Adaptation Fund for several years, shown here in its representation during COP 25. Photo: Julia Grimm, Germanwatch

The Adaptation Fund, originally associated with the Kyoto Protocol, has officially served the Paris Climate Agreement since January 1, 2019. It focuses on particularly vulnerable populations by financing small-scale, local and specific adaptation projects in developing countries. The Fund fills an important niche in the international climate finance landscape, not least because of its pioneering work to strengthen direct access to climate finance for national organizations in developing countries, which do not have to go through multilateral institutions such as development banks to apply for international funds for climate projects. Through its work, the Adaptation Fund has contributed significantly to empowering developing countries not only to apply for funding for adaptation projects directly, but also to manage them independently.

In recent years, however, it has increasingly been pointed out that the Adaptation Fund is chronically underfinanced and should significantly expand its activities. Developing countries and civil society in particular are calling for more adequate, predictable and long-term funding commitments. These would be crucial to enabling the Adaptation Fund to adequately fill its important niche and live up to its mandate.

The Adaptation Fund at the climate conference in Glasgow

In the context of the climate negotiations in Glasgow, civil society expects Germany and other industrialized countries to advocate for a continued majority of representatives from developing countries on the Adaptation Fund’s Board, and to call for a reference that aims for gender balance among the representatives in the Board. Both aspects are up for debate at the negotiations.

The focus in Glasgow will also be on the negotiations for the fourth evaluation of the Adaptation Fund. The sticking points between developing and industrialized countries are the extent to which this evaluation should cover both retrospective and forward-looking elements and analyze the potential of the Fund to significantly expand its measures in the future. In addition, civil society is calling for the evaluation to analyze previous policies and processes in the Fund to involve a range of stakeholders, above all representatives of civil society. It is gratifying to see that Germany is proactively involved in the negotiations on the Adaptation Fund and has taken on the role of co-facilitator for this thread of the talks.

Financing commitments to the Adaptation Fund need to be increased significantly

Beyond the specific negotiating context, at the climate conference in Glasgow the Adaptation Fund is once again faced with the recurring challenge of securing adequate, stable and predictable sources of finance. The originally conceived levy from international emissions trading under the Kyoto Protocol has provided little relevant funding.  A great deal of uncertainty also remains regarding a contribution to the Adaptation Fund from the cooperative market mechanisms under the Paris Agreement. Even if such a levy does occur, it will be several years before that money flows into the Adaptation Fund. The Fund therefore remains primarily dependent on donor commitments.

Developing countries and civil society actors are therefore calling for a major increase in resources for the Adaptation Fund as a prerequisite to the substantial expansion of its measures. Accordingly, Germany and other previous donors should not only significantly increase their funding commitments in Glasgow, but also make multi-year commitments to the Adaptation Fund. The number of donor countries making funding commitments to the Fund also needs to grow. This will be essential for it to realize its full potential and fulfill its mandate.

Commitments to the Adaptation Fund are also gender-responsive climate finance

The Adaptation Fund recently revised its gender guidelines, which are now considered exemplary in the international climate finance architecture. Funding commitments to the Adaptation Fund are thus always investments in gender-responsive climate finance. For Sweden in particular, this was an important reason to commit to its leadership role in financing the Adaptation Fund. Like many other donor countries, Germany must continue to expand its efforts to strengthen gender-responsive climate finance. Increased pledges to the Adaptation Fund would be a step in that direction.

Sweden leads the way with first multi-year commitment

With its contribution of USD 455.68 million, Germany is the largest donor country to the Adaptation Fund in absolute terms. However, if we look at the total contributions of the largest donor countries as a percentage of their gross domestic product for 2020, Germany is clearly outpaced by Sweden.  As a share of its 2020 GDP, Sweden has allocated a total of about 2.5 times the financial resources to the Adaptation Fund than Germany did (Table 1).

Table 1: National commitments as percentage of GDP in 2020

Sweden is also considered a pioneer because it has made a significant multi-year commitment to the Adaptation Fund for 2019-2022. More such multi-year funding commitments are needed for it to attain greater predictability. Such predictability is essential to initiate the necessary decisions so that the Fund can expand its activities. Multi-year funding commitments would also help ensure that the Adaptation Fund Secretariat does not have to invest its already scarce capacity in resource mobilization every single year.

Germany faces important tasks

Since 2013, Germany has made annual funding commitments to the Adaptation Fund and is considered a reliable supporter. However, Germany’s annual commitments fluctuate widely and there is no clear growth trend. Germany has pledged to increase its annual climate finance from €4 billion to €6 billion per year by 2025. This increase must also be reflected proportionately in Germany’s commitments to the Adaptation Fund. While Germany always emphasizes the relevance of climate funds such as the Green Climate Fund or the Adaptation Fund, so far only a fraction of German climate financing is allocated to them.

Table 2: Germany’s commitments 2010-2020

Germany made the largest pledge to the Adaptation Fund at the Katowice Climate Change Conference in 2018, with about USD 80 million. In 2019, the country’s pledges to the Adaptation Fund fell by more than half to just USD 34 million (Table 2). This may have to do with Germany’s desire to exert more pressure on other donor countries to increase their pledges to the Adaptation Fund. Germany should continue to lead the way, especially within the European Union, in encouraging donor countries to increase their previous pledges to the Fund and encouraging others that have not yet pledged.

The Adaptation Fund has received increased pledges from state actors at the subnational level in recent years. These include the Belgian regions of Wallonia and Flanders as well as the Belgian capital Brussels. The government of the Canadian province of Québec also made a funding commitment to the Adaptation Fund for the first time in 2019.  Another way to increase Germany’s contributions to the Adaptation Fund in the coming years could therefore conceivably be additional funding commitments from pioneering federal states or cities. This option should be examined. It is also worth noting that in 2018, the European Commission contributed around USD 11 million to the Adaptation Fund.

In recent years, Germany has not only been a leader in terms of financial contributions to the Adaptation Fund, but the country has also been actively involved in the Fund’s Board from the outset and was a driving force behind many important Board decisions. Civil society and representatives from developing countries in particular hope that Germany will continue to live up to its leadership role at the climate conference in Glasgow.

Julia Grimm, Germanwatch