Direct access to German climate finance: expanding pioneering work

Photo credits: Andrii Yalanskyi

The concept of direct access to international climate finance has become increasingly important in recent years. At world climate conferences, an increasing number of countries of the Global South are calling for improved and simplified direct access to climate finance. The concept of enhanced direct access is also attracting greater attention. Countries of the Global South are increasingly lobbying for a significant increase of such funds. International climate funds such as the Adaptation Fund (AF) and the Green Climate Fund (GCF) have already done pioneering work in this area. In addition to the multilateral climate funds, smaller initiatives have arisen in bilateral climate finance that have adopted the concept of direct and enhanced direct access. This blog post highlights such an initiative in the context of German bilateral climate finance and gives recommendations for how the German government can strengthen the concept of direct and enhanced direct access to climate finance in the future.

Direct and enhanced direct access to funds from German bilateral climate finance

The lion’s share of German climate finance is bilateral cooperation and comes from the budget of the Federal Ministry for Economic Cooperation and Development (BMZ). Implementation is mainly handled by the German Association for International Cooperation (GIZ) and the KfW development bank. These climate finance funds thus do not flow directly to the relevant partner countries, but via GIZ and KfW.

The International Climate Initiative (IKI), which is the focus of this post, is a further important player in German bilateral climate finance. The IKI is implemented and financed by the Federal Ministry of Economics and Climate Protection (BMWK) in close cooperation with the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV) and the Federal Foreign Office (AA). The IKI supports projects to reduce greenhouse gases, to adapt to the consequences of the climate crisis, to protect forests and to protect biodiversity. These projects are funded using four modalities: Thematic Calls, Country Calls, Medium Grants and Small Grants. While Thematic and Country Calls usually go to larger multilateral development organizations working in consortia with other organizations, Medium Grants can only be applied for by organizations based in Germany that cooperate with an organization in a country of the Global South. These three modalities, which account for the vast majority of IKI funding, thus do not provide opportunities for direct or enhanced direct access to climate finance. In contrast, the IKI Small Grants modality, with its two funding components International Calls and Funding Institutions, exclusively offers direct and enhanced direct access to national institutions in the Global South.  The following is a brief overview of the two funding components of the IKI Small Grants modality:

IKI Small Grants – International Calls: By directly providing project funds to regional, national and local organizations in the Global South, this funding component aims to provide around €11 million to around 100 selected climate projects over a period of five years. In this way, the IKI specifically aims to enable smaller national actors to access climate finance for their predominantly local solutions. The funds flow directly to national institutions in the Global South via annual project calls, without going through German or international development organizations. The IKI Small Grants International Calls funding line is thus very similar to the direct access modalities in the AF and GCF.

IKI Small Grants – Funding Institutions: This funding component increases the capacity of larger national and regional institutions to implement their own funding programs. Six national and regional institutions receive technical and financial support in implementing their own programs or in providing funding at the local level. An amount of up to €850,000 is available to each of the six national or regional institutions, which includes funding for the grant program, capacity building activities and technical support. The funding component is thus very similar to the concept of enhanced direct access to climate finance in the AF and GCF. The amount of individual project funding from the IKI Small Grants Funding Institutions component is much lower than in the AF and GCF, however.

Benin: an example of enhanced direct access to climate finance

The Benin National Fund for Environment and Climate (FNEC) is a national institution that has direct access to funds from international climate finance through both bilateral and multilateral channels. The IKI selected FNEC in late 2021 as the first national institution to receive funding through the Funding Institutions funding line and has been funding initial climate projects by national institutions since 2022. FNEC has also been accredited as an implementing entity of the AF (since 2011) and GCF (since 2019). FNEC thus has the option of direct access as well as enhanced direct access to international climate finance through these two multilateral channels (AF and GCF). Furthermore, FNEC has access to the funds’ readiness programs, which support national institutions in the Global South in their efforts to access climate finance directly. At the time of publication, FNEC did not yet have an approved project in the AF or GCF. However, FNEC has developed and submitted project concepts and applications for both climate funds that are likely to be approved by the AF and GCF in the near future. In addition, FNEC has received financial support under the AF readiness program to strengthen the institution’s own capacities with regard to gender issues and compliance with the environmental and social standards of the Adaptation Fund.

Ensuring coherence and complementarity with other enhanced direct access funding programs

The IKI funding line should not add complexity to an already highly interconnected and confusing international climate finance landscape. Two aspects are relevant here:

• The IKI should ensure coherence with other funds. Additionality should be clearly evident when financing national institutions that are already accredited to the international funds. While FNEC can only get up to €850,000 through the IKI Small Grants Funding Institutions component, it can theoretically get up to US$10 million from the AF and GCF to implement direct access and enhanced direct access projects.
• There is also the question of what added value the IKI funds have. The IKI should ensure complementarity with other funds. The funding of the IKI can be used to strengthen other national institutions, which can then seek accreditation for direct access from international funds such as the AF and GCF. Here, the IKI can cover an additional niche with its Small Grants funding line and usefully complement other initiatives such as those from the AF and GCF.

The above example of FNEC clearly demonstrates how important it is for the IKI Small Grants Funding Institutions component to ensure coherence and complementarity with other direct access and enhanced direct access funding programs such as those in the AF and GCF and their accompanying readiness programs.

Openly communicating GIZ’s conflict of interest and developing countermeasures

The IKI Small Grants Program is managed by the GIZ. The GIZ is also responsible for capacity building and technical support within the IKI Small Grants Funding Institutions component. Furthermore, the GIZ receives funding from the GCF to implement its readiness program. At the same time, however, GIZ competes with these national institutions for climate finance funds in the GCF and IKI. This is because the GIZ implements concrete climate projects in its partner countries with both IKI Thematic and Country Call funds and GCF funds. In addition, the self-preservation drive of development organizations such as the GIZ may conflict with a move toward more direct and enhanced direct access to climate finance. This potential conflict of interest should be openly communicated by the German government and GIZ and a strategy with appropriate measures should be developed to reduce this risk.

Only a small fraction of the total bilateral German climate finance provided is available via direct access

The IKI Small Grants Program, including its Funding Institutions component, is an important first step in promoting direct and enhanced direct access to international climate finance for institutions in the Global South, including through bilateral channels. This initiative is only a drop in the bucket, however.  The total of €11 million and €5 million allocated to the International Calls and Funding Institutions funding windows of the IKI Small Grant Program for the period 2019-2025 represents only a fraction of Germany’s total bilateral climate funding for this period. To put these figures into perspective:

1.) In 2020 alone, the IKI has approved a total of €567 million in funding.

2.) For fiscal year 2021 alone, the German government earmarked bilateral climate finance totaling €3.27 billion of which, however, only around 47% reached the recipient countries in the form of grants (see table).

The German government must further strengthen direct and enhanced direct access to its climate finance

The German government should further expand direct access as well as enhanced direct access to international climate finance for institutions in countries of the Global South through both multilateral and bilateral funding channels. Specifically, this means that in the coming budget years, the government must strengthen its contributions to both bilateral and multilateral initiatives that promote direct access as well as enhanced direct access to climate finance. This should be reflected in the expansion of initiatives such as the IKI Small Grants program, including its Funding Institutions component, in addition to significantly increased contributions to the AF and GCF.

Increase pressure on other donor countries for more direct access

In addition to its own efforts, the German government should, together with other pioneering countries in the field of direct access, ensure that donor countries increase direct access and enhanced direct access both via bilateral and multilateral financing channels and improve and simplify the possibilities for direct access.  To this end, Germany could, for example, initiate an exchange between donor countries to share and further advance experiences, best practices and challenges of direct and enhanced direct access to climate finance through bilateral initiatives. The partner countries of the Global South should, of course, be closely involved in such an exchange.

Furthermore, as part of their annual climate finance reporting, Germany and other donor countries should voluntarily provide statements on the share of their climate finance to which national institutions in the Global South have direct or enhanced direct access.

Summary of recommendations for the German government

1. Ensure the coherence and complementarity of bilateral direct access and enhanced direct access funding programs with other funding (e.g. from the AF and GCF).
2. Openly communicate the GIZ’s conflict of interest with regard to support for direct access and enhanced direct access and develop countermeasures.
3. Greatly expand direct access and enhanced direct access to German climate finance by 1.) significantly increasing contributions to the AF and GCF and by 2.) further financial strengthening and expansion of the IKI Small Grants funding window with its International Calls and Funding Institutions
4. Exchange experiences with other countries on the implementation of direct access and enhanced direct access in bilateral climate finance.
5. Provide statements on the share of annual climate finance available via direct and enhanced direct access as part of annual reporting.

Julia Grimm, Germanwatch