Transparency and accountability

Donor countries issue regular reports on climate finance. They have also made considerable efforts in recent years to improve transparency and provide more public information on the topic. Transparency, in turn, is the prerequisite for the independent monitoring of Germany’s contribution to international climate finance.

International reporting

Every two years, within their general reporting obligations on the implementation of their climate protection pledges, Germany and the other countries must report to the UNFCCC on the climate finance resources they have provided. This is done via national communications and the provisions of the biennial reports (BUR) adopted in 2014. Germany’s third biennial report was published in 2017.

In addition, the EU Member States report annually to the European Commission, using an almost identical format as for the UNFCCC. For this purpose, a joint emissions monitoring and reporting mechanism (MMR) was put in place under which the EU countries submit their yearly reports. From September 2021, reporting will take place according to new guidelines aligned with the changed regulations of the Paris Agreement.

What do the reports contain?

In the broadest sense, the funds provided and mobilized should serve both climate protection and reduction of greenhouse gas emissions or adaptation to climate change. Apart from a few vague provisions, however, there are no fixed criteria as to what actually counts as climate finance and therefore needs to be reported – this is largely left to the donor countries.

The German government usually reports funds provided and mobilized if the projects and programs they finance meet at least one of the following three criteria:

  1. The projects and measures contribute to adaptation to the impacts of climate change. Numerous “traditional” development projects of bilateral financial and technical cooperation in the sectors of agriculture, water, and health can be categorized as such.
  2. The projects and measures contribute to reducing emissions. These include all measures in the energy sector related to promoting renewable energy and energy efficiency.
  3. The projects and measures contribute to the protection of forests and biodiversity. Such measures help preserve rainforests and other natural carbon sinks, and can thus be considered a reduction of emissions in a broader sense. In a narrower sense, these measures belong to the REDD+ (Reducing Emissions from Deforestation and Forest Degradation) category.

Ex-post versus ex-ante transparency

Lack of predictability is another weakness in the transparency of climate finance although this is included under the regulations for reporting under the Paris Agreement. While target amounts are usually set for the current year for the German government’s climate-relevant development cooperation, these are not binding. Furthermore, there is very little external communication of these targets and is not included in the EU reporting.

Accounting methods: what is counted and how?

With regard to the question of which projects and programs are reported to the UNFCCC or the European Commission as climate finance, the German government uses the Rio markers for adaptation and emissions reduction as a guide to marking supported measures in the reporting system of the OECD Development Assistance Committee. The German government applies them as follows:

  • A project with a Rio marker of 2 for mitigation or adaptation will be credited to the respective sector with the full amount.
  • A project with a Rio marker of 1 for mitigation or adaptation will be credited to the respective sector with half the amount.
  • A project that also has a Rio marker of 2 for biodiversity is counted toward the category of forest/biodiversity protection, including REDD+.

The German government reports committed and mobilized amounts from different types of sources:

  • Grant: Funds from the federal budget that are used in the form of non-repayable grants. Depending on the climate relevance of the funded measure, either 100 or 50 percent of the total funding volume is indicated.
  • Concessional loan: Loans with interest subsidies or repayment conditions that are significantly more favorable than a loan on market terms. In these cases, the German government reports the nominal value of the loan less the grant equivalent contained therein (and lists the total grant equivalents of all loans separately). Funds from the federal budget are not used (with very few exceptions); the loans are mobilized solely from market funds. Depending on the climate relevance of the funded measure, either 100 or 50 percent of the total funding volume is indicated.
  • Non-concessional loan: Loans without interest subsidy. The figure states the market funds mobilized by KfW/DEG on the capital market; funds from the federal budget are not used for such loans. Depending on the climate relevance of the funded measure, either 100 or 50 percent of the total funding volume is indicated.
  • Equity: Equity capital provided by KfW/DEG. This figure refers to mobilized market funds or KfW/DEG equity capital; funds from the federal budget are not used for such measures. Depending on the climate relevance of the funded measure, either 100 or 50 percent of the total funding volume is indicated.
  • Foreign Direct Investment (FDI): DEG’s cross-border investments in companies. The aim of FDI is to establish a long-term cooperation through the acquisition of shares and to be able to exert influence on the company’s strategy.
  • Grant equivalent: The total grant equivalents of concessional loans minus the interest subsidies from budget funds, which are indicated separately. Grant equivalents are the mathematically calculable financial advantage for a recipient country resulting from the interest subsidy on a concessional loan compared to a loan at market conditions, i.e. no funds from the federal budget are used. Since 2017, the German government has been reporting these figures separately – for reasons of confidentiality, however, they are only stated by region and not by project.
  • Interest subsidy: Funds from the federal budget for the KfW, which thus subsidize the interest on loans in order to offer concessional loans.

In addition, loans from the KfW and DEG development banks have been listed in three different ways since 2015:

  • the volume of individual KfW projects, i.e. market funds less budget funds
  • KfW’s interest subsidies per region, and
  • DEG loans as an overall package per region, but broken down into concessionary and non-concessionary loans.

Transparency at the national level

Within the national context, the German government publishes further information for the respective financial instruments. The German Federal Ministry for Economic Cooperation and Development (BMZ) lists funded projects and programs as well as payments into multilateral funds on its own website and elsewhere, but with a delay of more than one year. The International Climate Initiative (IKI) publishes project descriptions on its website as part of its public relations work. Joint reporting in the form of project lists has so far only been provided for fast-start finance.

Project-related information is also published by the implementing entities:

  • The German Association for International Cooperation (GIZ) provides project descriptions on its website on the respective country pages and in a project database.
  • Since late 2013, KfW has had a transparency portal that publishes information on its projects.

This system also has scope for improvement. Practice has shown that GIZ and KfW do not publish all project descriptions, nor is there a central location where information on the supported projects and programs can be obtained. Particularly in times of tight budgets, it should be in the interest of the German government to report regularly to the public and to the Bundestag – providing complete and comprehensible information not only on the quantity, but also on the quality of climate finance, so that conclusions can be drawn about the effectiveness of German climate finance.

Puplications
  • Unpacking Finance for Loss and DamageThe publication gives an overview on the needs and potential sources for financing Loss and Damage.
    more ...
  • Climate Adaptation Finance: Fact or Fiction?A comprehensive adaptation finance tracking study including donor countries’ reporting of adaptation finance, its gender-responsiveness and prioritization of the poorest and most vulnerable people.
    more ...