Why is climate finance becoming such a central topic in the global economy? Climate change disrupts development, a gap that climate finance is filling
By Zeph Kivungi
The next few days and weeks are arguably historic in the emerging sector of climate finance. On the 23-29th June, GEF is holding the Sixth GEF Assembly in Vietnam. The GEF is Global Environment Facility and was established on the eve of the 1992 Rio Earth Summit to help tackle our planet’s most pressing environmental problems. Since then, the GEF has provided over $17.9 billion in grants and mobilized an additional $93.2 billion in co-financing for more than 4500 projects in 170 countries. Today, the GEF is an international partnership of 183 countries, international institutions, civil society organizations and the private sector that addresses global environmental issues. One of the global environmental challenges in question is climate change. This meeting in Da Nang, Vietnam paves way for the 7th funding cycle, commonly called GEF-7.
During the same week, starting Sunday 1st July to Thursday 5th, The Green Climate Fund (GCF) which is the most highly capitalized and hence the largest international fund on environment (focused on climate change), has historic events lined up. The GCF 20th Board Meeting (dubbed B.20) takes places quarterly and this ending Q2 will be in the smart city of Songdo, South Korea, their Global Secretariat. The Board Approves applications for funding made by both public and private entities seeking to safeguard sectors and entire economies of developing countries from adverse impacts of a changing climate.
A third fund, also created under the Kyoto Protocol of the UN Framework Convention on Climate Change (UNFCCC) like GCF, is the Adaptation Fund. It is to help developing countries build resilience and adapt to climate change. It has so far committed US$ 477 million in 76 countries since 2010 to climate adaptation and resilience activities.
Basics
Let’s get down to some basics. Why should we even be talking about climate finance? Why is it becoming such a central topic in today’s global economy? It is because the climate has and is actually changing. What is causing thing change is often open to debate. That the climate is changing is undisputed. Farmers are devastated by either too much rain or insufficient rain. Countries are unable to feed themselves because crops and livestock are failing year in year out. New diseases are developing and old ones spreading to geographical locations they never existed because of changed climatic conditions.
When I was younger, if you went to a doctor in Nairobi with malaria-like symptoms, the doctor would ask, “Have you travelled outside Nairobi recently?” If you say “no”, the doctor would rule out testing for malaria. Why? Because malaria-spreading mosquitoes could not thrive on the cold high altitude Nairobi. Not anymore. Today, Nairobi is not taking chances, this has changed and even much higher altitude areas are now evidently malaria-prone. The climate has changed. Do we still need to ask why it has changed while there are real challenges from the change to deal with? Some invasive plant species are spreading in places they would not survive before.
Sabotaged Development
So, countries trying to develop now (often called developing or least developed) need to factor in the complex climate risks. Kenya spent KES245.3 billion (USD 2.45 Billion) in 2017 of unplanned national budget on foodstuff imports to address a food crisis because the country faced a severe drought that caused massive crop failure and livestock under productivity. In 2018, the country has faced the worst floods in 60 years according to the Climate Change Resource Centre within the Kenya Meteorological Department. What follows the flooding? Drought and famine because crops were destroyed. In addition to the setbacks, infrastructure swept away, drawing up a very costly repair bill.. The government has to budget for these. In simple terms, these resources would have gone to other development needs but have to be diverted to tackle these climate events and impacts leaving a big gap in financing national development like universal healthcare, manufacturing or education. Thus, climate change directly sabotages development. Period. This financing gap is filled by climate finance. Does this make it clear why we need climate finance?
The GCF
The GCF is now valued at USD 13 billion. Applications for financial support from countries vulnerable to climate change (all African states are) can be made to the Fund, to implement transformational changes in their economies. For instance, most African states depend immensely on rainfed agriculture. The 2016 Climate Change Exposure Index (CCEI) by Verisk Maplecroft, a risk analytics firm show that relying on rainfall posed “high” or “extreme” risks- up to 85 per cent. These risks in the form of unexpected heavy rains or absence thereof mean economic shocks. Countries may, therefore, miss the sustainable development goals and national aspirations (like Kenya’s Vision 2030, Rwanda’s Vision 2050, Zambia Vision 2030, etc.) unless they mobilise sufficient climate finance to safeguard the economies.
GCF and Africa
To date, the GCF has 76 projects under implementation valued at USD1.4 billion. That is an average project size of USD 18.4 million. Of these 76, only 28 (36.8%) are in African states. Some African states have more than project funded. They include Egypt, Namibia, Morocco, Senegal, and Zambia with more than 10 projects among themselves. As a result, over 45 African countries are spread among only 18 projects.. Some countries expected to have demonstrated leadership like Botswana, Ghana, Kenya, Nigeria and South Africa only feature in multi-country initiatives which do not necessarily reflect the top national priorities.
Since GCF is fairly new, the understanding and capacity in Africa to interact with the Fund remains acutely limited. The traditional methodologies of relying on external international entities such as UN Agencies and International Development Banks will not adequately deliver the urgent changes required to protect these fragile African economies from devastation. And GCF recognizes this. That is why they have a strong emphasis on Direct Access Entities, which are local institutions being accredited to help the country to directly access GCF resources. There is just a handful in Africa so far including government ministries (Ethiopia and Rwanda), Environment Agencies like Kenya’s NEMA, specialized environment funds like in Namibia and Senegal, and others in the process of being accredited like Development Bank of Zimbabwe. Overall, the pace is wanting.
What about Local Finance?
While international climate finance though Adaptation Fund, GEF, GCF and IDBs is what we talk about the most, local resources and mechanisms are about the most reliable and sustainable. Kenya, Ghana and Nigeria are designing Green Bonds to help mobilise climate finance locally. This is commendable.
Who Are the Players?
There are organisations in Africa playing a crucial role. They are non-accredited entities offering support to both countries and to accredited entities to access both GCF and other climate finance. Dr. Aliou Diouf, head of Climate Finance at Africa Sustainability Centre (ASCENT) says, “GCF recognizes the work we are doing supporting over a dozen countries currently in Africa to not only understand GCF but also to access funds. We are also supporting Direct Access Entities and others like UNEP and IFAD to better support countries. It is for this reason that the GCF has invited ASCENT for the first ever roundtable with non-accredited entities working with countries on GCF. The meeting is on 5th July, just a day after the B.20 in Songdo”.