Adapting to the impacts of climate change will require major climate action and massive increases in climate finance. Public funding must be used in more effective and transparent ways and in manners that catalyze private funding for climate mitigation as well as adaptation.
Lively discussion has dwelled and continues to dwell around climate funding, particularly the amounts, targets and channelling of finance needed to mitigate and adapt to climate change. Developed countries have committed to mobilising 100 billion USD of climate finance by 2020 to help developing countries.
The commitment conveys a strong message about the important role that developed countries must play but unfortunately, there is no clear agreement yet on what might count as “climate finance mobilised by developed countries”. However, mobilising funds from private sector capital has emerged as an important means to scale up climate finance flows. Whatever the source, a key requirement is that the funds must be spent effectively.
The question that remains is how to assess and track the mobilised private climate finance. Tracking funds is important for improving transparency but also for understanding the real extent and potential that private climate finance has in contributing to the 100 billion USD commitment. The core questions are: Is the funding achieving targets? Is it as effective as it should be?
Gaia recently carried out a study to identify practical methods that could be used for assessing mobilized private climate finance. We developed an example methodology and tested it on three Nordic case studies. According to our study, estimates on the amounts of mobilised private climate finance can vary considerably depending on the methodological choices and assumptions made. In one analysed case study, the amount of private climate finance could range from zero to almost 15 million USD on a project level. This highlights the importance of transparent calculations. Aggregating and comparing data can lead to a drastically skewed result, if not based on systematic calculations.
Ideally, all funding organisations should use a similar calculation methodology, as this would provide a more realistic view of funding volumes. Yet calculations can be extremely complex especially in projects that are co-funded by multiple organisations. This complexity and choice of calculation methodology can have a huge influence on investment decisions.
A further refinement of methodologies would help public actors to develop systems for monitoring and evaluating climate finance. This would significantly improve the understanding of the finance landscape and facilitate mobilizing private investments.
The writer is a senior consultant at Gaia, working with corporate responsibility, carbon footprint and life cycle analyses, bio-based economy, responsible investment, and safety and risk management.
The full report is available at: http://www.norden.org/en/publications/publikationer/2014-506. The study was carried out by Gaia Consulting Ltd and Overseas Development Institute (ODI) for NOAK, a working group under the Nordic Council of Ministers. The report is also part of OECD’s Research Collaborative on Tracking Private Climate Finance and the first piece published in that context.