How to ensure local climate adaptation with international climate finance

3 December 2018

With the Paris climate agreement, governments agreed to scale-up the budget for climate activities and to achieve a balance between mitigation and adaptation. Ecosystem-based climate adaptation is one important pillar of investment which delivers win-win benefits for people and nature (IIED & IUCN, 2016). Climate finance reaching the local level – as part of a coherent approach to climate action – delivers fair, effective, efficient and long-lasting results that enhance the impact of each dollar disbursed (IIED, 2017). However, investments in ecosystem-based adaptation are globally lagging behind and only 10% of climate finance reaches local levels. What is required to change this? 

Delivering local climate finance

There are common hurdles and solutions to local finance for ecosystem-based adaptation, regardless of sector or region. Because it is important that local communities, civil society organizations and local government agencies take a lead in setting priorities, climate funds should design features that enable these local actors to access finance for delivering climate action and pace and scale.

During an expert meeting on 22 November 2018 organized by IUCN NL, WWF Netherlands and IIED, four measures were identified for funds to reach the frontiers of climate action:

1. Aggregate up action and local results to deliver impact

International climate finance funds are often less capable to finance small-scale projects directly, given the higher transaction costs. Joining up investments can provide financing opportunities at the right scale for public and private investors. Intermediaries such as IUCN NL and WWF NL, can bring opportunities together and negotiate terms of investments to ensure that the metrics of success prioritizes local level impact.

2. Shift incentives

Re-structure public and private roles and finance to make the investment case in favor of long-term, local-level results. Make use of innovative financial instruments that could help to de-risk domestic private and public finance, such as municipal bonds, guarantees, and credit enhancements. International fund policies should also be revised to increase their willingness to accept lower profitability in climate change adaptation projects compared to mitigation projects. Organizations like IUCN NL and WWF NL can play a role as ‘translators’. In their role of intermediation, they can bundle projects. They can also build a shared understanding of risk for finance providers and recipients, in order to manage expectations that money will be used for its intended purpose, while achieving successful climate-proof development outcomes.

3. Improve local capabilities

Provide capacity building trajectories for local organizations to access and manage climate finance. Local finance only makes sense if financial management skills are in place. Local actors can include CSOs, banks, governments and representatives from communities. They should oversee the design, distribution and reporting of climate finance, ensuring it meets local priorities and achieves sustainable development that is appropriate to a changing climate. Capacity builders of local organizations, like IUCN NL and WWF NL, are well-situated to provide the financial and technical capabilities to these local actors.

4. Build trust in relationships

Although the assumption is that local ownership of decisions makes investments more relevant, sustainable and accountable, the delivery of better value for money should be proven by impact measurement. The finance recipient should be transparent in decision making processes at the lowest possible level and finance expenditures. Brokers that can transcendent scales from global to local are needed to build relationships and judge on integrity. Governments and NGOs should invest in advice and the linking of technology with indigenous knowledge.

Urgency to let finance flow to frontiers

Climate change increases the risk of natural disasters, migration by climate refugees and conflicts concerning the availability of fertile land and sufficient water. Given the urgency of ecosystem-based adaptation and often limited funding, it is crucial that climate finance is used effectively and efficiently, addressing the vulnerabilities of those most in need and helping them escape poverty through climate-resilient sustainable development. Climate financing mechanisms that prioritizes adaptation priorities of local level actors can bring such results.

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