4Strategic approaches to spending International Climate Finance (ICF)
Climate finance and poverty reduction
49.In our 2018 report on ‘The Definition and Administration of ODA’ the Committee concluded that:
In keeping with the UK Aid Strategy, poverty reduction should be the central pillar of UK ODA spending. However, evidence submitted to us has suggested that ODA programmes administered by other government departments are not always targeted adequately towards poverty reduction …90
The Department for Business, Energy and Industrial Strategy (BEIS) is currently the largest non-DFID spender of ODA. According to BEIS, its ODA spend aims to support the goals of the UK Aid Strategy by, “reducing poverty by generating and putting into use technology to address global development challenges which affect the poorest people and countries”.91
50.A focus on poverty reduction and reaching the most vulnerable is of high importance when spending aid to combat climate change because, as discussed in Chapter 2, climate change impacts the poorest and the most vulnerable communities the hardest. Professor Dirk Messner, Director of United Nations University Institute for Environment and Human Security articulated the point:
as we all know and as the science is demonstrating, global warming is impacting most severely the most vulnerable and the poorest—smallholder farmers, for example, and other vulnerable people depending on their land and depending on access to water, sea level rise impacts, et cetera. The poorest are the ones that drive global warming very little but feel the impacts very clearly. Climate protection from this perspective is investing in capabilities of poor people. Climate protection is driving pro-poor development.92
51.We heard that successfully aligning climate programming with poverty reduction requires planning and consideration, which itself requires institutional capacity and associated knowledge and expertise, and it is not only a case of ensuring that vulnerable communities are supported to adapt to climate change. As recent climate science and evidence to our inquiry has made clear, there is a risk of trade-offs between efforts to mitigate emissions and poverty reduction that needs to be carefully navigated. The Intergovernmental Panel on Climate Change (IPCC) special report on the impacts of a 1.5°C temperature rise, explains that strategies to mitigate C02 emissions can both help and hinder the attainment of the SDGs:
Mitigation options deployed in each sector can be associated with potential positive effects (synergies) or negative effects (trade-offs) with the Sustainable Development Goals (SDGs). The degree to which this potential is realized will depend on the selected portfolio of mitigation options, mitigation policy design, and local circumstances and context.93
52.These risks are borne out by the findings of the Ecosystem Services for Poverty Alleviation (ESPA) research programme, under the Directorship of Dr Kate Schreckenberg. Dr Schreckenberg told us in written evidence that
there are risks that poorly considered forest-based activities may impose costs on the poorest and most marginalised people, particularly women.94
She gave the example of how the establishment of protected areas to conserve forests can often restrict traditional forms of land use, and those who are affected are often not properly compensated for lost livelihoods.95 ESPA’s research findings suggested that the potential for trade-offs is “almost inevitable” and so anticipating and identifying these at the start of programme design is important in order to find suitable solutions.96 This suggests to us that in order to assess the links between climate change and poverty reduction, it is necessary to look not only at where climate finance is being spent, but also at who is benefiting from the finance, and how any trade-offs are being managed.
53.The Government wrote to us at our request outlining the climate finance split between Least Developed Countries (LDCs), Lower Middle Income Countries (LMIC) and Upper Middle Income Countries (UMIC). This shows that the proportion of support going to LDCs has hovered around 60% in the last four years.97
54.When asked about this in oral evidence, Minister Perry responded:
This is often the heart of the climate debate, because you can either focus on countries that have emissions you can help reduce or you can focus on countries where there are no emissions but where there are very poor populations.98
She added:
Solving the climate change problem by focusing on reducing global emissions arguably benefits the world’s poorest and most vulnerable people and, I think, women most.99
55.Dr Thérèse Coffey MP, Parliamentary Under-Secretary of State for the Environment, Department for Environment, Food and Rural Affairs suggested that aligning climate aid with poverty reduction does not just mean focusing on the poorest countries but can also mean targeting poor populations within middle income countries. For example:
If I think of Brazil, we work in the Caatinga region, it has the lowest Human Development Index in the country. We also work in Madagascar, in particular, in Tahiry Honko in the south-west and Ambanja Bay in the north-west. We are looking at some of the poorest places.100
56.We heard about some examples of DFID programmes which do well at both targeting the least developed countries and the most vulnerable people within those countries. The Glasgow Caledonian University Centre for Climate Justice highlighted the Building Resilience and Adaptation to Climate Extremes and Disasters (BRACED) programme, “which has a strong presence in LDCs and focuses resilience building efforts on the poorest and most vulnerable communities”.101 As a Committee, we saw, and were impressed by, some of the work that DFID has been supporting under the ‘Strengthening Adaptation and Resilience to Climate Change in Kenya Plus’ (StARCK+) programme to develop a devolved climate finance mechanism in arid and semi-arid counties, which has enabled county governments to mainstream climate change in their planning and has allowed local communities to participate in developing climate adaptation mechanisms.102
57.However, the evidence also highlighted some concerns over whether DFID climate programmes always reach the poorest and most vulnerable people. For example, Glasgow Caledonian University Climate Justice Centre gave the example of a UK climate finance funded programme to improve women and girls’ uptake of clean cookstoves. This work was also referred to by the Ministers in oral evidence.103 The Climate Justice Centre was critical of the way in which this programme is being monitored. They pointed out that while on the surface, the work is “focusing on a vulnerable group and recognises gender as a social barrier to sustainable development and good health”, DFID’s assessments of success are based on sales data from their supplier partner, Global Alliance for Clean Cookstoves, rather than on feedback from the women and girls themselves. The Climate Justice Centre also pointed to a research study104 which shows that ‘access’ to clean cooking solutions does not equate to ‘use’. They told us that study found “the usage of clean cooking solutions declined over the long-term, as did the assumed health benefits”.105
58.Dr Kate Schreckenberg presented the example of DFID’s support for market-based approaches to addressing forestry, such as REDD+ [Reduced Emissions from Deforestation and Forest Degradation]. Dr Schreckenberg criticised how such approaches “focus primarily on environment outcomes and do not necessarily deliver on equity and poverty alleviation”.106
59.We have also received evidence that questions whether climate finance spent by DFID always reaches the right countries. For example, IIED said in written evidence that whilst DFID is generally strong on its support for the most vulnerable countries, “several LDCs and vulnerable regions are donor orphans. Climate vulnerable and fragile counties and regions need attention”.107 In oral evidence, Minister Baldwin acknowledged that DFID could have more of a strategic focus on countries that are particularly climate vulnerable:
if you look ahead at some of the most vulnerable places on the planet and DFID programming, we do need to be changing and uplifting in certain areas. One of them, for example, would be Madagascar, which is likely to be a country where a lot of poor people will continue to live with amazing environmental challenges. That will be an area where, in our strategic programming, we would hope to be 7increasing our focus.108
60.Whilst all three Ministers gave responses on how they see their climate finance spend benefiting the poorest and reaching the most vulnerable, we were not able to gain assurances that this was being monitored and tracked. We heard from Neil Bird, a Senior Research Fellow at the Overseas Development Institute (ODI) that the UK should “demonstrate that climate finance, under the UK aid budget, contributes to poverty reduction and meeting the needs of the most vulnerable in an explicit way”.109 When we asked the Ministers how this was being measured, Minister Coffey replied:
That is a good question. I do not know the specific answer to that, I must admit. When I think of the reviews that I do, obviously they are all in line with the UK aid strategy, but we are focusing on what the outcomes are in terms of carbon. I am conscious that in our selection process on where we invest is where we may have considered that, but I do not recall specifically me looking then at what that then means.110
On request, the Government sent a follow-up letter in which they confirmed that the ICF’s key performance indicators:
do not include directly measuring the impact on reducing the poverty of the most vulnerable, though they do capture how many people have been assisted to cope with climate change and other measures we know are important for tackling poverty such as the access to clean energy.111
The results provided by the Government include:
- 17 million people provided with improved access to clean energy
- 47 million people supported to cope with the effects of climate change
- 590 MW of clean energy installed.112
With regards to managing potential trade-offs between climate action and poverty reduction, it is difficult to see how these are being actively managed when poverty reduction is not directly assessed.
Climate Compatible Development and Climate Justice
61.Several submissions highlighted that poverty reduction is not just a potential co-benefit of climate action, but increasingly, addressing poverty and vulnerability is being recognised in itself as an important part of building resilience to climate change. Professor Tim Forsyth told us that:
Increasingly, approaches to adaptation include aspects of socio-economic transition as well as infrastructure in order to address the factors that make people vulnerable to these additional gases. For example, cyclone shelters in Bangladesh do save lives: but they do little to address the reasons why people are vulnerable outside of short-term protection, such as shortage of sustainable livelihoods, security of tenure, etc113
ODI also highlighted in their submission the role of traditional development in building resilience to climate change:
A climate-related hazard, be it an extreme weather event or a slow onset hazard like sea level rise, results in a disaster (deaths and severe economic losses) when it interacts with underlying development problems.114
62.‘Climate compatible development’ is an approach that recognises the close interaction between climate change and development.115 ActionAid’s written submission to the Committee advocated that DFID adopt this approach:
ActionAid recommends that DFID combats climate change with climate compatible development. This approach goes beyond previous processes by building climate resilience, cutting carbon emissions and promoting development simultaneously. It aims to address mitigation, adaptation, resilience and human development in all programmes. This aligns with the notion that all climate change programmes should contain strong development threads and all development programmes must consider climate change adaptation and resilience.116
63.Professor Forsyth’s recommendation of enhancing the transfer of climate-friendly technologies is one example of a policy that reflects this approach in that it “can achieve climate change mitigation; build local socio-economic resilience and adaptive capacity; and contribute to classic local development objectives such as education, healthcare and quality of life”.117
64.Some of DFID’s climate programmes already follow a ‘climate compatible development’ approach. For example, whilst in Ethiopia, we were able to see elements of the Productive Safety Net Programme (PSNP) that DFID has supported with ICF, building communities’ resilience to climate change by reducing food insecurity and vulnerability.118 On the other hand, the Government highlight in their written submission to the inquiry that:
DFID’s Humanitarian Policy recognises the need to invest more in resilience and preparedness to respond, including using insurance and other risk-based finance to better manage risks, and deliver longer-term solutions to protracted crises.119
We received several submissions that pointed to and criticised a growing tendency within DFID to emphasise insurance schemes and managing finance risk as a way for responding to climate change, rather than addressing root causes of vulnerability in order to build to resilience.120 Results UK set out in their written evidence some of the benefits of climate risk insurance for tackling poverty and vulnerability-to-shocks, but emphasised that “climate risk insurance is not a silver bullet but rather it must be implemented as part of an integrated strategy on climate risk management”.121
65.As part of our inquiry, members of the Committee met representatives from the Glasgow Caledonian University Climate Justice Centre. We learned from the Centre that a climate justice approach is not equivalent to the ‘polluter pays’ principle, which puts an emphasis on where climate finance should be coming from, but rather emphasises to whom climate finance should be going, and how they should be supported. They told us that a climate justice approach:
recognises humanity’s responsibility for the impacts of greenhouse gas emissions on the poorest and most vulnerable people in society by critically addressing inequality and promoting transformative approaches to address the root causes of climate change.122
The Centre explained that the climate justice approach is in “complete harmony with the SDG motto of ‘leave no one behind’”, and actively seeks to reach and engage with those most impacted by climate change:
A climate-just policy is one that is ‘designed with’ rather than ‘for those’ most affected by climate change (or their representatives), making it potentially more legitimate and effective at the local level.123
They emphasised that the climate justice approach is applicable to both mitigation and adaptation policies, “as both carry the risk of accentuating local inequalities”.124
For instance, renewable energy development (mitigation) can negatively affect local populations through land grabs, while adaptive measures such as agricultural development projects can inadvertently end up excluding those with little disposable income to invest in the proposed inputs and technology. In contrast, climate justice seeks to ensure an equitable distribution of both risks and benefits associated with mitigation and adaptation.125
66.The Scottish Government has explicitly adopted a climate justice approach in its aid spending on climate change, and in 2012, was the first government to set up a dedicated Climate Justice Fund to tackle the effects of climate change. The fund will spend up to £21 million on climate justice related activities between 2012–2021.126 In a written submission to the Committee, the Scottish Government explained what they considered to be the value of adopting this approach:
Looking at international development through the lens of Climate Justice helps ensure that communities are engaged to actively participate in projects and programmes that will help them become more resilient to climate change.
They added:
As well as supporting people become more resilient to climate change, this also means that Scotland’s climate justice budget is focused most sharply where it is most needed.127
67.We asked Ministers in oral evidence whether the UK had considered similarly adopting a ‘climate justice’ approach to spending ICF. Minister Perry responded:
The language that governs us more is “leave no one behind”, because there are issues of transition in developed countries too; you have tens of thousands of coalminers in Poland who are worried about what they will do as the country moves away from coal.128
68.Spending international climate finance does not necessarily reduce poverty. Some strategies which aim to address the causes of climate change can have a harmful impact on the poorest and most vulnerable. As well as being an unacceptable use of the aid budget, this also renders climate finance less effective by reducing adaptive capacity. The UK should recognise and be alive to these potential trade-offs in order to manage and avoid unintended, potentially harmful outcomes. The most effective way for the Government to spend climate finance and avoid trade-offs is to ensure poverty reduction is a central pillar in all ICF spending. This means that all departments should be able to demonstrate explicitly how their ICF spending reduces poverty and benefits the most vulnerable, and this should be actively tracked and reported as part of the monitoring and evaluation of ICF spending.
69.In terms of developing policies and designing programmes, the concepts of climate compatible development and climate justice provide helpful guidelines for ensuring that climate finance brings maximum benefits for addressing both the causes and impacts of climate change whilst promoting sustainable development. The Government should explicitly adopt these approaches and be guided by them in policy development and programme design.
The balance between mitigation and adaptation
70.As a signatory to the Paris Agreement, the UK has committed to aim for a balance in its climate finance contributions between finance for mitigation (reducing greenhouse gas emissions to limit further climate change) and finance for adaptation (supporting developing countries to adapt to the impacts of climate change). Globally, adaptation is severely underfinanced. IIED told us that “only 20 per cent of climate finance goes to adaptation, instead of the balance promised under the Paris Agreement”.129 According to Oxfam’s analysis of adaptation finance for their ‘Shadow report on climate finance 2018’,130 in 2015 and 2016 “only 20% of climate finance was allocated to adaptation, only around a quarter was in the form of grants, and only around 18% went to Least Developed Countries”.131 Dr Angela Falconer, Associate Director of the Climate Policy Initiative, told us in oral evidence that:
We see only $22 billion of that $520 billion globally [of climate finance flows] being spent on adaptation, which is way below what is needed. The UN gap report shows that we need almost $300 billion per year by 2030 to be spent on adaptation.132
71.The UK Government explicitly aims to achieve an even balance between mitigation and adaptation finance.133 According to written evidence from E3G, the UK’s most recent Biennial Report to the UNFCCC shows that the UK is meeting this commitment.134 Numerous submissions to the inquiry, particularly from NGOs, welcomed the fact that the UK has committed to spending 50% of its climate finance on adaptation.135 CAFOD suggests that the UK can use this commitment to act as a role model to others, “and encourage peer countries and multilateral development banks to ensure greater balance in their climate finance”.136 Other organisations advised that, while the commitment is commendable, the UK should not limit itself to spending 50% on adaptation finance and encouraged the Government to do more to support adaptation.137
72.Other evidence to the inquiry questioned whether the distinction between mitigation and adaptation is helpful. Dr Helena Wright from E3G told us:
we may not need to see these as individual silos of investment, because to meet the Paris climate goals we need to be mainstreaming both adaptation and mitigation across the UK’s overseas spending and aid portfolio. It might be a bit of a red herring to focus on this.138
Professor Forsyth agreed that the distinction needs rethinking,139 as did the Grantham Research Institute, who said that “mitigation and adaptation should be considered together and international development programmes designed, financed and allocated accordingly”.140 In support of this, they presented research by Conway et al. (2018)141 which found that:
the majority of current and planned hydroelectric power stations in eastern and southern Africa will be located in the same rainfall zones. These stations will therefore be exposed to the same future climatic fluctuations and potential effects of climate change. This will in turn influence their electricity generation capacity, and power shortages could have knock-on socioeconomic effects that would affect development in some of the most vulnerable countries in which UK aid is spent. Therefore, hydropower investments in these regions have to consider both their potential to mitigate emissions, but also include the design and implementation of strategies to adapt to future climate change impacts to support their effective functioning and energy security.142
The Institute advised that such an approach also applies to other sectors such as transport and infrastructure. Dr Rebecca Nadin from ODI similarly warned, “there need to be those synergies and projects where you can have mitigation and adaptation co-benefits, rather than creating potential maladaptation down the line”.143
73.Notably, an approach to climate programming which considers mitigation and adaptation simultaneously is captured by the concept of ‘climate compatible development’, which we advocate for above. Climate compatible development “moves beyond the traditional separation of adaptation, mitigation and development strategies” and asks policy makers “to consider ‘triple win’ strategies that result in low emissions, build resilience and promote development simultaneously”.144 In her written evidence, Dr Kate Schreckenberg told us that DFID should adopt this kind of ‘triple win’ approach, particularly in relation to the forest sector, where programming should be designed to “contribute to livelihoods, adaptation and mitigation in an integrated manner”.145
74.The Government is not currently spending the vast majority of its International Climate Finance in this integrated way. Dr Helena Wright pointed out that “the portion of UK climate finance labelled as ‘cross-cutting’ fell from 2015 to 2016 to £0.9m and was only a tiny portion of the total climate finance reported in 2016”.146 She suggested to us that the UK Government should “scale up ‘cross-cutting’ climate finance which meets both mitigation and adaptation objectives” in order to make the best use of resources.147
75.The UK Government is setting a good example internationally by adopting and meeting its commitment under the Paris Agreement to spend 50% of International Climate Finance on adaptation. This should be maintained in the next spending period.
76.However, whilst the international reporting requirements for climate finance are structured around the distinction between mitigation and adaptation, the Government should not be restrained by this framing when it comes to designing policies and programmes. The Government should consider mitigation and adaptation strategies simultaneously. These should be integrated in ICF funded programmes, together with sustainable development objectives.
Climate programme cycles
77.In both the written and oral evidence, and during our visit to East Africa, witnesses and stakeholders raised concerns with us about the length of DFID’s programme cycles on climate change. Christian Aid’s written evidence set out why they see this as an issue for programming on adaptation:
It is broadly accepted that, in order to ensure that programming is adaptation-relevant, programming requires phases of 4–6 years and project duration of ideally 8 years or more. This enables consistency with the ongoing processes of climate change, the risk management priorities of the most vulnerable (and other risk-management stakeholders), and the technical/logistical realities of project implementation, including proof-of-concept requirements. It is regrettable that while multilateral agencies often [do] meet these requirements, DFID’s approach to NGO funding in contrast has been to progressively shorten project cycles–this is not best practice and must be improved.148
They warned that DFID’s “tendency towards shorter project cycles of 2–3 years has significantly reduced project impact … ” and provided three examples of DFID climate programmes which they believe would have benefited from longer programme cycles:
- Building Resilience and Adaptation to Climate Extremes and Disasters (BRACED) - 3-year programme cycle with a 1-year extension for a reduced number of implementing partners.
- Programme Partnership Agreement–3-year programme cycle, which was extended twice and is now closed.
- Strengthening Adaptation and Resilience to Climate Change in Kenya Plus [stARK+] - 1–3year cycle with multiple extensions.149
78.The Climate and Land Use Alliance similarly argued that ICF programmes on forests are not being given long-term enough commitments. For example, they highlighted the Partnerships for Forests (P4F) programme which has just started, “but suffers from the uncertain, short-term timeframes that currently plague UK bilateral ODA”.150 With regards to capacity building, IIED criticised an “extractive culture of ‘fly-in, fly-out’ consultancies that deliver short-term, unsustainable skills development at high cost”.151
79.Minister Baldwin strongly refuted these criticisms in oral evidence to the Committee. She stated that “the average programming that we have, for example, within International Climate Finance is six to seven years. That seems to me to be a reasonable length”.152 When presented with Christian Aid’s criticisms and specific examples, the Minister responded:
I would go back to what I just said, which is that the average duration is six to seven years… The BRACED programme has been extended. The process of making sure that we are rigorously evaluating how programmes are performing is one I am sure the Committee would wholeheartedly endorse. I do not particularly recognise or accept those points or criticisms.153
Minister Coffey added:
The Defra portfolio is anywhere between four and 15 years, but our average is about six and a half years.154
80.It is not entirely clear whether by “average duration”, Minister Baldwin meant the overall length of programmes including renewals, or the average length of time that programmes are planned for at the outset. DFID funding for the BRACED programme was initially awarded as 3-year grants to 15 projects from 2015 to 2018. Some of these projects have been extended until September 2019 as the programme’s website makes clear - a three-year term with a one year extension for 9 of the 15 projects.155 It is therefore difficult to understand why the Minister did not recognise this ‘point’. The Committee was told by Christian Aid that long-term planning from the start rather than shorter-term plans followed by renewals makes a difference to how the programmes are implemented:
It is important to note that, in addition to short project cycles, the use of extensions can also significantly reduce programme effectiveness. Planning for a 5-year phase enables a consistent approach for implementation, staffing, and local relationships across the phase, in contrast to planning for 3 years and then 1 more and then 1 more. Extensions can also include activity changes that are handed down by the donor rather than designed by participants and are evaluation-led. Therefore, extensions can often lead to instability, staff loss, reduced impact, and confusion on the part of implementers, partners, local government and other stakeholders.156
81.Previous appraisals of DFID programmes have highlighted the shortcomings of creating a programme structure that inhibits long-term thinking. For example, the project completion review of DFID’s eight-year “Climate and Development Knowledge Network’ (CDKN) programme, concluded that due to a series of fixed break clauses, the programme had been compelled towards a short-term approach, when what was required was predictable resources and stable in-country teams, to allow for relationship building and capacity building. The review concluded that:
The CDKN contract (and the way risk was managed within it through break clauses) did not encourage or facilitate this approach to relationship building and a longer-term perspective on programming, nor did it encourage a similar approach to capacity building of beneficiaries.157
82.We also heard the related criticism that programmes that have been shown to be effective and have good outcomes are sometimes brought to a close by DFID rather than scaled up. Dr Alison Doig from Christian Aid told us about the Enhancing Community Resilience Programme (ECRP), which involved working with communities in Malawi to enhance climate resilience and for which Christian Aid was an implementing partner.158 Dr Doig told us that despite getting strong results, DFID had ended this programme. She did not feel the good outcomes had been capitalised on:
Unfortunately, having got an A* rating off DFID, that fund has now been pulled … If you are going to pull money, you need to phase out. You need to leave some legacy there.159
83.Clare Shakya from IIED talked about how DFID had ended its support for a programme focused on devolved climate finance - which IIED was also involved in - at the point that the recipient countries were hoping to scale up the work:
One thing we know that has been really effective and that other countries have been replicating has been some work in Kenya and Tanzania, where DFID supported devolved climate finance, getting down to the local level … DFID has completely withdrawn from the Kenya work just as the Government have said, “Let’s take it national.” Just as the Tanzanian Government have said, “Take it national,” they have withdrawn.160
84.In Kenya we met the County Governor of Makueni, one of the participating counties, as well as community leaders responsible for implementing devolved climate finance. We also had the opportunity to spend time with a community in Makueni that had participated in the StARCK+ programme. They showed us the water rock catchment mechanism that had been built with climate finance, and from which their community was benefiting. We were impressed by the local ownership of this project, and the clear direct benefits that it was having for the community.
85.The StARCK+ programme has now been closed. In follow-up written evidence to the Committee, DFID told us that:
DFID and HMG are continuing to support several elements that were part of StARCK+ through different programmes, but not through a standalone bilateral climate change programme in Kenya.161
We asked why DFID did not want to take forward and scale up the StARCK+ work. They responded:
StARCK+ was already a follow-on programme to, and had taken forward aspects of, an earlier bilateral climate change programme in Kenya (StARCK). StARCK+ was not extended because:
1. The original intention of the programme was to be time-limited, with the model and initiatives taken up by others and/or integrated into institutions going forward–much of which was achieved as described above; and
2. A strategic decision was made by DFID Kenya to reduce the complexity of its bilateral portfolio and enhance the approach to mainstreaming climate change by leveraging the wide range of centrally managed programmes and other HMG initiatives …162
86.We heard from Clare Shakya, who is also formerly a senior climate change adviser at DFID, that the uplift in ICF spending in 2020/21, the final year of this spending period, was initially intended to allow an increase in financial support for programmes that had been built up over time:
It was intended strategically to build up slowly … The idea was to build the systems, the institutions, that could absorb greater finance and then have the finance arrive in that final bit. That brilliant plan disappeared, it seems.163
Whilst DFID told us that they are continuing to support elements of StARCK+ through different programmes, this approach does not mirror the strategy set out by Clare Shakya, whereby successful programmes would be grown and scaled up, rather than taken apart.
87.DFID is not doing enough long-term planning when it comes to climate programming. Even when programmes are renewed, this is not always planned for at an early stage, which limits how effectively partners can use the injection of funding. DFID needs to shift to a more long-term approach whereby longer programme cycles are set out from the start, providing greater certainty and opportunity for strategic planning. This should not preclude ongoing robust evaluation and a flexible approach that allows for programmes to be adjusted and refined during implementation, to ensure the best outcomes.
88.The evidence points towards a tendency for successful climate programmes to be drawn to a close, rather than scaled up. This seems to be driven, at least in part, by the desire to mainstream climate across the portfolio, but we are concerned that this comes at the expense of expanding and growing effective programmes, which could have high impact. DFID should use the uplift of climate finance in 2020/21 to scale up successful climate programmes in order to fully realise and maximise the potential benefits of the valuable work that DFID has invested in over this spending period.
Engaging the private sector
89.Witnesses to the inquiry set out clearly why it is so important to engage the private sector and leverage private sector finance towards climate action. Firstly, we heard that the amount of climate finance provided through public sources is simply not enough. Leveraging private sector finance is vital to meet climate finance needs.164 Secondly as set out by Professor Fankhauser, Director of the Grantham Research Institute on Climate Change and the Environment, the vast majority of the world’s capital investment is private sector capital, and unless this capital is low carbon and climate resilient, “we are forever running behind … ”.165 He set out the numbers that illustrate this:
there is an estimate that says about $5 trillion a year will be invested globally in infrastructure. The climate finance numbers we talk about—the public commitment to climate finance—is around $100 billion, so 50 times less, and this just shows the relative magnitudes of these things. Unless we can change the $5 trillion, we are not going to solve the problem.166
90.Evidence to the inquiry indicated that ODA can play an important role in helping to attract private finance into places it would not otherwise go. For example, IIED said in written evidence that as the least developed countries may struggle to attract private sector investment on their own, public funds can play an incentivising role.167 In particular, public finance can play a role in reducing risk for the private sector. Dr Angela Falconer, Associate Director of the Climate Policy Initiative, identified governance risk as a key barrier to climate finance from private sources in fragile contexts, but said that “guarantees and technical assistance support to move into those riskier markets can be a key role for the public sector”.168 Nick Mabey from E3G suggested that the UK could leverage more private finance for climate by taking “more risk on our Government balance sheet through the multilateral development institutions, such as the World Bank”.169
91.Other evidence pointed to the role that the UK can play in creating an enabling environment for business. Anshul Patel, the Chief Commercial Officer for BBOXX Ltd, a private company providing clean energy to off-grid communities in developing countries, told us:
I would be looking for things such as the policies and reforms around climate change in the markets that we operate, driving the agendas into the local Governments, and actually helping to create those enabling environments for us to operate sustainably whether we are a local business or an international business.170
92.The Government’s written evidence to the Committee touches upon some of the things the UK has done to mobilise private finance for climate action. According to the submission:
- Between 2011/12 and 2017/18, ICF programmes have mobilised £910 million private finance for climate change purposes in developing countries (in addition to £3.3 billion public finance).
- As a Board Member and major contributor to several multi-lateral agencies helping to tackle climate change, UK uses its influence and expertise to drive ambition, both on the quality of their investments and in leveraging financial flows from private sources.
- Bilaterally our work in MICs has a clear focus on overcoming market barriers that will unlock private finance, supporting the greening of their investments both at home and abroad and demonstrating impact - with the ultimate aim of shifting these countries from being recipients to donors of climate finance.171
93.Witnesses to the inquiry also highlighted some of the work that the UK has been doing to engage and mobilise the private sector. For example, Dr Falconer talked about work being done on an innovation lab, with support from the UK Government, to develop “blended finance vehicles” to mobilise private investment into areas where the risks would otherwise be too high.172 Andrew Mitchell, Founder and Senior Adviser of Global Canopy, outlined how DFID funding had supported the ‘Forest Footprint Disclosure Project’, which now has “210 major companies worldwide disclosing their forest footprint”.173 Anshul Patel highlighted that crowdfunding platforms have been enabled by DFID initiatives and are “unlocking capital for BBOXX and partners and competitors in a way that has not been done before”.174
94.However, we heard that there is more that the UK can do to engage the private sector, particularly around disclosures. Dr Helena Wright, from E3G, suggested that the UK could follow the example of the World Bank in this regard.
There has been some really good progress from the development banks. One area I would point to, for example, is the IFC [International Finance Corporation], which is the World Bank’s private sector arm. It is trying to green its equity portfolio, which could be quite transformational, in requiring, for example, equity clients to report on their coal exposure. That example could be quite relevant to the CDC Group or for the UK, as part of the Powering Past Coal Alliance commitment, in helping to drive a green shift in the financial sector and implementing the recommendations of the Task Force on Climate-related Financial Disclosures, which was led by Mark Carney.175
The Task Force on Climate-related Financial Disclosures was set up in 2015 by the G20’s Financial Stability Board (FSB) to develop “voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders”.176 They made their recommendations in June 2017.177
95.Additionally, witnesses emphasised the importance of ensuring that the UK is not just tracking the amount of private finance that is unlocked, but also the extent to which this reaches the areas where it is most needed. For example, Anshul Patel said:
I would like to see more around not just unlocking capital but unlocking capital at a local level as well. Speaking from my experience with all DFIs, I have not seen much traction in how that is mobilised. As the professor says, there is definitely capital available. However, if I look at our conversations that we have had with local institutions or banks in the likes of Kenya, Rwanda or any other country, for us as a business or even some of our competitors it is extremely difficult, if not impossible, to achieve those to get access to that capital.178
96.Development assistance and private finance need to play complementary roles. Leveraging private finance is vital in terms of the global reach of climate finance. UK aid has an important role to play in mobilising more private sector finance towards climate activities, and into areas and markets where private capital is needed but would not ordinarily go. We were pleased to hear that the UK has been supporting some innovative work in this area. The Government should ensure that they are tracking not just the amount of private finance that is mobilised but also whether this is being accessed by those who need it most. This should form part of the Government’s efforts to demonstrate explicitly how climate finance spend reduces poverty and benefits the most vulnerable, in line with our recommendation for how the Government should be conducting monitoring and evaluation of ICF spending.
97.There is a great deal that needs to be done to encourage global private finance flows to become low carbon and climate resilient. Development assistance can play an important role in growing this climate sensitivity in the private sector. We heard that DFID has successfully supported increased private sector transparency in relation to forest footprints but there is more that the UK could be doing in promoting financial disclosures. We recommend that the CDC follow the example of the International Finance Corporation and require equity clients to report coal exposure.
Mainstreaming climate finance
98.DFID is increasingly “mainstreaming” or integrating climate finance within its wider portfolio. This means that ICF is being allocated to projects according to the proportion of that project which is deemed to relate to climate change. The Independent Commission for Aid Impact (ICAI) recently published a review of UK aid for low carbon development in which they set out how this process is affecting the distribution of ICF funding in practice:
While DFID still has a number of dedicated climate programmes, including three multilateral contributions and some substantial programmes in the area of renewable energy (that are 100% funded by UK International Climate Finance), for many programmes UK International Climate Finance often comprises only a minor share of the expenditure. (For example, a major health programme might include a small component equipping rural health clinics with solar energy.) DFID’s £354 million expenditure on low-carbon development [ … ] over the past two years is therefore spread across 92 DFID programmes in multiple sectors.179
99.ICAI’s report concludes that “DFID’s approach to integrating climate finance has fallen short of its ambitions” and highlights “significant concerns” about the approach that DFID has taken to integrating low-carbon development across DFID’s portfolio. In particular, ICAI highlight the lack of strategic direction from leadership and from internal guidance around how this is to be pursued, and what sectors are to be prioritised.180
100.Notably, evidence to the inquiry has questioned whether the way in which the International Climate Finance budget is being used to mainstream climate change across DFID’s portfolio is fundamentally the best use of this resource. These criticisms do not question the value of ensuring that all development assistance is climate sensitive, but rather, query whether the ICF budget should be used in support of this. They suggest that, instead, the climate finance budget could be better used in support of more strategic objectives. For example, Christian Aid wrote:
The UK Government should stop mainstreaming the ICF and “salami-slicing” projects according to their climate-change content. Instead, start using the ICF as a strategic, transformative climate facility that drives forward both the innovation and scale-up needed for climate resilience and combating energy poverty, and the mainstreaming of climate risk management in all other ODA-supported work.181
They elaborated:
Currently the ICF is allocated on a percentage basis to projects depending on the attribution of their activities to climate change. This is argued on the basis of “mainstreaming” but ends up looking like a retrospective accountancy approach designed to allocate as much spending as possible to the ICF to meet its target of £5.8 billion for the period 2016 - 2020. This undermines the strategic value of the fund, which should be taking on the big, transformative adaptation and mitigation challenges and driving the mainstreaming agenda through all other aid spending.182
101.Dr Alison Doig from Christian Aid stressed in oral evidence that the type of mainstreaming that DFID is using ICF to fund should be happening regardless of the existence of the climate finance budget:
Every single bit of international development spending should be climate-proofed. It should not need climate funding to be resilient; it is absolute business sense to be climate resilient. If you are investing in infrastructure and in agriculture, you have to predict for five, 10 or 15 years’ time. If you are investing in energy, you have to make sure that it is not adding to the problem. If you have an economic strategy that does not stop climate change, you have a wrong and flawed economic strategy.183
The Bond Development and Environment Group raised their concern that “a lot of traditional development spend is just be being relabelled as climate finance”.184 They argued that “climate change specific programming and investments must be the priority” in order to make the most of the ICF budget.185
102.We were told by IIED, that previous DFID climate programmes which focused on growing capacity and building institutions for addressing climate change were transformative and progressive:
UK has played an important role in helping developing countries innovate in their response to climate change. UK has provided patient and higher-risk investment to support innovative instruments that test how to respond to climate impacts at scale. For example, UK helped Ethiopia and Rwanda—the frontrunner national institutions to accredit with the GCF—to develop national climate funds. Through BRACED, UK has worked with Tanzania’s AIM 4 Resilience and Kenya’s STARK to support innovative mechanisms for getting climate finance to the local level at scale. These projects introduced Devolved Climate Finance Mechanisms in multiple countries, which are now considering scaling outwards across much greater areas. While other countries supported REDD+, DFID supported a programme in Indonesia on the local communities’ rights to manage forests, delivering far better outcomes than the prize-based systems associated with REDD.186
103.Clare Shakya, representing IIED in oral evidence to the Committee, suggested that this type of work is no longer being supported by DFID because of the way in which ICF is being used to mainstream climate across DFID’s programmes.
At one point, there was this sense of the rest of the world really looking to how DFID was setting up institutions, supporting national processes and building that national institutional capability to make long-term decisions. Everyone else was looking at that and saying, “How can we do that as well?” We have completely lost the ball. I think that is partly because of the change in the governance of how we run our ICF. The lack of the ambition that is required now means that people can say, “We are doing some agriculture. Surely that should be climate-smart. Let’s whack some money in and call it climate finance,” and actually not change the programme fundamentally enough to make a real difference. It is becoming more of a greenwash.187
104.It is not clear what assessment has been made of the relative benefits of using ICF for integrating climate change across development programming instead of for more transformative climate specific initiatives. Dr Saleemul Huq, Director of the International Centre for Climate Change and Development in Bangladesh, suggested that it was good that DFID was now “trying to embed climate change funding into everything”. However, he felt that in Bangladesh, the outcomes of these efforts were not being properly evaluated:
The problem then becomes about how you track it, because if everybody is supposed to be doing it, who is doing it? A little bit more emphasis on monitoring what we are supporting and figuring out how effective it is going to be is something that would be worthwhile. There could also be a bit more emphasis on studying the results of the investments that have been made.188
We were not able to gauge fully from the Minister on what evidential basis the decisions around DFID’s approach to integrating climate finance had been made.189
105.We welcome the fact that DFID is seeking to mainstream climate change to ensure that, across the DFID portfolio, programmes are consistent with and supportive of climate resilience and low carbon development. Development programmes that fail to meet this standard will ultimately undermine their own effectiveness. Correspondingly, DFID’s programmes will be stronger if they take into account and deliberately address climate change. However, we agree with Christian Aid that mainstreaming should be done as a matter of good practice in all programming, without the use of the International Climate Finance budget. Failing to integrate climate considerations in this way would be flawed development practice, and DFID should not be tapping into the ICF budget to subsidise what it should be doing anyway. Instead of funding the mainstreaming of climate considerations in all DFID’s programmes, the ICF budget should be reserved for the strategic goal of achieving transformative outcomes. The new ICF strategy should contain within it a clear articulation of the kind of transformative change that DFID intends to achieve through its climate finance contributions. The impact of ICF should then be measured and evaluated against these goals.
91 Evidence to IDC ODA inquiry 2018; Department for Business, Energy and Industrial Strategy ODA0026
95 Ibid.
96 Ibid.
99 Ibid.
100 Ibid.
104 Rema Hanna, Esther Duflo, and Michael Greenstone, “Up in Smoke: The Influence of Household Behavior on the Long-Run Impact of Improved Cooking Stoves,” NBER Working Paper (Cambridge, MA: National Bureau of Economic Research, 2012), https://www.nber.org/papers/w18033.
111 Department for International Development; the Department for Business, Energy and Industrial Strategy; and the Department for Environment, Food & Rural Affairs (CCC0037)
112 Ibid.
119 Department for International Development; the Department for Business, Energy and Industrial Strategy; and the Department for Environment, Food & Rural Affairs (CCC0023)
120 See, for example, Christian Aid (CCC0016); Dr Ayesha Siddiqi, Royal Holloway University of London & Dr Amiera Sawas, ActionAid UK (CCC0025)
123 Ibid.
124 Ibid.
125 Ibid.
127 Ibid
130 Carty T. and Le Comte A. (2018) Shadow report on climate finance 2018.
135 See for example, Catholic Agency for Overseas Development (CAFOD) (CCC0009); WWF (CCC0012); Christian Aid (CCC0016); Oxfam GB (CCC0017); Bond (CCC0018); Marie Stopes International (CCC0020).
140 Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science (CCC0014)
141 Conway D, Curran P, and Gannon KE (2018) Climate risks to hydropower supply in eastern and southern Africa. Grantham Research Institute on Climate Change and the Environment.
142 Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science (CCC0014)
147 Ibid
149 Ibid
157 Op. cit.
163 Dr Ayesha Siddiqi, Royal Holloway University of London & Dr Amiera Sawas, ActionAid UK (CCC0025)
164 See, for example, Q4 [Clare Shakya]; Department for International Development; the Department for Business, Energy and Industrial Strategy; and the Department for Environment, Food & Rural Affairs (CCC0023)
166 Ibid.
171 Department for International Development; the Department for Business, Energy and Industrial Strategy; and the Department for Environment, Food & Rural Affairs (CCC0023)
179 https://icai.independent.gov.uk/wp-content/uploads/International-Climate-Finance-ICAI-review.pdf February 2019
180 Ibid.
182 Ibid.
Published: 8 May 2018