UK aid for combating climate change Contents

Conclusions and recommendations

The urgency and scale of the challenge

1.Climate change is not just one of a number of issues that the UK should address though aid spending. Climate change cuts across everything. The effectiveness of all UK aid spending is dependent on whether the international community rapidly and effectively combats the causes and impacts of climate change. The challenge is huge, it is existential, and there is very little time. The severity of the situation simply cannot be overstated. (Paragraph 31)

2.In this context, climate finance has to be more than meeting a commitment and ticking a box. The UK needs to make sure that all climate finance is being spent in the most effective possible way, to have the greatest impact. Climate finance must be spent strategically, it needs to be spent with urgency, and it has to be transformative. It is therefore disconcerting that there does not appear to be an active strategy underpinning the Government’s International Climate Finance spending. It is further alarming that climate change does not appear to be fully integrated across other aid strategies. This is not the response that a crisis of such magnitude demands. (Paragraph 32)

3.We recommend that the Government designs and adopts a clear, robust strategy for spending climate finance. The strategy should be outcome-oriented, time-sensitive, and based on the latest climate science. At the same time, climate change needs to be recognised as a cross-cutting strategic priority in the UK’s aid spending and should be comprehensively integrated across all development assistance strategies. (Paragraph 33)

International Climate Finance: spending and resources

4.The UK has committed to spending £1.76 billion on climate finance in 2020/21 and we agree that this should become the new annual minimum spend for climate finance from the UK. This funding should be allocated as International Climate Finance in the upcoming comprehensive spending review. At the same time, DFID’s climate related work should not be restrained by the ICF budget which need not be regarded as the sole source of climate finance. In order to scale up efforts on climate beyond what is funded by ICF, the Government should consider the options for additional climate finance from public and private sources. (Paragraph 38)

5.The evidence strongly suggests that DFID’s capacity and expertise on climate has been reduced in recent years - particularly, although not exclusively, in relation to forests and natural resource management—risking detrimental impacts on programming. This situation should be urgently rectified. DFID must have sufficient numbers of staff who are (a) focused on climate programming and (b) have climate expertise, to ensure that International Climate Finance is being spent effectively and where it is most needed. This applies to both DFID head office and in-country posts. (Paragraph 44)

6.We welcome the Government’s commitment to create 20 new dedicated climate change posts. However, it is not clear to what extent these posts will be supported by champions for action on climate change at senior management level. We also note that the criticism around a loss of DFID expertise on forests due to an increased emphasis on working through service providers still seems to stand. DFID should ensure that efforts at efficiency savings do not lead to watered down expertise and ultimately result in ICF being spent less effectively. (Paragraph 45)

7.In Chapter 2 we outlined why it is so important that international climate finance is spent as effectively and with as great an impact as possible. It follows, then, that the way in which ICF is being spent, its impact, and the methodology for measuring that impact, should be in the public domain and open to scrutiny. Not only will this ensure that climate finance spending can be held to the highest of standards, it can also help to raise the bar on climate finance reporting in other countries by acting as a model to follow. Improved transparency around ICF spending therefore has the potential to improve climate finance spending globally. The UK should take the opportunity to be a global leader on climate finance accounting and reporting by improving transparency of ICF spending, impact and monitoring methodology. We agree with the International Institute for Environment and Development (IIED) that DFID’s online “DevTracker” system could provide an appropriate platform for greater transparency on International Climate Finance (ICF). The Government should use this platform to report climate finance flows transparently, broken down by component, delivery partner and project details. (Paragraph 48)

Strategic approaches to spending International Climate Finance

8.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. (Paragraph 68)

9.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. (Paragraph 69)

10.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. (Paragraph 75)

11.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. (Paragraph 76)

12.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. (Paragraph 87)

13.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. (Paragraph 88)

14.Development assistance and private finance needs 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. (Paragraph 96)

15.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. (Paragraph 97)

16.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 also 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. (Paragraph 105)

Policy coherence on climate change across government

17.There is room to improve cross-departmental collaboration on International Climate Finance. Whilst there are formal, high-level mechanisms in place for cross-departmental decision-making, and whilst there is an apparent level of informal information sharing between officials, it seems that structural changes to how ICF is administered have had the effect of reducing joint working between departments. This is especially concerning in light of our conclusions on the importance of integrating mitigation and adaptation strategies, with mitigation and adaptation having become the emergent specialisms of BEIS and DFID respectively. The management structures that govern the ICF should be reformed to encourage deeper collaboration and ensure that departments benefit from each other’s expertise. The Government should develop a system that involves each department giving more comprehensive consideration to the other departments’ ICF spend, to enable greater collaboration and knowledge sharing. (Paragraph 110)

18.The difference in approaches between the CDC, which considers climate change to be a strategic priority, and the Prosperity Fund, which does not, is reflected in the level of consideration that climate change is given in their respective spending decisions. We are convinced by the arguments that in, order to ensure coherence on climate change, all UK aid spending, regardless of which department or fund administers it, should be screened to ensure it is pursuing low carbon, climate resilient, sustainable development. (Paragraph 122)

19.The Government should make explicit that climate change is a strategic priority that is to be integrated into all aid spending. As a first step towards this, the Prosperity Fund should urgently develop an approach that indicates the climate relevance of their investments. (Paragraph 123)

20.The Government should adopt the model of the International Development (Gender Equality) Act 2014 for climate change, to ensure that all development assistance promotes progress towards a climate resilient, low carbon world. (Paragraph 124)

21.The only context in which it is acceptable for UK aid to be spent on fossil fuels is if this spend is ultimately in support of a transition away from fossil fuels and as part of a strategy to pursue net zero global emissions by 2050. In each case where ODA is supporting fossil fuels, the Government must be able to (i) demonstrate how that spend supports such a transition to zero emissions, and (ii) outline a plan for how that transition will be achieved and in what timeframe. (Paragraph 136)

22.Any financial support for fossil fuels that does not meet these criteria - regardless of whether it is ODA or non-ODA - undermines the Government’s International Climate Finance spend. Currently, the support provided to the fossil fuel economy in developing countries by UK Export Finance is damaging the coherence of the Government’s approach to combating climate change and this needs to be urgently rectified. (Paragraph 137)

UK international leadership on climate change

23.The UK Government is well placed to press for improvements to the Green Climate Fund. The Government should work with the GCF Board to improve efficiency in decision-making and enable better access to finance by lower capacity countries and organisations, so that finance channelled through the GCF can be truly transformational. (Paragraph 146)

24.Transferring finance from the Climate Investment Funds to the Green Climate Fund is an important goal, considering the GCF’s balanced governance structure and its legitimacy under the UNFCCC. However, this transfer should not be made prematurely if the CIFs are delivering valuable outcomes that the GCF is not yet in a position to match. The Government should continue to treat the CIFs as an interim measure, supporting the CIFs to deliver transformative outcomes whilst actively working towards a point when all the CIFs funding can instead be channelled through the GCF. (Paragraph 147)

25.Multilateral Development Banks (MDBs) are making positive contributions in climate finance and have made welcome commitments on aligning their financial flows with the goals of the Paris Agreement, but these have not yet gone far enough. Whilst some banks have made certain, progressive commitments - such as the World Bank Group committing to end all finance for upstream oil and gas - others have not, and all banks have more work to do in greening their financial flows. The UK should use its influence with MDBs to champion more strongly a shift away from high-carbon investments and a scaling up of investments that are compatible with a 1.5°C world. The Government should work together and coordinate with other MDB shareholders to amplify pressure. (Paragraph 153)

26.Collective action is needed, and so the MDB joint framework for alignment with the Paris Agreement is a welcome step. However, the framework is currently too high-level to be driving real change. The MDBs should set out how they will implement this framework in order to achieve alignment at pace. Again, the UK should employ the support of other shareholders and use collective influence to drive this forward. (Paragraph 154)

27.The devastation that Cyclone Idai caused across three countries has brought into sharp focus the terrible loss and damage that extreme weather events can leave in their wake. As global temperatures rise, loss and damage will also increase. It is imperative that the international community faces this issue head-on. We are pleased that the Government has indicated that loss and damage will be addressed as part of their work on resilience at the UN Secretary-General’s Climate Change Summit in September this year. This should not mean that the issue is subsumed into a wider conversation on resilience, which fails to discuss loss and damage directly. The Government cannot rely on co-benefits from other streams of work on resilience to address loss and damage. As part of its leadership on resilience at the Summit in September, the Government should explicitly open a conversation around loss and damage and how it can best be addressed, by developed and developing countries in partnership. (Paragraph 166)

28.As the impacts of climate change worsen, migration and displacement as a result of climate change will rise. The international community should ensure that it is prepared to manage and address this inevitable change. We welcome the fact that climate migration and displacement is increasingly being recognised as an area that requires attention. The UK Government should play a role in supporting research and improving data on climate migration, as well as leading conversations around how aid delivery structures and international frameworks may need to adapt. The UN Secretary General’s upcoming Climate Summit provides an ideal opportunity for the UK to advance this conversation as part of its leadership on resilience. (Paragraph 171)

Published: 8 May 2018