Lessons to Guide Climate Change Adaptation Finance

By David Reed

David Reed (left) moderating an adaptation fund panel at COP 20 in Lima, Peru.  © WWF-US

David Reed (left) moderating an adaptation fund panel at COP 20 in Lima, Peru.  © WWF-US

On December 8th, the first day of the high level segment of the COP 20 meetings in Lima, I had the privilege of moderating a panel with the heads of the four preeminent multilateral adaptation funds to explore key lessons they have drawn from recent years of experience of these preeminent financing mechanisms. Participating were: Naoko Ishii, CEO and Chairperson of the Global Environment Facility (GEF); Mafalda Duarte, Coordinator of the Climate Investment Funds (CIF); and Marcia Levaggi, Manager of the Adaptation Fund.  Also joining the panel as respondents were Gabriel Quijandria, Peruvian Vice-Minister for the Environment and currently cochair of the Green Climate Fund (GCF) board; and Ousseynou Nakoulima, Director of Country Programming in the GCF.

The broader context for the panel discussion was the steadily rising international recognition that helping developing countries increase their resilience and adapt to the growing impacts of climate change is as important as mitigation of greenhouse gas emissions. That recognition was reflected, for example, in the recent decision by the board of the GCF, which operates under the aegis of the UNFCCC Conference of the Parties (COP), to dedicate an equal portion of its funds to adaptation and mitigation.

To protect their infrastructure and vulnerable communities and natural resources, developing countries are expected to need anywhere from US $28 billion to US $100 billion annually by the middle of the century.

Developed country pledges in Lima topped the US$ 10 billion mark and provide an initial financial foundation that the GCF can draw on as it moves steadily to acquiring operational effectiveness.

Fortunately, there is substantial experience to draw on as the GCF and other new adaptation funds develop and manage their adaptation portfolios. Over the last 15 years, four multilateral adaptation funds have supported projects and programs in a diverse set of countries and with a variety of approaches: the Adaptation Fund (AF), the Least Developed Countries Fund (LDCF), the Special Climate Change Fund (SCCF), and the Pilot Program for Climate Resilience (PPCR of the CIF).  Money pledged to these funds totals about US $3 billion, significantly smaller than the proposed GCF resources. But these smaller funds can provide critical lessons for the GCF.

A timely report, prepared for WWF by Climate Focus, evaluates experience with these four climate adaptation funds. The review provides a useful primer on the individual funds and evaluates design options that could be adopted for new funds. These include approaches to resource allocation, access modalities, financial instruments, programming and approval processes, and results management frameworks. Lessons drawn from a desk review and staff interviews focus on the successes and shortcomings in delivery of adaptation funds – specifically how funding could be improved for both efficiency and results.

Disbursement of funds has been slow, though it is improving as countries complete the necessary programmatic documents, such as the National Adaptation Program of Action (NAPA) required for the AF and the Strategic Program for Climate Resilience required for the PPCR, and processing of fund applications has become more efficient. To date about two-thirds of the US $3 billion in available finance have been approved for specific adaptation activities, but less than US $400 million of that amount has been disbursed. Africa and the Asia-Pacific region have been the main beneficiaries, reflecting the pressing needs of small island states and the least developed countries. The largest share of the funds has gone for agriculture and landscape management (29%), along with water resources management (19%), and climate information services and disaster risk reduction (18%).

All four funds strive to follow the best practices of development assistance, including country ownership, alignment of aid with national development strategies, harmonization among donors for efficiency, and managing for results. But as with other development assistance, there is always room for improvement.

As our understanding of the impacts of climate change and of developing-country adaptation needs has grown, there has been a shift in focus from addressing immediate impacts and achieving incremental change to more transformational approaches, which aim to increase resilience and integrate climate change responses into development programs and private sector activity. It is perhaps too early to evaluate the effectiveness of these funds in terms of generating transformational change, but it is an optimal moment to look at the operational aspects. Given what we have learned from the existing financing mechanisms, adaptation funding should:

Build in flexibility:  Funds should be flexible enough to adapt to diverse country needs, capacities and circumstances, and to our evolving understanding of adaptation finance needs and approaches. Multilateral adaptation funds should allow for a diversity of approaches to ensure that all eligible countries are able to access needed finance.

Support country ownership and accountability:  Adaptation finance should be guided by a country’s own priorities and build capacity for greater country ownership, including integration of adaptation into all aspects of development planning.  Although access to adaptation finance is urgent and should not be delayed to allow for extensive capacity building, adaptation funds should strengthen national planning capacity and accountability.

Promote efficiency and coordination:  Increasing harmonization, coordination and consolidation across multilateral organizations and within governments to reduce duplication and similar inefficiencies will contribute to success. Reducing overlap and competition can lessen the burden of accessing and using adaptation funds and increase cost effectiveness, and allow for scaling-up of projects and programs.

Use practical results management systems:  Priority should be given to designing results-management frameworks that are practical to use and to interpret. Such well-designed framework can ensure the effectiveness of adaptation investments and provide guidance to increase effectiveness in coming years.

Benefit from existing designs: Future adaptation funds, including the GCF and other new adaptation funds should not try to create new mechanisms and processes from scratch, but should seek to build on and improve existing systems for adaptation finance.

Continue to experiment:  While good models exist, the perfect design for an adaptation fund has not and probably won’t ever be found. At this formative stage, there should be a willingness to experiment and take risks with new approaches that will lead us to better operational designs. Trying different approaches will be essential to gain experience in what works and what does not work as financial flows are scaled up.