Flawed accounting systems are not giving the true picture of climate finance
As global carbon pollution continues to rise, and climate change wreaks more havoc upon the people and places least responsible for the problem, rich polluting countries are now three years overdue on their promise to mobilize $100 billion a year in climate finance for low- and middle-income countries.
To make matters worse, says Oxfam, the actual support they provide is much less than reported numbers suggest, and is coming mostly as debt that has to be repaid.
Oxfam’s ‘Climate Finance Shadow Report 2023’ published today shows that while donors claim to have mobilized $83.3 billion in 2020, the real value of their spending was—at most—$24.5 billion. The $83.3 billion claim is an overestimate because it includes projects where the climate objective has been overstated or as loans cited at their face value.
By providing loans rather than grants, these funds are even potentially harming rather than helping local communities, as they add to the debt burdens of already heavily indebted countries—even more so in this time of rising interest rates.
Donor countries are repurposing up to one-third of official aid contributions as climate finance rather than putting forward new and additional money, while more than half of all climate finance going to the world’s poorest countries is now coming as loans.
France has the highest share of its bilateral public climate finance through loans, at a staggering 92 percent. Other loan-heavy culprits include Austria (71 percent), Japan (90 percent), and Spain (88 percent). In 2019–20, 90 percent of all climate finance provided by multilateral development banks, like the World Bank came as loans.
“This is deeply unjust. Rich countries are treating poorer countries with contempt. In doing so, they are fatally undermining crucial climate negotiations. They’re playing a dangerous game where we will all lose out,” said Oxfam International’s Climate Change Policy Lead, Nafkote Dabi.
In the lead up to the Bonn Climate Summit (5 to 15 June), Oxfam also finds that climate-related development financing is largely gender-blind. Only 2.9 percent of all funding identified gender equality as worth prioritizing. Only one-third of climate finance projects in 2019-2020 mainstreamed gender, meaning that they took into account both women and men’s specific needs, experiences and concerns.
Oxfam estimates that the real value of funds allocated by rich countries in 2020, to support climate action in low- and middle-income countries was between $21 billion and $24.5 billion, of which only $9.5 billion to $11.5 billion was directed specifically for climate adaptation—crucial funding for projects and processes to help climate-vulnerable countries address the worsening harms of climate change.
“Don’t be fooled into thinking $11.5 billion is anywhere near enough for low- and middle-income countries to help their people cope with more and bigger floods, hurricanes, firestorms, droughts and other terrible harms brought about by climate change,” Dabi said. “People in the US spend four times more than that each year feeding their cats and dogs.”
Oxfam is highly concerned that adaptation funding is given too little attention when, in the past three years, India, Pakistan and Central and South America have all seen record heatwaves—in Pakistan later followed by flooding that affected over 33 million people, while East Africa is mired in its worst drought in over 40 years, contributing to crisis levels of hunger.
“Despite their extreme vulnerability to climate impacts, the world’s poorest countries, particularly the least developed countries and small island developing states, are simply not receiving enough support. Instead, they are being driven deeper into debt,” Dabi said.
The expectation that private investors can be mobilized by low- and middle-income countries to contribute a sizeable chunk of climate financing has not materialized, raising only $14 billion yearly, mainly for mitigation. Oxfam says it is difficult to find details on how this private finance is used or who benefits from it. According to a recent Organization for Economic Co-operation and Development (OECD) report, mobilized private adaptation financing rose sharply from $1.9 billion in 2018 to $4.4 billion in 2020, mainly because of a big liquefied natural gas energy project in Mozambique that does not reveal any adaptation activities.
Oxfam is highly concerned that funding for “loss and damage”—climate impacts that cannot or have not been mitigated or adapted to—still has no predictable place within the international climate finance architecture. Loss and damage finance needs are urgent, with estimates saying that low- and middle-income countries could face costs of up to $580 billion annually by 2030.
Oxfam says that ongoing deliberations under the UN Framework Convention on Climate Change (UNFCCC) to set a new global goal on mobilizing climate finance from 2025 onwards is a chance to rebuild trust between rich and low- and middle-income countries. But if past mistakes are not resolved and simply repeated, this initiative will have failed before it properly starts.
Climate finance providers should be massively scaling-up their efforts and be reporting climate financing on a case-by-case basis, highlighting the actual proportions channeled towards mitigation and adaptation. There is equally an urgent need for more grant-based financing for climate action, and less momentum toward loaning the money they have all promised to give.
Notes to editors
- Download Oxfam’s ‘Climate Finance Shadow Report 2023’
- In East Africa alone, drought and conflict have left a record 36 million people facing extreme hunger, nearly equivalent to the population of Canada. Oxfam estimates that up to two people are likely dying from hunger every minute in Ethiopia, Kenya Somalia, and South Sudan.
- The UN currently designates 46 countries as LDCs.
- According to the OECD, mobilized private adaptation financing rose sharply from $1.9 billion in 2018 to $4.4 billion in 2020, mainly because of a big liquefied natural gas energy project in Mozambique that does not reveal any adaptation activities.
- According to Anil Markandya and Mikel González-Eguino (2018), the costs of loss and damage in low- and middle-income countries could reach between $290 billion to $580 billion a year by 2030.