Paris Agreement: Improving accountability in climate finance

The Paris Agreement is based on trust. For it to work, countries must trust that their efforts to reduce emissions will be complemented by the efforts of others. For developing countries, financial support is key to that confidence. They must trust that developed countries will financially support them in choosing low-carbon paths and adapting to climate impacts.

However, trust in climate finance is at an all-time low. In a report released just before COP26, developed countries admitted they could not deliver on their promise to provide $100 billion annually from 2020. Above all, they have failed in supporting adaptation to climate change. This admission raised questions about the extent to which developed countries can meet their commitments.

At COP26, these countries took steps to close the funding gap and presented a plan to provide the $100 billion by 2023. They also announced plans to double adaptation funding by 2025 compared to 2019.

Closing the gap is an important step in restoring confidence in climate finance. However, this is only the first step. Significant fundamental accountability issues remain unresolved. Donors need to do more to show they are providing quality, predictable and accessible support. Recipients, too, can do more to show that they are using international funds effectively and equitably. Improving accountability on both sides will be critical to the long-term success of the Paris Agreement.

Transparency and easy access can improve accountability Not only have rich countries failed to deliver the funds promised, but they have also concealed the nature and quality of the funds they are providing. They often counted development aid twice. Certain estimates show that overstatement of “climate relevance” could mean that bilateral climate finance is a third lower than stated.

A significant part of the financing continues to come in the form of loans, adding to the debt burden of already heavily indebted countries. Up to 40% of all climate finance is non-concessional.

Rich countries also consistently lag behind in supporting adaptation, which is a priority for recipients, although they have pledged to treat it on an equal footing with containment. The UN estimates that only a quarter of total funding goes to adaptation.

Transparency can help improve accountability about the type of funding countries count towards climate finance. The new reporting requirements under the agreement, known as "common spreadsheet formats," require countries to distinguish between climate finance and adaptation finance, and between grants, loans and private finance.

The new reporting requirements may also improve the predictability of financial support. This is a major concern for recipient countries, who need upfront information to plan climate programs and integrate them into national budgetary and policy processes. The tendency for rich countries to announce ad hoc financial commitments has angered recipients, who feel such announcements are more about publicity than genuine support. Other small steps, such as providing grants in local currency, can help make support more predictable by removing the uncertainty of currency conversions over longer project timescales.

Donors should also take steps to make climate finance more accessible. Many countries are struggling to meet the public finance management standards required to be authorized to directly manage international funds. Multilateral funds have complex application requirements and evaluation criteria that require capacities that many small governments do not have or cannot muster.

Small island states are particularly affected by these obstacles: they benefit less than others from these funds, although they are very vulnerable. Donors can help developing countries by supporting streamlined accreditation processes, such as those of the Adaptation Fund. They can also create "dialogue spaces" to help countries with the accreditation and application processes.

Accountability has to go both ways Recipient countries should also take steps to improve their accountability by demonstrating that they are using climate finance effectively and fairly.

The recipient countries have long fought to establish the principle of reimbursement in the UN climate negotiations. They argue that climate finance is about compensation for damage, not aid provided out of altruism. In principle, they believe that they should not be obliged to justify their use of the funds.

In practice, however, donors fear that climate finance enables corruption and supports authoritarian regimes. While this distrust is rarely publicly acknowledged, it is at the root of many of the current barriers to access. Recent studies have shown that climate finance can be misused and is unlikely to reach marginalized communities.

While recipients are right to resent donor patronage, it would be to their benefit if they demonstrated accountability. Both official and unofficial reporting tools provide opportunities to do so. Demonstrating that mitigation projects are effective in reducing emissions and that adaptation finance is benefiting the most vulnerable communities would increase confidence among donors striving to reduce barriers to access. Funders can help alleviate the additional reporting burden by providing further financial and technical support.

Financial accountability enables the success of the Paris Agreement A multi-year process was launched at COP26 to set a new long-term funding target, to come into effect in 2025. Developing countries have clearly linked their future ambitions to a significant increase in financial assistance and expect $1 trillion annually.

Without confidence in transparent and accessible financing, developing countries are more likely to be reluctant to commit to the emissions cuts needed to limit warming to 2°C.

In the worst case, a lack of confidence in funding could lead to the failure of the agreement. What is more likely, however, is that a lack of confidence will slowly undermine ambition and cause the agreement to fail due to its inefficiency.

Taking steps now to improve accountability of both donors and recipients will ensure that funding enables, rather than hinders, the long-term success of the Paris Agreement.