The massive floods, heat waves, raging wildfires, and devastating droughts of 2021 brought the present reality of climate change’s catastrophic impacts on people and ecosystems home to our doorsteps.

Nobody can escape climate change. It affects people all over the globe, but not everybody and not all countries equally. And the window to prevent global warming from exceeding 1.5°C, as nations committed to do in the 2015 Paris Agreement, is closing fast.

Yet without a fundamental rethink now in the way current climate finance is structured, channeled, and accessed, existing inequities, marginalization, and exclusion of those who suffer most severely from climate change impacts globally will be perpetuated and replicated. Questions about the quantity and quality of climate funding require urgent action. The ability of vulnerable nations and communities to gain access to these resources must also be improved.

The flaws in current climate finance practices re-victimize the very population groups, communities, and countries whose climate change vulnerabilities are compounded by the  COVID-19 pandemic, biodiversity loss, and rising debt levels. They also further undermine trust in the fairness and adequacy of multilateral efforts (especially in the international climate regime) at a time when collective commitments and climate ambition need to be urgently ratcheted up.

Vulnerable populations hit hardest

In its most recent report, published in February 2022, the Intergovernmental Panel on Climate Change (IPCC) stated with high confidence that the most vulnerable people, communities, and systems are hit the hardest by a warming planet. The panel’s assessment is that poverty, economic and political exclusion, and discrimination because of gender, ethnicity, geography, or age intersect and combine to create a perfect storm of multiple risks and high vulnerability to climate change. As many as 3.6 billion (or 45 percent) of Earth’s 7.9 billion people fall under this category. And the IPCC says that the majority of them live in countries and regions discriminated against in the global system by “historical and ongoing patterns of inequity, such as colonialism, and governance.” 

For example, regions such as sub-Saharan Africa, or country groupings such as the Small Island Developing States (SIDS) have contributed little to accumulated greenhouse gas emissions (less than 3 percent and around 1 percent respectively), and benefitted minimally from fossil-fuel driven economic development, yet already they are suffering the real losses and damages of climate change. Countries and regions most heavily dependent on highly-concessional climate finance support from industrialized countries (primarily in the form of grants, to adapt to adverse climate change impacts and address related losses and damages to nature and people) are also those at risk of being hit hardest. Without such support, internal strife and resource conflicts in already fragile states will increase, as will the number of climate migrants desperate to escape them. 

We already can see the risks to vulnerable populations in more tangible ways as well. 2021 ended as one of the seven hottest years on record. It was the seventh year in a row when average global temperatures were more than 1 degree Celsius higher than before the mid-19th century start of the industrial revolution. 

Insurer MunichRe estimates that natural disasters caused overall global losses of $280 billion dollars. In the United States alone, last year’s extreme weather events cost $145 billion dollars, led to the deaths of 688 people, and cost millions of residents their livelihoods. Flooding in Germany in July 2021 left more than 220 dead and caused $40 billion dollars in damage. Within a few weeks, the German federal government announced a 30 billion euros ($35 billion) fund for reconstruction projects in the devastated regions. 

Contrast these numbers with longstanding, but still unfulfilled, commitments made as part of the climate regime in 2009 by industrialized nations to deliver $100 billion per year to developing countries for climate action by 2020—a promise now expected to be fulfilled in 2023 at the earliest. Or with wealthier nations’ continued refusal to support the SIDS countries, or other vulnerable nations facing existential threats from tropical storms, ocean acidification and sea level rise with money for the losses and damages they are already experiencing.  

Many developing countries and climate activists view such financial transfers as just compensation for industrialized countries’ disproportionate higher contribution to man-made climate change. By some estimates, the financing gap for adaptation, currently at a minimum of some $70 billion annually for developing countries, could reach $300 billion by 2030, while the cost for loss and damage in the same time period could reach between $290 to $580 billion per year. The COP26 climate summit in Glasgow in November 2021, like many of its predecessors, almost fell apart over these climate finance challenges. 

Quality, quantity, and access 

The inequities in climate change impacts are replicated and aggravated in the way climate finance is provided and accessed. The $100 billion target for 2020 was premised on political feasibility, and not upon the climate financing needs of developing countries. These needs are continuously growing in the face of wealthy nations’ delays in taking climate action, despite having the financial means, technologies, and capacities to do so. 

A donor mentality persists in the way richer countries deliver climate finance, as well as within the global system of official development assistance. There have been moves taken to relabel and shift development funds towards climate action, instead of providing additional funding to supplement still-unmet existing development assistance commitments. This shell game played with existing funds—as developing country targets for overall additional funding remain unmet—shortchanges nations’ ability to deliver inclusive and climate resilient development that prioritizes risk reduction, equity, and justice. It is these projects that will best support traditionally marginalized groups most impacted by climate change, including women, youth, Indigenous Peoples, local communities, and ethnic minorities.  

The failure to reach quantitative climate finance commitments is made worse by an accompanying lack of quality of in the finance provided. Most of the $80 billion delivered by developed countries as climate finance to developing countries in 2019 was for emission reduction efforts (64 percent) instead of adaptation (25 percent). It also was delivered in the form of loans (71 percent), which, given repayment obligations, significantly reduces the value of the funding received. Loans also constrain the fiscal space of heavily indebted developing countries in other key aspects. For example, the actions these nations take to invest in social support measures for the poorest population groups in order to reduce their vulnerability to climate change do not yield the financial profits needed to repay even the most concessional loans. 

The world’s least developed countries, including those in sub-Saharan Africa, and the SIDS grouping, depend to a higher degree than other developing countries on highly concessional climate finance, primarily in the form of grants. This funding is channeled through dedicated multilateral climate funds such as the Adaptation Fund, the Green Climate Fund or the Global Environment Facility under the climate regime in support of implementing the Paris Agreement, under which developed and developing countries have equal decision-making powers over funding decisions. 

These channels are far from perfect, as recipient developing countries struggle with complicated access requirements, including accrediting implementation partners, providing sufficient data to justify the climate intervention, and with the growing pressure to bring co-financing to the table. Nevertheless, while imperfect, they still act as an important corrective to a system of global financial governance heavily dominated by the richest and most powerful countries. For example, industrialized countries hold the majority of shares and voting power in multilateral development banks, through which an increasingly large portion of international climate finance flows overwhelmingly in the form of loans. 

Local groups locked out 

Present climate finance mechanisms also remain largely inaccessible to sub-national and local governments, which are often dubbed the “missing middle” in climate finance provisions. They also do not flow directly to civil society organizations, local communities, and disproportionally affected population groups such as women or Indigenous Peoples. 

The hoped-for trickle-down of climate finance to those who need it most through the main implementers of climate projects (multilateral development banks, UN Agencies, banks, and national-level institutions) simply does not happen. By some counts, less than 10 percent of climate finance flows to the local level; even less of it supports locally-led adaptation that allows affected communities to make the funding decisions. 

Other often marginalized groups also miss out. In 2021, only 3 percent of development assistance addressing climate change targeted gender equality as a main outcome of the climate measure. This omission comes despite the fact that all major dedicated climate funds have committed to the gender-responsive provisions of climate finance and have gender policies and action plans on the books. Yet many climate investments  still consider these measures as little more than ‘add-ons’ to otherwise gender-neutral climate measures. And the climate funding that goes directly to feminist, women-led, or women’s rights organizations and movements for climate action remains miniscule, with just $43 million on average between 2018 and 2019, according to the OECD.  

Creating a virtuous cycle 

The steps and recommendations required to address these shortcomings are well-known. We need to take people-centered climate finance decisions in support of human rights, and not defer primarily to technical or financial considerations. Local groups should receive small grants and small local currency loans (with provisions for forgiveness) when climate disasters strike. Affected communities must also be heard—and participate as equals—in climate finance decision-making and program and project implementation. 

Continued failure to reorient climate finance risks wasting the potential and capabilities of climate-affected people to contribute, with low-cost and proven climate solutions often based on traditional and Indigenous knowledge and experiences.  

The current vicious cycle of distrust, broken commitments, and climate inaction must be replaced with a virtuous cycle of mutual trust, built on the fulfillment of developed countries’ improved financial commitments, better collaboration through partnerships that include traditionally marginalized population groups, and increased climate ambition by all actors.

The actions needed to reinvigorate the climate process are clear. Make substantial progress on quickly fulfilling and exceeding the $100 billion goal with quality finance. The steps include at least doubling funding for adaptation, improving equity in accessing climate finance, and moving to establish a financial mechanism for loss and damage at the November 2022 global climate summit in Egypt. At the Bonn climate talks this June,  support for such a Loss and Damage Finance Facility is growing with more detailed proposals being discussed. Otherwise, the global community risks the failure of the Paris Agreement. This also would hasten the demise of climate change multilateralism in the UN Framework Convention on Climate Change, where each country has an equal voice and decisions require consensus.

The replacement of existing mechanisms with an exclusive climate club, which is under discussion by the German G7-Presidency, could leave poorer and smaller developing countries and their most vulnerable citizens with reduced agency and voice in climate finance decision-making. This would not only undermine the transparency and accountability of climate finance mandated and guaranteed by the existing multilateral agreement, but also make equitable access to adequate climate finance even more elusive.