Good climate finance guide: Lessons for strengthening devolved climate finance


By Sejal Patel, Marek Soanes, Feisal Rahman, Barry Smith, Dave Steinbach and Sam Barrett
Executive summary
Systemic change is needed to tackle the interconnected and complex global challenges of climate change, poverty and inequality, and biodiversity loss. Society’s poorest, most marginalised and most excluded are the worst hit, yet have the least say. Radically increasing their access to resources, power and agency would enable them to lead on and contribute to local solutions on climate change, sustainable development and nature conservancy. This reprioritisation is vital to effectively deliver adaptation and climate resilience activities.
Systematically investing in local actors and their solutions would ensure climate finance delivers better adaptation outcomes and tackles the crisis in a more integrated, cost-effective, contextualised, accountable, democratic, equitable and agile way. Rather than simply being consulted or participating in adaptation, local people and their communities would have agency over adaptation design and decision making.
Insights from the Least Developed Countries’ Initiative for Effective Adaptation and Resilience and the Global Commission on Adaptation’s Locally Led Action Track highlight the need for more and better climate finance that reaches and supports local priorities. This paper seeks to support these local climate action agendas. Drawing from wide consultations, expert interviews and desk research, we present lessons and evidence of how a selection of climate funds and financing approaches are delivering devolved climate finance across six good climate finance principles based upon IIED’s ‘Money Where it Matters’ research. Only around 10% of climate finance from these sources was prioritised to local-level activities between 2003 and 2016; through this analysis, we aim to support climate financiers to improve the quantity and quality of local adaptation financing.
Findings against the six good climate finance principles
Principle 1. Subsidiarity: Making decisions as close as possible to those most affected enables place-based design, local relevance and greater accountability to the poorest, excluded and marginalised.
1. Although some climate funds provide guidance on engaging local actors, most adaptation planning happens at national level. Structural country ownership requirements can prevent finance from reaching the local level, particularly where inadequate time and resources are dedicated to enable full participatory planning. The Climate Investment Fund’s Pilot Programme for Climate Resilience (PPCR) prioritises a community-driven resilience approach in Zambia and has facilitated strong local stakeholder engagement in Tajikistan.
2. Devolution of investment decision making is increasing, but still limited. Enhanced Direct Access (EDA) projects under the Adaptation Fund and Green Climate Fund (GCF) seek to devolve subproject decisions to local actors, but international intermediation still dominates. Resisting overly hierarchical governance structures and understanding the need for sustained capacity building or local facilitation is important.
3. Mitigation and landscape management funds — such as the Forest Investment Programme’s Dedicated Grants Mechanism (DGM) and the Global Environment Facility’s Small Grants Programme (SGP) — are devolving to local actors more effectively than adaptation funds. Although they still work through large intermediaries, they devolve grant management to national coordination bodies with community and indigenous peoples’ representation.
These funds could also represent opportunities to leverage convergence between adaptation and mitigation activities.
Principle 2. Robust decision making: Building local stakeholders’ understanding of climate risk and uncertainty indicators ensures their decisions consider current and future climate risk and generational (local and traditional) knowledge.
1. Global funds could do more to guide and support robust local adaptation. To access a climate fund, local actors have to use historical and downscaled climate data that are not widely available or suitable for use at local scale. Although implementing agencies have their own guidelines for climate risk management and decision making, the climate funds provide little guidance and support beyond supporting climate information service proposals. There is some evidence of robust decision making at project level.
2. There is some evidence of fund efforts to converge traditional and indigenous knowledge with climate science. Improving recognition of traditional and indigenous knowledge within monitoring, evaluation and learning systems or the predominantly nationally led adaptation planning could support these efforts. At project level, PPCR draws on village leaders’ traditional knowledge to prioritise vulnerable districts in Tajikistan and the GCF project in Bhutan combines traditional and indigenous knowledge with local weather, seasonal and climate information.
Principle 3. Patient and predictable: Climate finance is needed on long-enough timescales to enable risks to be taken, capacities to be built and learning to happen.
1. Most devolved climate finance is committed on short timescales of five years or less, even for programmatic approaches. This risks not building adequate local institutional capacities before funding ends. Antigua and Barbuda’s innovative EDA project seeks to build the capacity of at least three ‘whole-of-society’ on-financing mechanisms. Longer funding horizons are emerging outside of dedicated devolved climate funding windows, with the Acumen Resilient Agricultural Fund set to receive a 12-year GCF equity investment.
2. By creating more accessible and dedicated finance for local actors, devolved funding windows like the DGM and SGP are enabling local organisations to expand and enhance their human and technical capacity. But overall in the landscape, funding remains largely unpredictable and is often slow to arrive for a number of reasons. For example, Indonesia’s Samdhana prides itself on providing agile small grants, but negotiations with the World Bank led to significant delays.
Principle 4. Flexible: Because no adaptation intervention is perfect, flexible programming is crucial.
1. Although they provide some budget flexibility, global funds must address inflexibility around eligible activities, English language-only funding procedures and often perverse co-financing incentives. The DGM and SGP have increased accessibility by supporting audio and video communications.
2. There is mixed evidence of adaptive management and learning at fund level. There is some evidence that learning spaces for local actors have been created, particularly in the DGM and PPCR. But funds are not always collecting locally relevant success indicators or recognising the need to integrate learning into project delivery from the beginning and most still emphasise top-down compliance.
Principle 5. Risk taking: Investing in institutions with little or no climate finance management experience and developing capacity early on is vital.
1. Although smaller and devolved funds will take more risks, they still tend to favour compliance over early capacity building and risk taking. Some have simplified their funding approaches, but progress is slow. It took the DGM several years to agree ‘no-objection’ procedures with the World Bank, so funds could go directly to indigenous peoples’ organisations.
2. Climate funds can strengthen local institutions by changing what they view as success or failure. The DGM uses an ‘empowerment pathway’ approach, prioritising local organisations’ fund management skills, community representation and ability to raise local issues at national and global levels, and embracing the failure of subproject objectives as learning-by-doing.
Principle 6. Converged: No single project, investment or institution can address all climate risks or vulnerabilities, so converging actions and investments across funders and governments is key. We found few references of cross-fund or cross-donor convergence, making this principle difficult to assess.
1. Global climate funds are beginning to coordinate (rather than converge) some policies and procedures and support scaling up each other’s pilot projects. Although they acknowledge that their lack of coordination and harmonisation makes them harder to blend and poses barriers for investment continuity, there was little evidence of collaboration with wider development finance.
2. National focal points and champions can incentivise devolved finance and enable climate finance to flow within their country, whereas not favouring devolved or participatory climate financing can inhibit local-level climate financing.
Strengthening devolved climate finance
Based on the case studies we reviewed, fully devolved climate financing — which gives local people agency over decision making — appears limited and short-term. Most climate finance benefiting local actors appears to be more towards the engagement end of the localisation spectrum. Climate financiers must prioritise an empowerment-based approach and invest in learning-by-doing to enable the poorest, most marginalised and excluded actors to lead their own climate actions. We recommend that climate financiers review their funding procedures, structures and portfolios against these six climate finance principles, reflecting on how they can better promote an empowerment-based approach by:
• Providing simple, locally relevant policies and guidelines in local languages
• Accepting video submissions and audio descriptions of project objectives
• Avoiding hierarchical decision making that reinforces two-way (upward and downward) accountability and compliance
• Developing guidelines for locally relevant and robust adaptation principles that enable generational knowledge to be integrated with climate science
• Providing more patient finance over at least ten years
• Investing early in capacity building and learning to build institutional legacies
• Favouring learning-by-doing over ambitious resilience results frameworks
• Developing indicators that support locally led action, and
• Enabling greater budget flexibility

Source: International Institute for Environment and Development