It’s the classic Catch-22.
Pacific and other small island developing states desperately need to access climate finance to survive the growing impacts of climate change. That much is well known. And the money is available.
Except that, bogged down by steep qualifying criteria that asks big questions of limited domestic financial frameworks and institutional capacity, Pacific Island governments and specialists are grinding it out in a tough, behind-the-scenes struggle to get to the very funds meant to help their people survive.
The world’s largest climate fund, the Green Climate Fund (GCF), met in Germany in October to call for a second round of pledges to supplement its financial portfolio of around US$48 billion. In Germany, 25 countries pledged US$9.3 billion over the next four years (2024-2027) to “support the paradigm shift towards low-emission and climate-resilient pathways, enhancing the [climate] resilience of 900 million people.”
In its first round of pledges, the GCF raised $12.8 billion.
The second round, from 2024 to 2027, has a target of US$100 billion.
Speaking in Bonn, Cooks Islands Prime Minister, Mark Brown said that the target of US$100 billion may seem like a large amount of money but in the context of global financing, it is modest, especially when viewed against the more than US$1 trillion put into fossil fuel subsidies last year alone.
Global architecture
It is a well-established fact that developing countries are paying a double premium for climate change— paying the price for the impacts of carbon emissions of developed countries, as well as paying for the solutions they need to weather the climate crisis.
Mafalda Duarte, Executive Director of the GCF, acknowledges that the international financial system is not really fit for purpose.
“When it comes to climate finance, we are in a situation right now where we have many more countries in that distress or risk of debt distress, which really challenged them in responding to the multiple crises, including climate, which they are already impacted disproportionately.”
In February 2023, the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), Rebeca Grynspan, said developing countries paid US$400 billion in debt servicing in 2021, more than twice the amount they received in official development aid.
“Foreign debts are therefore eating an ever-larger piece of an ever-shrinking national resources pie,” said Grynspan. “As inflation rises, natural disasters become more frequent and food and energy imports rise in price, countries need more, not less, contingency planning assistance.”
Problems in the Pacific
The depth and complexity of the problems surrounding access to climate finance for the Pacific, among the most vulnerable regions to climate change, appear to be mounting exponentially.
The Climate Finance Action Network (CFAN), which was launched in 2021 with the support of the Canadian Government, is active in 12 countries in the Pacific and five in the Caribbean—but the Pacific is where the Network got its start.
CFAN provides technical support to unlock and accelerate climate finance by deploying highly trained, climate finance advisors embedded in-country. With implementing partner Global Green Growth Institute (GGGI), CFAN placed its first cohort of advisors with governments in Fiji, Kiribati, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu. In their first year, these advisors unlocked US$61 million in climate financing to support resilience, with an additional US$352 million in the investment pipeline. The model has proven successful enough that Australia is funding these advisors for an additional three years, while an anonymous philanthropic donor has provided support for four additional Pacific advisors, who will be onboarded in partnership with the Pacific Community (SPC).
Apart from working to navigate the complexities of the climate finance system for their host countries, CFAN advisors help countries build long-term capacity by training local practitioners. All of which makes the CFAN team highly qualified to make observations on the problems in the region.
Dr Jale Samuwai is a Manager with the United States-based Rocky Mountain Institute (RMI), which hosts and coordinates CFAN. He points out the biggest problem is the divide between developing and developed countries over what constitutes climate finance.
“The term climate finance was never consistently defined. Once you lock down a definition, that means allocation of rights and responsibilities. And that’s a conversation that developed countries don’t want to engage in. They would rather have [the definition] loose, so that they can play around with the term and finance as they see fit. A definition would provide clarity on what kind of sources and instruments (e.g., grant vs. loans) will be accepted as climate finance.”
The United Nations says the current system of lending money to countries for climate and sustainable development needs is broken.
Secretary-General Antonio Guterres has referred to the international financial system as “short-sighted, crisis-prone, and bear(ing) no relation to the economic reality of today”, noting that it was created before climate change even existed.
Gutteres has said: “High financing costs largely drive unsustainable national debt burdens. Even before the recent surge in interest rates, least developed countries borrowing from international capital markets faced rates of up to 8% compared to 1% in many wealthier countries. When it comes to climate finance, this can translate into heavy costs beyond what climate action already requires.
“In 2019-2020, over 60% of climate finance entailed borrowing funds, or around $384 billion. Only $47 billion came with low cost or concessional interest rates. No-cost grant finance was only $36 billion.”
Samuwai says loans are becoming a “much more prevalent instrument for delivering climate finance, adding unsustainable debt burdens on developing countries, especially the low-income ones.”
A series of hurdles
The cost of funds is only one hurdle to getting climate funds.
For starters, before even making an application to a fund such as the GCF, countries must get accreditation with these bodies—no easy task.
Karlos Moresi is Programme Adviser on Resilience Development Finance with the Pacific Islands Forum Secretariat in Suva and led the accreditation exercise for Tuvalu’s Ministry of Finance to the Adaptation Fund (established under the Kyoto Protocol of the UNFCCC). The accreditation process took three years.
He says Tuvalu was told it had to first obtain accreditation with the Adaptation Fund and then acquire accreditation with the GCF. Moresi questions the duplication of processes.
“Why can’t it be the same accreditation? Once you pass a certain threshold, why can’t you be accredited to the GCF as well?” Moresi told Islands Business. “But no, the way it’s existing, we had to apply for accreditation separately with both entities. Yet, the process is very, very similar in what the requirements are for the public finance system, internal audits, reporting, accountability, financial management information systems and budgeting process.”
“The term climate finance was never consistently defined. The allocation of rights and responsibilities is a conversation that developed countries don’t want to engage in.”
Dr Jale Samuwai is a Manager with the United States-based Rocky Mountain Institute (RMI)
Moresi says it’s important for climate fund agencies to consider the context of the Pacific when laying out institutional framework requirements.
“They apply the same requirements for the United States as they do for Niue or Cook Islands. Let me talk about Tuvalu, which I’m very familiar with. Tuvalu has a [coastal adaptation] project approved under the GCF worth US$36 million, and that in the Pacific context, is a large project. Most projects are around $10 million to $20 million. Yet we’re executing a budget of about $100 million every year, yet this project is one-off. Do they not realise that we can manage a budget far greater than what we are applying for? I’m not against having accountability, transparency and reporting criteria, but I think they should also take into consideration the context.”
Samuwai and Moresi agree on the need for Pacific Island states to be able to demonstrate accountability to climate fund agencies. Upgrading their public finance systems as part of the process is beneficial in the long run because it leaves the bureaucracies with vastly improved financial systems. But the stringency of the requirements and the amount of time and work accreditation takes, creates enormous issues of scale for island states.
Says Moresi: “I always quote the Secretary of Finance at the Cook Islands who said if he had a department of 20 people in the Ministry of Finance and lost two of his senior people, straightaway, there’s 10% of his capacity [gone]. But because they’re senior people, it’s probably more like 20% of his capacity. And then you have to rebuild it. In terms of the whole ecosystem of governments, there’s a big turnover in all ministries, especially finance, there’s a big demand for these skills and they move.”
The three years it took Tuvalu to acquire accreditation, “is like average in the Pacific. There are case studies of countries that have taken seven years,” Moresi told Islands Business.
Moresi says some Pacific Island countries started the accreditation process and decided to drop it.
“They think it’s too hard.”
The alternative is for countries to go through regional agencies such as the Pacific Community (SPC) and the Secretariat of the Pacific Regional Environment Programme (SPREP) who have accreditation with the climate fund agencies. Even then, the capacity issues are ongoing because these entities still have to manage the funds and projects for individual countries. According to Moresi, at least one major regional agency has said it cannot manage more than two projects in a year.
Only four entities in the Pacific have direct accreditation with the GCF: the Fiji Development Bank, the Cook Islands Ministry of Finance, the Pacific Community (SPC) and the Micronesian Conservation Trust. Tuvalu and the Secretariat of the Pacific Regional Environment Programme (SPREP) are accredited with the Adaptation Fund.
The GCF requires reaccreditation after five years, a process the Micronesian Conservation Trust, has recently gone through.
Countries can also access multilateral accredited entities such as the United Nations Development Programme and the Asian Development Bank.
Tuvalu’s US$36 million project was accessed through the UNDP.
But Samuwai says even once projects are approved, the disbursement process is very slow.
“It’s a long-winded process,” says Moresi.
“First, you get accreditation, just to say your systems passed the benchmark to be able to get the money. Then you have to develop the project, where you have to prove that a large part of the project actually addresses a climate issue in the Pacific. Most of the projects are about adaptation. It’s not so much going to solve climate change, but how we’re going to reduce the impacts of climate change through specific adaptation projects. You go through the process and if it gets approved, then you have what they call the ‘implementing partner process’, which is again different. And before they disperse the funding, you are required to go through a separate legal process. The legal requirement and partnership agreements, the immunities for the GCF, for example. All these requirements can take another six months to a year in itself. If you add it all up, you’re talking maybe seven to 10 years from start to project implementation.
“With climate change, the need [for finance] is now. If it’s delayed, it multiplies, the impacts are compounded and so the magnitude increases and the need is even more dire. If you talk about coastal protection, like sea level rise and coastal erosion, as a community, you notice that the coastal areas are starting to erode, so let’s get climate finance help us address this. In 10 years, not only has your coastal zone totally eroded, but you may have also lost an adjacent mangrove ecosystem, you’ve lost land, you’ve lost the use of a whole ecosystem.”
“If climate finance is delayed, the impacts are compounded, the magnitude increases and the need is even more dire.”
Karlos Moresi is Programme Adviser on
Resilience Development Finance with the Pacific Islands Forum Secretariat in Suva
Having to prove that the project proposal is directly related to climate change, is a big requirement.
Says Moresi: “From [the climate fund] perspective, they want to make sure that the allocation of resources [funds] and the implementation addresses the climate issue. Climate change is so cross-cutting and broad that you should also consider social impacts like health and education, gender, etc. But it needs to be more than just a casual link. It needs to be a substantial, evidence-based link to justify how the project is going to address those cross-cutting issues.”
It doesn’t stop there. The level of data-specific project validation is onerous.
“They want evidence—compelling scientific evidence. For example, [they will say] ‘show us the baseline—that the sea level, the coastline was there and because of climate change impacts, these are the new water markers’,” says Samuwai.
Quite often, that’s the kind of data that is not easily available in Pacific Island countries.
A UN report titled, ‘Accessing Climate Finance: Challenges and Opportunities for Small Island Developing States’ sums it up: “SIDS public sectors inherently face major human and technical capacity constraints throughout the project cycle, from project origination to implementation. The complexity of the climate finance landscape and the lack of harmonisation among the requirements of multilateral climate funds and donors further exacerbate this challenge.”
Climate or development funding
At the macro level, the Pacific is now pushing for a change in the climate finance conversation. Pacific countries want climate finance to be recognised as development finance. Dealing with the increasing impacts of climate change upon public infrastructure, for example, becomes a development need.
It is yet another point of battle between small island states and the climate finance agencies.
“If we do development in a way that’s cognisant of the realities of climate threat, then the definition of climate funding isn’t fixed,” says Samuwai. “The GCF will always say ‘no, this is not a climate cost. This is a development cost. You’re building a bridge? It’s not climate related.’
“And we’re projecting that the water level will increase to this level, or we need to strengthen all the houses, because the intensity [of cyclones] will increase. Now, the climate needs really are development needs because that is the new scenario for the Pacific. That’s the argument for us, that when we talk about development, you can’t separate climate change from that conversation. But for climate funds, they will say ‘no, where is the climate change aspect here?’ They tend to separate those two.”
Which introduces a further complication in the project proposal and development process—the concept of additionality, where only the climate-related component of a development project such as a new bridge is funded by climate fund agencies, while the rest of the project is funded through other means.
“You can say that in 20 years time, you will need to expand this by another meter on both sides because of the way things are changing. And then you can argue that the development cost is say 80%. The climate additionality is that additional 20% to increase the bridge on one side by two meters, and the other by two meters,” says Samuwai.
Questions
The United Kingdom, which sits on the Board of the GCF, co-funded a report published in July 2023 that asks the question, ‘What GCF do we want for the Pacific?’
The report came about after the UK began asking whether it was worth pouring their climate fund contributions into the GCF, or whether they should provide those funds directly to island countries as development assistance.
It says that although some changes have been made to simplify approval processes, these “are not sufficient and responsive to the special circumstances of SIDS, including PICs.
“Furthermore, climate change finances still appear to be disconnected from the priorities of vulnerable local communities and people most impacted by climate change.
“The stringent proposal process results in the fact that many countries with the highest climate vulnerability but weak government institutions and fragile state-bureaucracies have missed out and have not been able to access project funding,” it says.
“Current GCF data collection and analysis of access to the portfolio of funding shows that SIDS currently make up only 12% of the GCF portfolio.
“Without additional grant-based access to climate finance, delivered at the necessary speed and scale, it is going to be extremely challenging to meet the adaptation and resilience needs of the region.”
Vulnerability
Pacific Island experts are of the view that the key question of the vulnerability of Pacific Island states to the Asia-Pacific polycrisis, including the threat of climate change, is sorely missing from the climate finance discussion.
“The way they assess a project is still based on the quality of our argument, quality of our data, quality of the narrative, how you package your project proposal. The Pacific is already disadvantaged if that’s the criteria of accessing funding,” says Samuwai.
Eight Pacific Island countries are in the top 15 countries in the world most vulnerable to climate change, according to the Vulnerability Index.
According to Samuwai, “that is a criteria that most of these funds don’t look at. So, if Fiji and Cambodia submit [project proposals], the first thing they’ll consider is the quality of the proposal. But the reality is of who is the most vulnerable. That’s another narrative.”
Dated September 2023, a report of a high-level UN panel on the development of a multidimensional vulnerability index highlights the contradiction—that the SIDS, despite being declared by the international community as being among the most vulnerable nations worldwide, “often lack access to sufficient development resources, including concessional finance or adequate mechanisms for debt relief,” according to the report.
The issue is the heavy reliance on Gross National Income per capita (GNI pc) as a key criteria for finance eligibility or evaluating a country’s requirements for development support.
“With few exceptions, access to concessional financing windows depends on meeting lower income thresholds (GNI pc). This means that vulnerable countries often lack access to affordable development support such as concessional assistance to help them meet their sustainable development goals while coping with, and adapting to, their structural vulnerabilities.
“On the frontline of multiple world crises—including climate change and debt—the most vulnerable countries face chronic structural challenges that are becoming more interconnected and intense over time. They rely on external financing to help prepare and recover from these crises. For some, such as SIDS, response to disasters is more expensive for SIDS. Debt is more expensive to service. Infrastructure is more expensive. Overseas Development Assistance from partner countries doesn’t stretch as far.
“Most SIDS are not the poorest nations: but their costs are so much greater—and accessing financing is more difficult. Their relative income makes them ineligible for the cheaper finance set aside for lowest income countries. And how that external financing is apportioned by international financial institutions like the World Bank does not take into account their vulnerability to these very crises.
“These small island nations have repeatedly said that traditional measures of development insufficiently capture their vulnerabilities. For example, GNI per capita measures the income of a country but that does not tell us how much it costs to handle major threats like catastrophic sudden weather events or the cost of servicing old debts.
The report calls GNI, as the primary measurement for the allocation of concessional financing, “the wrong tool for the job.”
“It is time the world listened to the voices of small island states,” it concludes. Those voices, such as experts like Samuwai and Moresi, and the leaders of Pacific Island nations, will again be loud and clear at the COP28 climate negotiations this month. Will they be heard?
