As the world gears up for the finalisation of the New Collective Quantified Goal (NCQG) on climate finance at COP29, a crucial question looms: how do we ensure that climate finance translates into tangible climate action, particularly for developing nations like India?
Climate action and green transition is complex. And expensive. Most emerging economies like India are responsible for a fraction of the historical emissions that are causing climate change but are unfortunately at the frontlines of changing temperature and weather patterns. They are also relatively poorer and lack the fiscal space for the price tag to grow their economies in an environmentally responsible and climatically sustainable manner. Despite the overwhelmingly clear clarion call for climate finance from the richer, more polluting nations, climate finance has been woefully inadequate. There is patent injustice in this.
Beyond the quantity of finance, there is also the question of what kind of finance is needed. Environmental Defense Fund just released a report that highlights a critical need to shift focus beyond the quantity of climate finance and zoom in on its quality.
This shift is not merely a matter of semantics; it’s about ensuring that financial flows translate into tangible climate action. The sources underscore three key pillars of climate finance quality – concessionality, access and impact. These pillars are not abstract concepts; they represent the very real challenges growing economies face in accessing and utilising climate finance effectively.
Concessionality refers to offering financial resources under much more favourable terms as these would be cheaper compared to going out into the market, such as lower interest rates and longer grace periods. However, a considerable amount of current climate finance continues to flow as non-concessional loans, and heavy debt aggravation becomes a reality for poorer nations. This is most alarming given that more than half of low-income developing countries already remain under pressure due to debt distress. The case of Sri Lanka reminds us starkly of that. Turbulent during climate risks, 94% of all climate finance to Sri Lanka between 2015 and 2020 was in the form of loans, thus aggravating a crippling debt crisis. This has been one of the reasons for the economic, social and political upheavals there. Such developments indicate that there is an urgent need to refocus the paradigm upon which climate finance is structured towards grants and other concessional instruments.
Instead, wrap everything in complicated bureaucratic processes, stringently rigorous accreditation procedures, and lack of coordination among various funding sources. The problems get starker when it comes to smaller institutions in developing countries, as they are not usually endowed with resources and expertise to cope with such systems. Standards need to be strict, but they should not be socially excluded from those who really need funding.
Well, in the end, impact is a key point raised in this report-the attainment of actual results through the climate finance received.
While ambitious pledges and substantial financial flows grab headlines, there is a concerning lack of robust evidence demonstrating the true impact of these investments. Without clear metrics and robust evaluation frameworks, it becomes difficult to determine whether climate finance is actually delivering the intended results.
Rich in relevance to such countries as India, which has ambitious climate targets and is aggressively pursuing international climate finance. This is because India’s success with its climate goals is dependent on high-quality climate finance. This would mean advocating for concessionality in funding arrangements, easier access facilitation and demanding better transparency and accountability in the measurement of impacts.
The ongoing COP29, then, becomes a valid opportunity for India to herald such issues and push for certain reforms in the global climate finance architecture. India is already a major emerging economy, an authentic voice of the majority world, and a critical player in the global fight against climate change; thus, its voice counts in shaping a more equitable and effective system of climate finance. By focusing on the quality of climate finance, India can ensure that financial flows get translated into tangible climate action, thereby driving a just and sustainable transition downwards towards a greener future.
COP29 equally is an equally crucial moment for richer nations and big finance to put real money on the table. Climate change affects the entire world. The solution must be global.
The author is Chief Advisor, India to Environmental Defense Fund