Climate finance is becoming increasingly available to countries, but it must be integrated with national policy, planning and budgetary systems. One way to address this is through a comprehensive Climate Change Financing Framework.
By Uzoamaka Nwamarah, Adviser Climate Change, Commonwealth Secretariat
As new and additional climate finance becomes increasingly available to help countries respond to climate change, there is also a growing need to integrate this finance into national policy, planning and budgetary systems for effective deployment and maximum impact.
Increasing flows need stronger national systems and structures to track and manage them; and closing the climate financing gap for the implementation of Nationally Determined Contributions (NDCs) requires long term, strategic, systems thinking in policy, structural change and investment decision-making.
However, the reality for many Commonwealth countries is that current climate financial flows are largely tied to projects, often lacking a cohesive, coordinated system to provide governments with an overarching picture of where climate funds are coming from, how they are being spent, and how different actions or projects can align or interact for the best outcomes.
Strategic climate finance
One way to address this is through a comprehensive Climate Change Financing Framework (CCFF). As defined by the UNDP, a CCFF is a “voluntary, whole-of-government process to structure a more strategic approach toward the mobilisation, management and targeting of climate change finance.” CCFFs aim to align national climate policy frameworks with budget processes and to integrate climate finance into existing public economic and financial management systems.
As a result, financial flows become more consistent with low carbon and climate-resilient development pathways. Ideally overseen by the Ministry of Finance while engaging a wide range of sectors, departments and stakeholders, CCFFs enable governments to mobilise, manage and target climate finance, while monitoring the benefits of budget spending and prioritising budget resources for climate change.
A key building block of such a system is the Climate Public Expenditures and Institutional Review (CPEIR), which the Commonwealth Secretariat has helped to carry out in a number of member countries. A CPEIR seeks to understand how governments make provision for climate related expenses and how these expenditures are integrated into national planning and budgeting processes as well as the capacity of government institutions to attract, report and able to effectively implement such budgetary allocations.
It also reviews national climate change policies and plans, institutional frameworks and public finance architecture with a view to providing guidance and recommendations on how these can be strengthened.
Commonwealth Climate Finance Access Hub
A track record on existing climate expenditures can serve as the basis for estimating a government’s climate finance funding gap, which in turn informs government engagement with development partners and enhances efforts for the mobilisation of additional resources for climate change. In addition, such tracking would help in better utilisation of resources with a focus on priority challenges.
For example, the Commonwealth Secretariat supported the Government of Eswatini in undertaking a CPEIR, through the Commonwealth Climate Finance Access Hub (CCFAH) work programme under the NDC Partnership Climate Action Enhancement Package (CAEP). The process showed that actual climate expenditures over the years were less than half of the budgetary allocations made, revealing a significant cash-flow challenge and gap between the existing public spending and the estimated cost required for Eswatini’s climate action. To leverage additional private financing, the CCFAH also supported Eswatini in developing a ‘Strategy to Enhance Private Sector Engagement in Eswatini NDC Actions’.
Additionally, the CCFAH supported the Government of Jamaica in examining how future climate change impacts can affect the national financial planning and budgeting process. As captured in the ‘Socio-economic and Financial Implications Assessment of Climate Change on Jamaica’ study, climate change macro assessment and macro-fiscal models were developed to simulate the impacts of climate change on public expenditure and provide a foundation for the government to identify the gaps and resources needed to cope.
The way forward
The country-driven approach of CCFFs also plays a pivotal role in domestic finance and national budgets, serving as a means to achieving climate-compatible sustainable economic development, including meeting NDC targets. They emphasise the importance of government co-financing for leveraging international climate financing along with investment from the private sector. Effectiveness, efficiency and equity are also key, with a focus on strengthening coordination and partnerships.
It is clear that translating NDCs into investment plans and bankable projects will require the integration of climate change into national planning and budgeting processes. Investor and donor confidence can be further boosted through more transparent, risk-informed climate-responsive plans and budgets. The way forward is to secure a cross-government approach that delivers a coherent national response to climate change involving all relevant stakeholders from both the public and private sectors.