Breaking barriers to local climate finance for the triple win

IIED explores further what’s blocking climate finance from reaching the local level and developing new insights for getting money to those on the front lines of climate action.

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Ingenious and cost-effective solutions to climate change developed by vulnerable communities are hugely underfinanced. Image: 401(K) 2013, CC BY-NC-ND 2.0 via IFPRI Flicker

The Paris Agreement on Climate Change commits international support to help less developed countries build their resilience to climate change, deliver social and economic prosperity and reduce the carbon emissions that drive climate change – the triple win. 

Delivering this triple win requires action at local, national, regional and global levels (see diagram). Climate finance  ̶  money channelled to developing countries to enable them to reduce carbon emissions and adapt to climate change  ̶  must flow to each of these levels, so those best placed to take climate action are empowered to do so. IIED estimates less than $1 in $10 of climate finance committed from dedicated climate funds explicitly seeks to support local climate action.

Secure rights enable the triple win

At the local level, insecure rights and entitlements to land, natural resources and basic services reduce people’s ability to invest in their livelihoods and escape poverty. 

When local people enjoy greater security of rights it is often due to strong members-based organisations actively working to protect and maintain those rights. In Guatemala, for example, members of the National Alliance of Community Forestry Organisations collectively manage 750,000 hectares of forest. The alliance ensured that when the forest law PROBOSQUE was reformed in 2015, it reflected the interests of its members: one per cent of Guatemala’s national budget over a 30-year period (approx. US$ 667 million) will go to local forest rights holders to invest in restoring, managing and protecting forest and agroforestry systems. Secure rights to land and natural resources also reduce deforestation and land degradation, supporting the capture and storage of carbon into the landscape.

Similarly, engaging the urban poor in the design of land use and housing, of energy and of transport services can reduce the carbon footprint of urban development while making growth more inclusive. In cities, federations of the urban poor that drive grassroots development are also negotiating entitlements to land, basic services and housing with local authorities. Climate adaptation is being integrated into informal settlement upgrading, so that housing and basic services are resilient to the effects of climate change, such as flooding. 

Reducing poverty, building climate resilience and increasing carbon storage are the triple win. But to negotiate and secure rights to land, basic services and natural resources  ̶  and to develop their sustainable use  ̶  communities need funding. Surprisingly little climate finance reaches locally led initiatives. 

Solutions developed by vulnerable communities who know what works, are effective, efficient and sustainable yet hugely underfinanced – climate finance is not getting to where it matters.   

Local level funding is way off target   ̶   and the ingenious, cost-effective solutions are missing out

IIED’s research shows the bulk of climate finance is flowing predominantly to national infrastructure, mostly large renewable energy projects. These large-scale projects are vital. But there needs to be a balance. Solutions developed by vulnerable communities who know what works, are effective, efficient and sustainable yet hugely underfinanced – climate finance is not getting to where it matters.   

Where we did we get to last year?

In examining the barriers and solutions to plugging the local financing gap, we identified five frontiers for unlocking local finance:

  • Bridges and brokers: building trust through dialogue between investors and communities
  • Risk: building a shared understanding by investors, intermediaries and communities of how to best manage delivery risks 
  • Aggregation: bundling similar investments to reach the right volume of finance needed to attract bigger investors
  • Complementarity: structuring public, private and community roles to deliver impact
  • Capabilities: growing technical and financial skills

What are we doing now?

Having gathered live examples from our interviews and the earlier research of what’s working in practice, we are analysing different elements of what’s needed to tackle the blockages to local financing. In the coming months we will develop:

  • A framework to analyse the blockages to finance flows and identify solutions that work for locally driven climate funds, by clarifying rights to land and natural resources.
  • Guidance on how governance and transparency technologies can build trust between locally driven climate funds and those funders looking to deliver real impact. 
  • A guide to help locally driven funds, and national governments wanting to channel more finance to the local level, to choose the right types and sources of finance so they can build the skills to plan, manage finance and deliver. 

In early July, we will bring together actors from across this financing chain to test these insights and explore how to further collaborate on improving finance flows. We will connect people from locally driven climate funds with primary funders and financial intermediaries, and with those innovating in governance and finance technology – and is so doing, create a platform for innovation between groups that do not usually meet.

We’ll be sharing updates on how we’re stimulating innovative partnerships that help deliver local level climate finance at pace and scale, driving solutions that gets #MoneyWhereItMatters

Clare Shakya is director of IIED’s Climate Change research group. Marek Soanes is a researcher with the Climate Change research group.This post was originally published from the IIED blog.

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