A commitment to consistent and predictable sources of climate financing was one of the issues that kept negotiators working overtime at the recent UN climate talks in Warsaw, with poor countries insisting that money made available to help them adapt to a changing climate has to come from public sources.
Their reasoning is simple. There is no profit to be made in helping a poor country adjust to the impact of an erratic climate, so why would a private entity fund an initiative that would not help it make money?
However, the Green Climate Fund - the biggest fund set up under the UN Framework Convention on Climate Change (UNFCCC) to finance both mitigation and adaptation activities - has made room for a private sector facility that will provide funding to do that.
A new study by scientists Clarisse Kehler Siebert and Adis Dzebo, of the Stockholm Environment Institute (SEI), released during the Warsaw talks, found that there are certain adaptation efforts the private sector is unlikely to fund.
Kehler Siebert, who was a contributing author to the Intergovernmental Panel on Climate Change special report on Managing the Risks of Extreme Events and Disasters to Advance Climate Change (SREX), told IRIN they had considered the foreign direct investment (FDI) flows to four least developed countries (LDCs) in Africa for the study.
They found, firstly, that "less than 1.5 percent of global total FDI flows [goes to African LDCs] - and that, [secondly,] of these small FDI flows, hardly any of it is related to the adaptation priorities of that country."
FDI flows contradict adaptation efforts
Private FDI investment was often in direct competition with a country's efforts to adapt. For instance, in Ethiopia most FDI flows were directed to large-scale agricultural enterprises that compete with small-scale farmers for water. Ethiopia's adaptation and development priority is to ensure everyone has access to water resources.
In Sierra Leone, the scientists found tension between foreign investment in agricultural land, which is being used to produce biofuel, and local efforts to scale up food production.
There are certain public goods that can never be financed by the private sector, say the researchers. For example, community capacity building, as this is "neither profitable, nor part of conventional business models".
The question one needs to ask, is: "What is actually being committed as climate finance - not only in terms of [the] amount, but in terms of financial instruments and sources of finance - and can these amounts and instruments address both mitigation and adaptation needs?" the scientists noted.
"Part of the problem might be that private finance for adaptation is a broad and often undefined concept. For example, are we discussing local or foreign private actors, and are they financing the adaptation of their own operations and value chains, or that of the communities in which they operate?" Siebert and Dzebo said.
These are important questions, as rich countries are expected to deliver US$100 billion a year from 2020 onwards to help poor countries mitigate the impacts of climate change and adapt to them.
Shifting private sector flows everywhere
Oxfam Climate Change Policy Adviser Jan Kowalzig said private finance was not on the table in Warsaw, but it was raised at a roundtable involving some developed country finance ministers, and in a year-long programme that considered long-term climate finance under the UNFCCC.
On both these platforms, he said, "Developed nations tried to blur the debate from the need to increase public finance to one almost exclusively about private finance."
Clearly, private finance has a role to play, Kowalzig says, but it is about shifting investment patterns in all countries "towards low-carbon and climate resilient development, and when shifting entire economies, we are talking about shifting the private sector's financial flows."
Sven Harmeling, the climate change advocacy coordinator for the NGO, CARE International, concurs that the "objective of mobilizing the private sector is not the problem as such. It is indeed necessary, but has to be done in the right way. As it is proposed now by some countries, it looks like a distraction from the inability to raise public money. The scale of the climate crisis forces us to scale up public finance significantly in order to address the adaptation needs of the most vulnerable, and shift private sector investments away from carbon-polluting economies."
On the broader climate finance issues in Warsaw, poor countries "failed to create greater clarity and predictability of climate finance through to 2020 that developing nations need to plan their climate actions", said Kowalzig.
But rich countries did at least commit to holding meetings of ministers every two years to review their commitments, and to a process for reporting every year on how developed countries intend to provide $100 billion every year from 2020 onwards - an important, but of course insufficient step, Harmeling noted.
Everyone's hopes are now pinned on a Climate Summit called by UN Secretary-General Ban Ki-moon, to be held in September 2014, with the idea of getting countries to scale up their commitments to provide funds and reduce greenhouse gas emissions.
"Developed countries can set a strong signal of confidence if they use the event [September 2014 summit] to put significant money on the table for the Green Climate Fund, with an initial capitalization of 10 to 15 billion USD," said Harmeling.
This article was produced by IRIN News while it was part of the United Nations Office for the Coordination of Humanitarian Affairs. Please send queries on copyright or liability to the UN. For more information: https://shop.un.org/rights-permissions
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