Time for a finance enlightenment

2 May 2018

Have you participated in the negotiations on the Modalities for the accounting of financial resources in SBSTA lately? When first hearing some countries and the co-chairs claiming they already had a very solid base to start drafting a final text soon, ECO felt like singing Waka Waka. As Sharkira said: “You know it’s serious we’re getting closer, this isn’t over”.


But here is the thing: progress on finance accounting is urgent and long overdue. What’s more, existing climate finance accounting rules are inadequate. They allow loans to be counted at full face value and inaccurate accounting of climate relevance, which obscures the level of assistance developing countries receive by a huge margin.


OXFAM highlighted the latest public climate finance numbers for 2015 and 2016, finding that net climate specific public finance in 2015 and 2016 is estimated to be around US$16 to $21 billion per year €” significantly lower than the estimated $48 billion per year if donor numbers are taken at face value.


ECO notes with enthusiasm that for aid, donors have decided to end the practice of counting loans at full face value by agreeing that from 2018 headline ODA figures will be reported on a grant equivalent basis. Rules for reporting to the UNFCCC need to follow suit, so that climate finance under the Paris Agreement keeps a pace with modern practices around aid.


ECO thinks some basic principles of fairness and accuracy need to be at the forefront of negotiators minds:


Lending money at a profit is not climate finance – Non-concessional loans and other instruments should not be counted as climate finance against Article 9.1 obligations.


What’s counted should reflect the true cost to donors, and net value to developing countries – Only the grant equivalent of loans and other instruments should count (once repayments, interest, and other factors are accounted for), not their full face value.


Only support targeting climate change should count – Over-reporting of the climate component of broader development projects needs to end, through agreement on clear common guidelines applied on a project by project basis.


Mobilized private finance should not be double counted and should take account of measures by developing countries themselves to attract investors – Parties to the UNFCCC should agree on a collective reporting approach for mobilized private finance that limits these risks and includes reporting by MDBs. Reporting should be conservative to build trust and no flat leverage ratios should be applied, but instead causality between public investment and mobilized private finance should be established on a project-by-project basis.


Decisions on finance accounting this year must increase confidence that the $100bn goal will be met in a fair and robust way. So that those on the front lines of climate change get far more of the support they need and have been promised.


When building these accounting rules, never forget how your decisions will have an impact on the real world. Just like Shakira said: “People are raising their expectations, go on and feed them, this is your moment, no hesitations.”

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