Issue: Climate

Context

Despite broad recognition of the existential threat posed by climate change, the global community has been slow to move to curb its progression. Intensifying climate change has led to ever-worsening damage to ecosystems, livelihoods, and global health security with the world's most vulnerable among the hardest hit. The global community has an important role to play in supporting these communities as they are forced to adapt to the dangerous realities of our changing climate.

Donor funding for climate change adaptation and mitigation is an essential complement to increase the capacity and investments of low- and middle-income countries to respond to the climate crisis. In 2020, donors delivered US$41.3 billion in climate finance, significantly lower than the US$100 billion annual climate finance goal they were meant to deliver each year, from 2020-2025. Having agreed to scale up funding to support climate change adaptation in low- and middle-income countries, donors continue to fall short of their own promises.

Funding Trends

After years of incremental increases in bilateral allocable climate-related ODA, 2020 has seen a significant increase in funding – both when looking at absolute numbers, but also when looking at the share of total bilateral allocable ODA that donors are committing to climate change adaptation and mitigation. In 2020, funding stood at US$44.3 billion – a 23% increase compared to US$35.9 billion in 2019. This includes funding for projects with climate both as a principal and significant objective.

About one-third of DAC donors’ total ODA is now related to climate change adaptation and mitigation. This stronger prioritization is visible both when climate change is considered the primary project objective and for projects in which climate is a significant objective. However, donors differ in their assessment of which projects consider climate a significant objective.

There has been a shift in donors’ attention toward climate change adaptation, with adaptation-related funding receiving the most climate funding (42%) in 2020. Only 33% of funding went to climate change mitigation, and 24% went to projects that addressed both climate change mitigation and adaptation.

Top Donors & Sectors

Donors

In 2020, the largest donors of climate-related ODA (including both principal and significant funding) were Japan, Germany, and France. Collectively, commitments from these three donors account for 70% of total bilateral climate change adaptation and mitigation funding from all DAC members.

Donors’ prioritization of climate-related projects varies widely, as indicated by relative funding of climate projects compared to total bilateral ODA. The DAC average is 23%.

Japan remains the largest DAC donor in absolute and relative terms for climate-related ODA, with 78% of its total bilateral allocable ODA in support of climate projects. Japan is followed by France which is among the top 3 donors to prioritize climate change in relative and absolute terms. The third best performing DAC donor in relative terms is Italy, with 44% of its bilateral allocable in support of climate change in 2020 despite being only the tenth-largest DAC donor in absolute terms - a clear indicator of strong prioritization of climate-related projects. The Netherlands (41% of bilateral allocable ODA), Austria (38%), and the United Kingdom (37%) also show a strong commitment to using their bilateral ODA to invest in climate change-related projects.

Deep dives on specific donor countries' climate engagement can be found in donor profiles.

Sectors

About half of donors' climate-related commitments in 2020 are focused on projects in three sectors: infrastructure, agriculture, and energy. The high funding for infrastructure is strongly influenced by Japan as a donor country. It provides the majority of its climate funding to infrastructure and accounts for 80% of the total funding from all DAC donors in this sector. Without Japan's share, agriculture, energy, and other multisectoral areas would be the largest sectors.

Adaptation

The Paris Agreement recognizes that adaptation is an integral part of the global response to climate change but despite the increase in global financing for adaptation, it remains far below the levels required. Climate Policy Initiative tracked only US$46 billion of annual financing for adaptation globally on average in 2019/20, compared to US$571 billion for climate mitigation. The vast majority of this funding came from public actors and was invested domestically (especially in Asia).

In 2021, high-income countries made the commitment to help vulnerable countries adapt to climate change by agreeing to double their assistance to adaptation to reach US$40 billion by 2025. Without a much greater focus and funding for climate adaptation in low- and middle-income countries, the expected increase in natural disasters and humanitarian crises is likely to roll back progress in key development sectors.

Bilateral donor funding makes up an important part of the funding for adaptation for low- and middle-income countries. The advantage of directly channeled funding is that it more often takes the form of grants, lessening the debt burdens of low- and middle-income countries. It can also better support current adaptation programming which is often not well-suited to debt financing yet with most projects estimated to not yet provide a clear financial return on investment.

Funding trends

In 2020, bilateral ODA commitments to climate change adaptation from OECD DAC donors stood at US$29.5 billion. This represents a 44% increase from US$20.5 billion in 2019. When comparing this to the US$40 billion goal, it should be noted that this includes funding for projects with climate adaptation both as a principal and as a significant component.

Funding for climate change adaptation has increased more than in many other development sectors, with 21% of total bilateral ODA funding in 2020 dedicated to climate change adaptation projects. This change is particularly due to the fact that the number of climate-related projects with a significant climate component more than doubled compared to 2016. This indicates that donors are increasingly incorporating climate change adaptation considerations into their development projects. The number of projects that have climate change adaptation as a principal objective has not increased at the same rate (only by 30%).

Top donors

In 2020, the largest donors of climate adaptation-related ODA (including both principal and significant funding) were Japan, France, and Germany. Collectively, commitments from these three donors account for 70% of total bilateral climate change adaptation funding from all DAC members.

Japan has the highest focus on climate change adaptation of all DAC donors, with 54% of its bilateral allocable ODA committed to climate change adaptation, followed by Italy (41%) and France (40%). The overall DAC average is 16%.

Top sectors

About half of donors' climate adaptation-related commitments in 2020 focuses on projects in three sectors: agriculture, infrastructure, and water and sanitation. Activities in the agriculture sector attracted 18% of DAC donors’ commitments to climate change adaptation. This includes activities related to agricultural development, agricultural policy and administration, and forestry policy and administration. Infrastructure (16% or US$4.8 billion), and Water and sanitation (16% or US$4.6 billion) accounted for the second-and third-largest share respectively.

Key debates and topics

For 2023, there are a number of issues that advocates can push for throughout the year and at key events (such as COP, UNGA, G7 or G20), among them:

• Ensuring that financial and political commitments made by donors are met: The lack of effective accountability mechanisms at the global or country level makes it difficult to verify the credibility and follow-through of donor commitments. This is in particular true for climate adaptation, for which there is no clear agreement on what constitutes a good intervention. Advocates can work on increasing the focus on adaptation, establishing appropriate accountability mechanisms, and supporting the setting of ambitious, measurable, and globally agreed-upon goals.
• Pushing for a definition of climate finance: There is currently no unified definition of what counts as climate finance. Advocates can support the ongoing work on a climate finance definition as well as a universal definition of climate change adaptation, strengthen credible progress assessment and limit double counting.
• Engaging on the planned reform of the development finance architecture: There has been a strong push during COP27 for Multilateral Development Banks (MDB) and International Finance Institutions (IFI) to align and scale up funding, as well as to improve access to financing for low-income countries. The reform is high on the agenda of the development banks themselves and will likely be part of the spring meeting of the joint World Bank Group/IMF Development Committee and the IMF International Monetary and Financial Committee as well as the climate finance summit in June 2023 proposed by French President Emmanuel Macron. Advocates can use this opportunity to closely follow the reform ideas to ensure that the available funding is best leveraged to address the climate crisis, in particular in LMIC settings.
• Securing new momentum for the 1.5-degree target: Financial targets are important, but no climate action is sustainable without limiting climate change itself. The 1.5-degree and higher targets have to be safeguarded as countries could withdraw or not adhere to it. Advocates play an important role in ensuring that goals do not backslide and are as ambitious as necessary.
• Ensuring that the new loss & damage facility is set up for success and does not detract adaptation funding: The idea of creating a loss and damage funding facility was brought to the negotiating table at COP27 which aims to increase resilience of low-income countries to climate emergencies. Leading up to COP28, a transitional committee will prepare a proposal for the implementation of the facility. Advocates can bring in their expertise to shape and set up this facility, while also ensuring that the funding for it is additional and not shifted from climate adaptation and mitigation projects.

Unless otherwise indicated, all data in this section is based on commitments. For more information, see our Donor Tracker Codebook.