Climate finance not reaching the local level

IIED research has found that less than 10% of funding committed under international climate funds to help developing countries take action on climate change is directed at the local level.

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IIED researchers say that less than 10% of climate finance committed from international climate funds by 2016 was prioritised for local-level activities. They estimate that out of the US$17.4 billion total, less than 10% ($1.5 billion) was approved for locally focused climate change projects between 2003 and 2016.

Researchers published their findings in the working paper 'Delivering real change: getting international climate finance to the local level'. The paper analyses the flows of climate finance within the main international climate funds to understand how effective they are in getting finance to the local level, and also looks at what design features enable or prevent local-level finance. 

Researchers say evidence shows that climate finance reaching the local level – as part of a coherent approach to climate action – delivers effective, efficient and sustainable results that enhance the impact of each dollar disbursed. 

The analysis was based on only the 7% of climate finance that is transparent enough to be tracked, however. Ninety-three per cent of climate finance is not sufficiently transparent to be tracked to the its end use.

IIED director Andrew Norton called for changes in how climate finance is allocated. He said: "Substantial reform needs to be made to how development banks and UN agencies distribute this crucial money. To be effective in helping poor communities build resilience and tackle the effects of climate change, many more climate funds need to reach the local level."

A failure to recognise the importance of climate finance at the local level will make it significantly harder for developing countries to meet the United Nations' Sustainable Development Goals and implement the Paris Agreement.

Barriers to finance reaching local communities

IIED's analysis identifies a range of barriers preventing crucial finance from reaching local communities. These include:

  • Some multilateral development banks and UN agencies being less able to finance small-scale projects directly, due to higher transaction costs
  • No priorities are being set for the funds to reach institutions on the ground, and
  • There are concerns over communities being able to manage large amounts of finance.

IIED says most development finance flows from international to national government actors, who have limited capacity to understand and address the needs of poor and vulnerable communities – those most in need of climate-resilient development interventions. 

In addition, accountability for the effective spending of finance tends to flow up to the donor, rather than down to the local communities.

Local level action is effective

IIED's research highlights compelling evidence that in many cases more effective, efficient, and sustainable climate change action can be achieved at the local level.

This is because:

  • It is easier to integrate the development and climate agendas at the local level 
  • Local institutions, by virtue of being closer to the ground, are more transparent and accountable to communities and build trust between government, donors and local communities
  • Local institutions can better understand trade-offs between groups due to being better connected to local realities, and
  • Women, disabled people, young people and the socially excluded can gain a greater voice.

Removing barriers to local climate finance

IIED is exploring ways to deliver money where it matters. Together with our partners, we are highlighting potential models for decentralised climate action funds that can deliver climate funding that is responsive to the needs of local people. IIED is also helping to build local-level capacity to access and manage climate finance resources.

Additional resources

Money where it matters: financing the Sustainable Development Goals and Paris Agreement through local finance, Sian Lewis, Clare Shakya, Paul Steele (2017), IIED Event report

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