23.09.2022

Climate and Development Ministerial 2 Towards Transformational Change

15 minute read

The UK COP Presidency and Rwanda co-convened a Second Climate and Development Ministerial on 20 September 2022 in New York at the margins of the 77th session of the UN General Assembly.

The UK as COP26 Presidency and Rwanda co-hosted the second Climate and Development Ministerial on 20 September 2022. Leaders, ministers and representatives from Antigua and Barbuda, Australia, Canada, Denmark, Egypt, European Union, Germany, Ghana, Grenada, Italy, Maldives, Marshall Islands, Pakistan, Rwanda, Sweden, Tanzania, Uganda, United States, Uruguay, UNFCCC, Adaptation Fund, African Development Bank, Caribbean Development Bank, Gates Foundation, Green Climate Fund, World Bank, and a Youth Climate Leader engaged in the meeting. 

Since its inception in 2020, the Climate & Development Ministerial (C&DM) process has focused on four priorities: Responding to Climate Impacts, Climate Finance, Access to Finance, Fiscal Space & Debt Sustainability.

In their opening remarks the COP President and the Minister from Rwanda emphasised that some good progress had been made since the first meeting, including the launch of the Climate Finance Delivery Plan and record new finance pledges, commitments to improved balance between mitigation and adaptation and alignment with the principles of locally-led adaptation, the launch of the Taskforce on Access to Climate Finance and the establishment of the IMF’s Resilience and Sustainability Trust to enhance vulnerable countries’ ability to invest in climate action. 

It was recognised however, that climate impacts are growing, requiring responses to repeated major disasters. The meeting expressed solidarity with the people of Pakistan as they deal with unprecedented floods. It was noted that preparatory discussions between officials, experts and civil society had led to a proposal that focused on a small number of transformational shifts to catalyse progress across the agenda. 

To set the broader context, Ministers and high level participants heard from three guest speakers, including Vinzealhar Nen, Youth Climate Leader from Papua New Guinea, Bill Gates, Co-chair of the Bill & Melinda Gates Foundation, and the UNFCCC Executive Secretary Simon Stiell. They noted the importance of today’s discussion and encouraged all leaders to be ambitious and clear in their interventions in order to identify practical actions and measures of success for building on previous progress made against the four themes. 

Transformational shifts

Participants recognised that a series of transformational shifts are needed to make progress. They agreed that there was a need for climate and development planning and finance to be integrated at all levels, clearly led by countries and their priorities, leveraging more and larger sources of finance whilst improving the sustainability of debt levels. Some noted however that the global financial system is outdated and often not fit for purpose for the volumes and agility of investment needed to address the climate and development challenges of today. They coalesced around three broad shifts – 

  • Platforms: shifting finance to investing behind national platforms that are designed and owned at the national level, to coordinate climate, development and nature resourcing behind programmes (instead of individual projects), and build capabilities to mainstream climate across economic planning. This will help improve access, move towards anticipatory finance, and ensure finance coherently addresses national and local priorities; 
  • Continued reform of the global financial architecture: enhancing the global financial architecture including MDBs, IFIs and the range of financing instruments to ensure they are able to mobilise the scale of finance needed to deliver on climate and development priorities, can disburse it efficiently and enable countries to maintain economic stability and fiscal space for climate action when crises hit.
  • Scale and composition of finance: shifting the scale and sources of finance available, including from the private sector, to ensure finance flows better match the level of needs, finding new sources for responding to impacts/loss and damage, while also improving the delivery mechanisms of finance already available and delivering on existing finance commitments, prioritising grant based finance for adaptation. 

Ministers identified specific actions needed across access to finance, responses to impacts, climate finance and debt and fiscal sustainability. Participants noted that many actions have been called for before and suggested a ‘forward plan’ be developed to steer action to deliver the shifts needed and enable a collective assessment of progress. 

Responses to climate impacts

Ministers noted the increasing severity and regularity of climate impacts affecting countries and the growing weight of scientific evidence underpinning the urgency for action. They noted the increasing links between climate change and development, including the ripple effects on migration, agriculture yields and other issues. Climate vulnerable countries noted the importance of ensuring climate justice is centred in the global response to climate change, including on how finance is mobilised and delivered. 

The discussion highlighted the need to scale-up and develop new and innovative sources of finance, particularly anticipatory finance aligned to country-defined priorities, for responding to climate impacts. Ministers suggested that progress could be measured in terms of actions that enable increased speed and agility of climate vulnerable countries’ responses to climate impacts. This is both dependant on improved finance and greater in-country capacity.  

Participants emphasised the importance of concerted mitigation action, particularly from major emitters, in reducing the severity of climate impacts. They noted the importance of countries delivering their Glasgow Climate Pact commitments, including to revisit and strengthen Nationally Determined Contributions before the end of 2022. The need for sustained adaptation action was also recognised in order to reduce   the scale of impacts. Some participants noted that operationalisation of the Global Goal on Adaptation should help catalyse effective support for the most vulnerable. 

The importance of leadership from national and local levels in guiding adaptation action was stressed. The knowledge of Indigenous Peoples and Local Communities (IPLCs) was recognised as critical to delivering effective climate action, and the need to meaningfully engage with and support the priorities of IPLCs and other local actors is essential. 

Participants raised the lack of coordination between institutions, funds and activities, including the development & humanitarian sectors, as a key challenge for developing countries. They encouraged funders to commit to longer term funding that is invested behind national platforms and their strategic objectives, these funds can then be channelled through national delivery mechanisms to ensure recipients have greater ownership and to build in the necessary flexibility to enable funding to adjust to changing circumstances. 

There was broad support for the idea of creating national platforms that enable better access, use and coordination of funding sources and that build better partnerships between provider and recipient countries to maximise the funding available, while ensuring that it supports nationally-determined priorities. This approach can also help to improve transparency and accountability for how finance is delivered, as well as ensuring that finance is used to address climate and development priorities coherently. Ministers from Rwanda and Tanzania spoke of their positive experience of implementing coordinated national platforms and other initiatives, while others noted that significant resource was needed to establish new institutions and that in some cases regional cooperation could be a better option. 

Participants noted with concern the rising number of climate impacts resulting in loss and damage and that the likelihood of a growing shortfall in funds to help avert, minimise and address loss and damage means that new and innovative sources of funds are likely to be needed. Some Ministers put forward the idea of a new financing facility and the meeting agreed that work needs to be started on how new sources of funds can be identified and used to assist countries and communities suffering loss and damage, over and above existing approaches. Participants mentioned the need to create a strong and meaningful Global Shield against climate risk. Ministers encouraged the discussions under the UNFCCC on funding arrangements for loss and damage, including a dedicated finance facility, and underlined that they need to drive practical action.   

The importance of responsive social protection programmes was raised by a number of participants, and Ministers talked about how they can be used to protect people on the ground. Participants recognised the need to scale-up these programmes and improve their responsiveness to climate impacts. In addition to this, countries highlighted that disaster risk needs to be built into budgets, noting that micro, meso and macro financial interventions are needed. Countries called for agreeing a comprehensive set of anticipatory and responsive financing instruments in advance of a climate shock, that also recognises the cumulative impacts of multiple shocks.

Access to finance

Participants noted that public finance remains unpredictable, difficult to access and that challenges remain around the transparency and accountability of funding. They noted ongoing problems with long waiting times between project proposal and release of funds, as well as complex and differing access modalities and systems between funders, and capacity constraints in-country. It was recognised by some that many of these issues can be attributed to inheriting an outdated financial system, and there was strong agreement on the need to modernise it. 

Ministers welcomed the progress made to date with initiatives such as the Taskforce on Access to Climate Finance, the NDC Partnership, the Climate Finance Access Network, and LDC Initiative For Effective Adaptation and Resilience, specifically by their work supporting a new nationally-led approach to access. It was noted that some institutions had made efforts to improve their access modalities but barriers included a lack of coordination at and between boards. It was also noted that the Taskforce and other initiatives had not yet led to significant system-level change and that not all finance recipients are noticing the effects of reforms that were being made. Some Ministers expressed frustration that challenges with accessing finance have been raised many times before yet progress to address them has been slow. Some countries highlighted their work on their systems, aligning themselves with the Taskforce’s Principles and Recommendations and encouraged others to do the same. 

Participants raised the need to address ongoing lack of transparency and easily accessible information on application processes, available funding, and previously successful bids. The lack of information was leading to an avoidable resource-burden on recipient countries and an insufficient response to climate impacts as a result. It was suggested that institutions could: provide increased certainty by committing to cap waiting times for finance recipients (and that this was an important indicator of success); streamline accreditation and application processes, and coordinate information to ensure funding opportunities were well-known and guidance was easily available. Ministers suggested measuring progress in terms of significantly reducing the waiting times to access finance.

Ministers noted that in order to address these issues there was a need for coordinated reforms from multilateral and bilateral climate finance providers, and that this must be clearly mapped for action over the coming 2-3 years. Reforms should include the prioritisation of grant-based finance (instead of loans) directed towards adaptation, a shift towards funding behind national platforms to support platforms and pooled funds (instead of project approaches), ensuring finance reaches those who need it most at the national and local level (and that they can directly access the finance), and that the finance is more anticipatory and responsive to national needs.

It was also noted that improved access required national coordination by developing countries and that modalities such as national platforms could be important for delivering better access to finance and enhancing transparency.

Climate Finance

Participants noted the ongoing financial challenges posed by the current geopolitical and economic climate, but emphasised the ongoing realities of addressing the causes and impacts of climate change and the critical importance of climate finance in making this happen. Ministers continued to highlight the need to reform a finance system that is no longer fit-for-purpose to ensure that finance flows better match the level of needs and deliver quality outcomes for development, climate and nature. 

Ministers welcomed the publication of the $100bn delivery plan at COP26 and the commitment made in the Glasgow Climate Pact to double adaptation finance from 2019 levels by 2025, but noted the critical importance of providing detail on how this would be delivered. Ministers from Canada and Germany confirmed the Delivery Plan Progress Report, which seeks to provide an update on progress made against the $100bn delivery plan, will be published ahead of COP27. Ministers agreed on the need to ensure all countries deliver on their commitments made at COP26.

Ministers welcomed this update, and it was also noted that the Progress Report may provide additional detail on adaptation finance without setting out a specific pathway to achieving the adaptation finance doubling commitment by 2025. In this context, Ministers called on provider countries to provide detail on how the doubling goal will be reached and a standalone plan to track and measure progress. Actions to increase transparency of finance to better understand how finance commitments are being delivered and where and who it is benefiting were also raised as essential. 

Participants recognised that despite the need for public finance, it cannot fill the needs gap. Nonetheless it would be a key component to mobilise and scale-up private finance, and it would also be key to identify new and innovative sources of finance for climate change and Loss and Damage. Ministers also recognised the critical role MDBs and other institutions could play here. 

Ministers welcomed updates from MDBs and multilateral climate funds on their efforts to address many of the challenges raised by countries. Ministers discussed the need to continue reforming the financial system to ensure the funding that is available, including through the MDBs and IFIs, is delivering quality outcomes for climate, development and nature. This included ensuring funding is aligned to national priorities, and it was suggested that the national platforms proposal discussed under Responding to Climate Impacts would help to maximise the efficiency and effectiveness of MDB and IFI funding and strengthen partnerships.

It was also noted that to deliver the volumes of finance required it would be vital for countries to mainstream climate across financial, development, environmental and economic policy and make sure it was not treated as a standalone issue. Participants also stressed the importance of ensuring climate finance was aligned with the sustainable development goals. Ministers recognised the critical role of technical assistance in building capacity in-country to support this in practice. 

Fiscal space and debt sustainability

Participants noted the growing number of countries facing debt distress and fiscal sustainability challenges which have been exacerbated by the pandemic. Some countries have faced climate-driven events whose costs far exceeded their national GDP, undermining their ability to respond to crises, and simultaneously invest in resilience and adaptation. The frequency and severity of the impacts are adding budgetary pressures to already highly indebted countries. 

Ministers highlighted opportunities for reforms to the global financial architecture, including International Financial Institutions to respond effectively and rapidly to crisis moments. It was noted that the current system falls short to deliver the finance to where it is needed. Some participants stressed the unique challenges that current ODA graduation criteria present for Small Island Developing States, which undermines their ability to cope with disasters and leads to further indebtedness. There were calls for multidimensional vulnerability indices to be considered in eligibility for concessional finance.

The  expansion of climate resilient debt clauses (which automatically defer debt service in response to climate shocks or other natural disasters), was clearly called for by a number of participants, with calls to expand the geography and encourage all creditors (bilateral, multilateral and private) to include this type of clause in new debt instruments going forward, and ensure a wider set of countries can access it. Some donors noted this was an obvious step as impacts increased in scale, frequency and severity. It was noted transparent milestones are needed to ensure progress is made on this in a timely manner. 

Participants talked about blended finance approaches that allow direct private sector borrowing and other forms of non sovereign borrowing. There is a need to look at practical examples and support for developing green local markets, as domestic mobilisation would be essential to invest.

It was noted that IFIs could have a role to play in providing direct budget support for climate and development finance. The role that guarantees could play to improve the ‘bankability’ of projects and platforms was raised by many participants, and guarantees as a way to refinance and reduce the sovereign debt burden was also explored. It was noted that climate finance should not be treated separately from national debt and fiscal space planning. 

Certain Multilateral Development Banks also encouraged the channelling of SDRs to MDBs to increase their financial capacity to support countries, in addition to SDR channelling through the IMFs Resilience and Sustainability Trust, in order to holistically deliver support for climate resilient development. Participants also pointed to implementing the recommendations from the Independent Review of MDB Capital Adequacy Frameworks to increase MDBs’ financing capacity.

Next steps

The UK Presidency and Rwanda will continue discussions with countries, institutions, civil society, and others on the issues and actions highlighted in this summary, in order to build consensus for practical action at  COP27.

Ministers expressed enthusiasm for continuing the conversation in this format, targeting development, climate and nature objectives jointly and working across ministries to mainstream them across economic and financial policy. Incoming COP Presidencies highlighted the importance of continuing this Ministerial process, using it to highlight and press for practical action and progress. The Rwandan Minister expressed their interest to take this forward with other partners next year

Participants agreed that a clear forward plan to deliver was required, so working with the C&DM Secretariat, the UK and Rwanda will set out some of the key milestones and moments raised in the discussion in an accompanying forward plan document to be published by COP27.