The COP26 Presidency was heartened by participants’ show of unity at the Climate & Development Ministerial (C&DM) in March 2021.
This event convened countries and partners to discuss the challenges and priorities for implementing the Paris Climate Agreement and Agenda 2030 for Sustainable Development in the countries most vulnerable to climate change. The Chair’s Summary released immediately after the event set out pathways to progress on each of these issue areas, focused on seizing this once in a generation chance to deliver a global green and resilient recovery from COVID-19. On the sidelines of the UN General Assembly, Ministers met to discuss the progress so far and suggested next steps. This was supplemented with a discussion on the same topic with Permanent Representatives to the UN. A summary of progress is provided below followed by the annexed detailed progress report for discussion.
Access to Climate Finance
Led by Fiji and the UK, the Taskforce on Access to Climate Finance has been launched. The Steering Committee will be launching Principles and Recommendations on Access, alongside announcing pilots in five countries, at COP26. The Roundtable on SIDS access to finance met on 7 October to continue to progress work on eligibility.
Responding to the Impacts of Climate Change
G7 members have underlined their support for disaster risk reduction measures, including initiatives such as the InsuResilience Global Partnership and Risk-Informed Early Action Partnership (REAP) with the ambition of covering 500 million poor and vulnerable people by 2025 through solutions such as early action, climate and disaster risk finance, and insurance. Countries are preparing National Adaptation Plans (NAPs) and Adaptation Communications for COP26, with the latter informing the Global Stocktake, and there is increasing recognition of locally-led adaptation.
Quantity, Quality and Composition of Climate Finance
Since March, significant new forward-looking finance commitments have been made by developed countries and MDBs representing billions of additional dollars per year through to 2025 (as compiled on the COP26 Presidency website (PDF)). Many countries have committed to double or even quadruple their climate finance commitments. These commitments were brought together through the $100bn Delivery Plan, launched in October, to enhance transparency and predictability on the pathway to meeting the $100bn goal through to 2025. The Plan shows that the $100bn is not likely to be reached until 2023, which is disappointing, but that it will be exceeded in the following years, with over $500bn due to be mobilised over 2021-25 (these numbers were verified by the OECD).
On the composition of finance, the G7 at Carbis Bay, and developed countries through the $100bn Delivery Plan committed to scale up adaptation finance and achieve a greater balance with mitigation finance. A number of countries (including Japan, Canada, US, Denmark, Sweden, New Zealand) and MDBs (including the Asian Development Bank) have made concrete new commitments to scale up their adaptation finance. As well as increasing the quantum of adaptation finance, the Champions Group on Adaptation Finance launched at UNGA with climate providers (Ireland, Netherlands, Demark, Sweden and the UK) is committed to a balance in public climate finance between adaptation and mitigation. Since launching, Germany and Finland have joined. The Delivery Plan also notes developed countries’ commitment to enhance access to finance, scale up grant finance for the poorest and most vulnerable, mobilise greater sums of private finance, and align broader finance flows with the Paris Agreement.
Fiscal Space and Debt Sustainability
Since the C&DM in March, the Paris Club and G20’s Debt Service Suspension Initiative (DSSI) has been extended, the IMF has continued to provide debt service relief to poor and vulnerable countries through the Catastrophe Containment and Relief Trust (CCRT), and a historic $650bn allocation of Special Drawing Rights (SDRs) has boosted global liquidity. However, limited fiscal space continues to affect countries’ abilities to pursue their climate objectives. The Presidency looks forward to continued and accelerated
progress by the Paris Club and G20 on the timely, orderly and coordinated implementation of the G20 Common Framework for debt treatment and strongly supports a global ambition of magnifying the SDR allocation through voluntary channelling to provide $100bn to countries most in need.
Access to Finance
Taskforce on Access to Climate Finance
The Taskforce on Access to Climate Finance, conceived at the C&DM, aims to transform the current system of climate finance through a new, programmatic approach based on partners’ own national climate action plans and priorities, supported by coherent, programmatic finance from multilateral and bilateral partners.
Since March, a Revised Concept Note for the Taskforce on Access to Climate Finance has been published, which acts as the key Terms of Reference for the Taskforce, setting out the approach and strategy in the run up to COP26 and beyond as work commences to deliver a transformation in access to finance through a new, country-led approach.
The Steering Committee for the Taskforce was formed in July. Co-chaired by the UK and Fiji it has 10 other members: Belize, Bhutan, Germany, Malawi, Rwanda, Senegal, Sweden, the United States, the Green Climate Fund and World Bank.
As a key element of its effort to transform the current system of climate finance the Taskforce is developing a set of high-level Principles and Recommendations to be published at COP26 which will underpin the new approach and promote wider institutional reforms to the current climate finance system to support its delivery. These Principles and Recommendations will be designed to guide both providers and recipients in how climate finance should be accessed, programmed and used.
Three key concepts will underpin the proposed new approach on enhanced access:
- Programmatic and coordinated approach. Whilst the modality will depend on local context, the aim for all is to facilitate long-term, coordinated and predictable provision of climate finance around a nationally owned unified vision.
- Coordination with existing initiatives: wherever possible the new approach will aim to work with, and build on, existing initiatives, plans and structures, enhancing coherence while supporting and amplifying efforts already underway.
- Inclusivity: the new approach will seek to use climate finance to address the most urgent local needs and support the most vulnerable countries and populations within them.
To support development of the Principles and Recommendations, the Taskforce’s Steering Committee oversaw an evidence review, which drew on the lived experience of developing countries and literature from both the developed and developing world. As set out in the Revised Concept Note, a second key deliverable for the Taskforce is the identification of five ‘pioneer countries’ to be announced at COP26. These countries will trial the new approach to climate finance 3 developed by the Taskforce, in cooperation with providers of climate finance. An open call for nominations was issued via Permanent Missions in New York and was also published on the COP26 website alongside the criteria for selection to be used by the Steering Committee.
Vulnerable countries, particularly the Small Island Developing States (SIDS) continue to face broader challenges with regards to mounting debt levels compounded by climate impacts, and eligibility for Official Development Assistance linked to income status. The Roundtable on SIDS access to finance continues to work to support SIDS on these issues. It met again on 7 October, following which the Roundtable Co-Chairs (UK, Belize, Fiji and AOSIS) issued a Call to Action – urging providers of ODA to set out recommendations on how the risks posed to SIDS through the use of GNI per Capita should be mitigated, so that their transition from finance takes into account their unique vulnerabilities and challenges, and to assess the potential of Vulnerability Indices. The Roundtable me again on 7 October, with the COP President Designate’s participation to launch the Call to Action. The COP26 incoming Presidency is exploring how this agenda can be furthered in Glasgow.
Responses to Climate Impacts
The urgency to adapt, and avert, minimise and address loss and damage has never been greater. This requires scaled-up action in a number of areas.
On C&DM conclusions, progress has been made on mainstreaming climate risk and adaptation into national planning, and support for National Adaptation Plans and Adaptation Communications. It is encouraging that more countries are preparing NAPs and Adaptation Communications. 26 Adaptation Communications have now been submitted to the UNFCCC, and working with the NAP Global Network, the UK is supporting a number of countries to prepare Communications before COP 26. It is expected that at least 24 more will be published before COP and more by early 2022 to inform the Global Stocktake.
In order to further support mainstreaming of planning, the World Bank has recently launched a new core diagnostic tool, the ‘Country Climate Diagnostic Reports’ (CCDRs), aimed at helping countries integrate climate action within their development planning. CCDRs will highlight the most critical investments needed, the biggest opportunities, the likely trade-offs and how these can be managed. CCDRs will be made public so that other donors, lending institutions or companies can use them to guide their low-carbon, resilient investments.
On disaster risk response, it is encouraging that efforts through the G7 have helped generate new support and funding. The G7 underlined its support for initiatives such as the InsuResilience Global Partnership and Risk-Informed Early Action Partnership (REAP), with the ambition of covering 500 million poor and vulnerable people by 2025 through solutions such as early action, climate and disaster risk finance, and insurance.
The C&DM underlined the role of innovation, including new technologies and called for more opportunities for building capacity across key sectors. The Adaptation Action Coalition has launched its programme of sector engagement, starting with water and health, and will be doing more work on infrastructure. This is in addition to the AAC’s broader focus on risk and locally led adaptation. The membership of the AAC has now increased to 38 countries. On nature-based solutions, as well as encouraging inclusion in national planning, the incoming Presidency is working with the Forest, Agriculture and Commodity Trade (FACT) Dialogue supporting the Just Rural Transition (JRT) initiative and Vision Statement that was launched at the UN Climate Action Summit in 2019.
In response to calls to improve the effectiveness of adaptation action by working with the poorest and most marginalised, we are encouraging donors and the private sector actors to enhance support and access to finance at the local-level. Through the UK’s G7 Presidency, members welcomed the principles for locally-led adaptation in the Foreign and Development communique. In September and October, the Adaptation Action Coalition and the UN High-Level Champions’ Race to Resilience campaign, along with partners, held a set of regional dialogues,encouraging State and non-State actors respectively to champion the principles of locally led action and develop domestic capabilities to implement them.
In line with the C&DM conclusions, the Chilean and UK Presidencies organised 7 consultations to help operationalise the Santiago Network for loss and damage, to catalyse technical assistance to support developing countries to avert, minimise and address loss and damage. COP25 established the Santiago Network and the consultations have furthered Parties’ understanding of the potential principles and functions, governance, financing and process for taking forward work on the Santiago Network. Based on these consultations, the Presidencies published a discussion paper to support the discussions at COP26. Dedicated sessions on Loss and Damage were also organised at Ministerial level, in July and at PreCOP, and technical workshops with a broad range of stakeholders were organised in July and in October.
Countries agree that urgent and comprehensive action on adaptation is needed and this requires enhanced financial and technical support for developing countries, particularly the most vulnerable. We have heard that the global goal on adaptation (GGA) should drive ambition. In consultations and meetings we have heard from Parties that further work is needed on the GGA, building on Article 7, and in the context of informing the Global Stocktake (GST). This work should build on technical work by the Adaptation Committee (AC), the IPCC and other research institutes. Many parties have called for more time to focus on this issue under the CMA . Some Parties proposed that agreement on a time-bound work programme at COP26 would help to deliver this work. Parties have voiced the importance of adaptation documents such as AComms and NAPs and how these can enhance learning and inform the Global stocktake. At the UNFCCC regional dialogues workshops with NAP-GN, parties shared their knowledge, experience and insights in developing AComms. These will contribute to the global picture of progress and gaps in adaptation action.
Quantity, Quality and Composition of Climate Finance
In the past year, material progress has been made towards enhancing public finance in line with the $100bn goal. In June, All G7 countries committed to enhance climate commitments through to 2025, including scaling up finance for adaptation and nature, and improving the accessibility and impact of this finance. Since March, new, forward-looking commitments have been brought forward by a number of major donors, including the US, Germany, Canada, Japan, Denmark, Sweden, the European Commission, and New Zealand. These commitments represent billions of dollars beyond pre-existing pledges, with many countries doubling or quadrupling their climate finance.
A number of Multilateral Development Banks have since the CDM increased their medium term climate finance targets. In June, the World Bank Group confirmed it has raised its climate finance target to 35% of operations, up from 28% previously. In May, the Asian Development Bank committed to doubling its share of adaptation finance to a cumulative total of $9bn from 2019 to 2024, and in October increased its climate finance target to $100bn for the 2019-2030 period. All major MDBs also submitted data to the $100bn Delivery Plan.
In response to developing country calls for greater transparency and predictability of climate finance, at COP President Designate Alok Sharma’s request, Ministers from Canada and Germany developed a $100bn Delivery Plan, showing how the goal would be met through to 2025. Published on 25 October, this Plan is built on public pledges, and using conservative assumptions on private finance mobilisation, shows the goal is likely to be reached in 2023, and exceeded thereafter, with $500bn being provided over 2021-25. The Plan includes a 10 point approach to enhancing climate finance, including scaling up adaptation finance, enhancing access, and mobilising private finance.
Of the total forward looking pledges made to date, a number of countries (including Japan, Canada, US, Denmark, Sweden, New Zealand) have made concrete commitments on the scaling up of their adaptation finance. In response to developing country priorities, a Champions Group on adaptation finance was launched at UNGA. The group (currently UK, Germany, Denmark, Netherlands, Ireland, Sweden, and Finland) aims to increase the total level of adaptation finance, particularly for LDCs and SIDS, including by delivering a balance of adaptation and mitigation spend, and encouraging others to do the same.
MDBs also made commitments to further increase finance for adaptation. In May, the Asian Development Bank committed to doubling its share of adaptation finance to a cumulative total of $9bn from 2019 to 2024. The African Development Bank (AfDB) has committed to increase its climate finance to $25 billion between 2020 and 2025, with the AfDB joining the World Bank in allocating 50% or more of funding to adaptation. We welcome other increases in adaptation finance made by MDBs. The DFI+ Collaborative for Accelerating Private investment in adaptation and resilience, launched at the Finance in Common Summit in 2020 has grown to 14 members and the 2021 G7 Foreign and Development Ministers welcomed their plans to pursue substantial increases in adaptation investments.
Strides are being made to promote the alignment of all financial flows, public and private, with the Paris goals (Article 2.2.c), and shift the trillions needed to move the world onto a climate-compatible growth pathway. Almost all of the 10 leading MDBs have now announced dates by which they will fully align all finance with the Paris Agreement, and are working to mobilise increased finance from the private sector.
The G20 has renewed its focus on aligning financial flows with the Paris Agreement and the SDGs, including for emerging markets and developing economies, through the G20 Sustainable Finance Working Group and its ongoing work on a multi-year Sustainable Finance Roadmap. G20 Finance Ministers and Central Bank Governors endorsed this in October 2021. They also emphasised the need to conduct systematic analysis on climate risk through the Framework Working Group (FWG).
Governments and regulators are together taking action towards a structural shift in the international financial system supported by standardisation and frameworks to unlock the trillions in investment needed. This includes increased integration of climate into surveillance from central banks and the IMF and the launch of a new International Sustainability Standards board to develop an international standard for the disclosure of climate risk. Through the Glasgow Financial Alliance for Net Zero, hundreds of financial institutions representing over $88trn in assets are taking action to align their portfolios with the goals of the Paris Agreement.
Fiscal Space & Debt Sustainability
Limited fiscal space and high debt levels continue to affect countries’ abilities to pursue their development priorities, including on climate and environment. About 60 percent of LIDCs are at high risk of or already in debt distress, and external indebtedness in SIDS is higher on average than in other emerging markets and developing economies.
However, while there is still work to do, we welcome the progress that has been made since the Climate and Development Ministerial (C&DM) in March. The G20’s Debt Service Suspension Initiative (DSSI) was extended in April until the end of December 2021. This has provided around 45 low-income countries with temporary deferral on debt payments worth over $10bn as of June 2021. Three countries have requested a debt treatment under the G20 Common Framework (CF) and 70 others remain eligible to do so. In addition, the IMF has now provided over $700 million in debt service relief to 29 of the poorest and most vulnerable countries through the Catastrophe Containment and Relief Trust (CCRT).
Important milestones have been met on the IMF’s Special Drawing Rights (SDRs). In August, the IMF implemented a historic $650bn allocation of SDRs to its members, which will boost global liquidity and provide fiscal space. The IMF is also engaging with members that have strong external positions to voluntarily channel some of their SDRs to magnify the benefits of the allocation. This includes channelling SDRs to scale-up lending to the IMF’s Poverty Reduction and Growth Trust (PRGT) and other options including an IMF proposal to create a new Resilience and Sustainability Trust (RST) that would help provide longer-term financing to low-income countries, small developing states and vulnerable middle income countries to support climate transitions. Leaders are working to magnify the impact of the SDR allocation with an aim of reaching a total global ambition of $100bn to countries most in need, which should help enable greener and more robust recoveries. At Annual Meetings in October, the G20 and IMF expressed support for the MF’s work to establish the RST.
Progress has also been made on the preparation of a finance, debt, climate and nature platform, led by the World Bank and IMF, with four pilot studies now underway with Kenya, Jordan, Barbados and Grenada which will provide governments with tailored advice to match their specific needs with new financing instruments.
The G20 Finance track as well as the Paris Club remains the key forum for progress on existing debts through the G20-Paris Club Common Framework. G20 Finance Ministers will meet in October ahead of G20 Leaders at end October.
The finance, debt, climate and nature platform is being further developed by a technical working group, with plans to expand beyond the current set of pilots once the platform is established. The IMF is working with member countries and the WBG to consider options on how to channel further SDRs to low-income and vulnerable countries.
A G7-led Private Sector Working Group is exploring the development and use of Climate Resilient Debt Instruments (CRDIs) that quickly suspend debt service repayments following a pre-defined climate-related event or shock. We encourage international financial institutions and Official creditors to explore the use of CRDIs in debt contracts.
By the time of COP26 in November, the COP Presidency looks forward to:
- Continued progress by the G20 and Paris Club on the timely and effective implementation of the Common Framework for countries requesting a debt treatment, with full participation of private creditors.
- Continued efforts by creditors, borrowers and the IFIs to support debt sustainability and debt transparency, including under the IMF/WB Multi-pronged approach to debt vulnerabilities.
- The IMF continuing to engage with member countries on SDR channelling options, with members making progress towards magnifying the impact of the allocation and meeting the total global ambition of $100bn, include contributions from the G7 and others able to do so, to support green, resilient recoveries in low income and vulnerable countries.
- The World Bank and IMF soft launch the finance, debt, climate and nature platform at COP26, alongside committed donor and recipient countries.
- Progress by creditors, including private lenders and relevant MDBs, on the technical work to develop a standardised model on CRDIs for use in debt contracts.