Authors : Deborah Murphy, Jo-Ellen Parry and Joanes Atela.
Multilateral development banks (MDBs) have pledged to and are working to increase financing for adaptation in developing countries. For MDBs, alignment with the adaptation goals of the
Paris Agreement means scaling up finance for adaptation in a way that helps developing countries achieve their international commitments as well as national economic and social objectives, including COVID-19 recovery. The African Centre for Technology Studies (ACTS) is partnering with the International Institute for Sustainable Development (IISD) on a research project that is exploring options to scale up MDB investment in adaptation. Initial research findings in Kenya, Nepal, and Peru highlight that MDB’s efforts to close the adaptation finance gap require input from developing country governments and alignment with nationally determined adaptation priorities.
Blog:
Lost in the daily coverage of the global COVID-19 pandemic is the ongoing, insidious impacts of climate change. The year 2020 is tied with 2016 as the hottest year on record, and the past six years have been the hottest six years on record. Climate change is contributing to catastrophes around the world, including intense and prolonged rainfall and flooding that claimed over 285 lives and affected more than 800,000 people in Kenya in 2020.
The African Centre for Technology Studies (ACTS) has partnered with the International Institute for Sustainable Development (IISD) and institutions based in Nepal and Peru to undertake research that will help governments manage the effects of climate change. The Mobilizing Development Finance for Adaptation research project, which is managed by IISD and funded by Canada’s International Development Research Centre (IDRC), is addressing one of the biggest roadblocks to the implementation of adaptation actions: the lack of financing.
We are specifically looking at the role that multilateral development banks (MDBs), such as the World Bank, can play in helping developing countries address their adaptation financing gap. MDBs provide and leverage large-volume financing under attractive terms, and these banks have committed to increasing their investment in adaptation and aligning their financing portfolios with the adaptation goals of the Paris Agreement. In a high-level statement in 2019, nine MDBs committed to a collective effort to double the total level of adaptation finance provided to clients, meaning that MDBs will allocate USD 18 billion annually for adaptation by 2025.
MDBs are well placed to work with developing country governments to scale up finance for adaptation in a way that helps them achieve their international climate commitments as well as national economic and social objectives, including COVID-19 recovery. However, MDBs cannot act alone. A recent IISD report indicates that a critical factor for achieving scaled up MDB support for adaptation is specific requests from developing country governments. MDBs are demand-driven institutions, and the engagement of ministries that lead on both adaptation and finance can help to integrate adaptation considerations in MDB investments. Additionally, research in Kenya, Nepal, and Peru points to three different strategies to encourage MDB investment in climate adaptation and lessons learned for each of them.
Kenya: Informing MDB investments with climate change adaptation plans
Kenya has identified its adaptation priorities and the costs of implementing these adaptation actions through national action plans that are cascaded locally through subnational county governments. These plans include the country’s second national climate change action plan, the National Adaptation Plan (NAP), the Nationally Determined Contribution (NDC), and an NDC investment plan.
Professor Tom Ogada, Executive Director of ACTS in Nairobi, explains: “An enhanced understanding of the costs of climate change and benefits of adaptation across government ministries - including treasury and environment - has informed consultations between the government and MDBs. The climate vulnerabilities and adaptation needs already identified by Kenya have informed the design of recent World Bank projects in the housing and agriculture sectors.”
Nepal: Using the MDB investment plan to push national adaptation plans forward
In Nepal, COVID-19 has delayed government processes to formulate the country’s NAP. A World Bank initiative to develop an adaptation investment plan for Nepal offers an opportunity to support national processes. The Prakriti Resources Centre (PRC) in Kathmandu is examining MDB investments in adaptation in Nepal and helping the government identify opportunities to use the World Bank project to further national adaptation processes. Raju Pandit Chhetri, Executive Director of the PRC, indicates: “The research is critical to improving our understanding of how MDB investment can be scaled up and aligned with Nepal’s adaptation priorities, and how MDB processes can help the government meet international climate change commitments.”
Peru: Engaging MDBs in the making of climate adaptation strategies
Many developing countries are receiving technical assistance through NDC support programs established by MDBs, which can be used to address adaptation concerns. Diego Calero, Project Manager at Libélula in Lima, notes the importance of engaging MDBs in the development of these national climate adaptation strategies. “While these are national processes led by the government, MDBs are more likely to understand a country’s adaptation priorities and direct investment to these priorities if they are engaged in these processes.” For example, the Inter-American Development Bank’s (IDB) NDC Invest program is supporting the Peruvian government in designing a “climate-smart economic revival” as the country seeks to respond to the high impact of COVID-19. The work includes updating the country’s national climate change strategy, which includes a vision for long-term adaptation that can guide future MDB investment.
Progress is being made
ACTS recently examined the investment portfolio of the World Bank in Kenya. This Initial research shows that allocations of finance for adaptation relative to mitigation and overall investment portfolios have increased since 2013. Similar to research findings in Kathmandu and Peru, much of MDBs’ finance for adaptation is in sectors that are important for COVID-19 recovery, including infrastructure, water, and agriculture.
We will continue to work with IISD and its partners to identify strategies to encourage government officials to request MDB financing for adaptation. Our research is exploring how best to align adaptation processes with national economic development and planning efforts, and how to improve understanding of the benefits of incorporating climate resilience in investment decisions, especially with officials from treasury and planning. MDBs have committed to scaling up finance for adaptation, and our research will help developing countries direct MDB investment toward nationally determined priorities.
Link to IISD project webpage:
Mobilizing Development Finance for Strategic and Scaled-up Investment in Climate Adaptation https://www.iisd.org/projects/mobilizing-development-finance-strategic-and-scaled-investment-climate-adaptation
Acknowledgement: This blog was written under a project managed by the International Institute for Sustainable Development that is funded by Canada's International Development Centre (IDRC).
