Topic Guide: A guide to national governance of climate finance

Abstract

This Topic Guide reviews emerging approaches to climate finance and aims to provide DFID’s Climate and Environment Advisors with an up-to-date understanding of the current national modalities designed to mobilise, manage and channel climate finance for investment in adaptation and mitigation initiatives. Investments in adaptation and mitigation by households, governments and private entities are increasing in response to the challenges and opportunities provided by a changing climate. Investments in such activities often come with huge costs and very specific financing needs. Climate finance is expected to play an important role in financing such investments. The term broadly refers to international and national, public and private sources of finance for investment in adaptation and mitigation initiatives. Governments and private entities at the international, national and local scales have piloted several approaches to mobilise and channel climate finance. These provide lessons for policymakers given the mandate of financing investment in adaptation and mitigation. The guide focuses on trends in national country systems for policy, planning and budgeting of climate finance and how they can be strengthened to better access, govern and deliver climate funds. It guides how decision makers can identify appropriate financial intermediaries, financial instruments and financial planning systems to deliver climate finance for investment in adaptation and mitigation. The Climate Finance Landscape Framework developed by the Climate Policy Initiative has been used as a basis for the analysis. This framework examines the role of financial intermediaries, financial instruments and financial planning systems in mobilising and channelling climate finance from its source to its end use. Decision trees are used to demonstrate how policy actors can choose context specific financial intermediaries, instruments and planning systems to mobilise and channel climate finance from its source to its end use. The guide is substantiated with case studies outlining emerging practice on approaches to climate finance adopted at international, national and local scale. The guide is structured in 3 sections: Section 1 highlights key observations in the National Climate Finance Landscape around the main intermediaries, instruments and modalities that govern the flow of climate finance within countries. It provides further guidance on how development advisors can learn from and support these evolving national arrangements. Section 2 provides an overview of the International Climate Finance Landscape. It includes: An overview of the available sources of climate finance The financial intermediaries used to mobilise and channel finance from its source to end use The economic and financial instruments used to incentivise investment in low carbon climate resilient development (LCCRD) Financial planning systems used to govern the flow of climate finance. Section 3 - Lessons for an appropriate Climate Finance Landscape at the national level - shows how an appropriate selection of financial intermediaries, instruments and financial planning systems can enable the governance of climate finance. This peer reviewed Topic Guide has been produced by the International Institute for Environment and Development (IIED) with the assistance of the UK Department for International Development (DFID) contracted through the Climate, Environment, Infrastructure and Livelihoods Professional Evidence and Applied Knowledge Services (CEIL PEAKS) programme, jointly managed by DAI (which incorporates HTSPE Limited) and IMC Worldwide Limited