Around 65% of the $356 million that was pledged in Glasgow, Scotland, last year remains outstanding
At COP26 in Glasgow last year, new pledges to the Adaptation Fund (AF) drew attention and praise. Terming them “record raises”, the United Nations Framework Convention on Climate Change (UNFCCC) said they represent “concrete action” to help vulnerable nations.
Pledges made at COP26 included $50 million from the US, which was a first-time pledge by the country, $8.1 million from Canada, $116.4 million from the European Commission and $20.6 million from the UK, among others. Overall, they totalled $356 million. Adaptation, and finance for it, was also one of four goals touted by the COP’s UK presidency.
But pledges are different from the actual delivery of finance. While the former helps make headlines, the latter is where accountability lies. And close scrutiny is far from allowing a basis for praise.
As of September, 22, 2022, pledges made by the US, the UK, European Commission, Spain and Canada remain undelivered. So around $230 million is outstanding out of the $356 million that was pledged i.e. 65% is yet to be delivered.
In response to questions about the status of delivery of COP26 pledges, AF representatives confirmed the same. However, they added that they are “in the process of receiving the committed contributions” and also that countries have their own policies and procedures to process pledges. There are other internal processes, too, such as due diligence assessments, which mostly happen for new contributors.
Only $1 billion raised since Adaptation Fund inception
As the impacts of climate change intensify and make new demands of human systems, adaptation needs have steadily gained prominence. For instance, consider how traditional agricultural practices are now difficult and how climate-resilient practices such as heat-tolerant crops and salinity management are becoming important. Many countries also have National Adaptation Plans in place so as to provide a comprehensive manner of dealing with climate adaptation requirements. Suffice to say, all of such adaptation methods require financing.
Even non-climate bodies like the International Monetary Fund (IMF) and United Nations Conference on Trade and Development (UNCTAD) underscore the importance of adaptation finance. The IMF states “countries that need to adapt the most often lack the means to do so. They typically lack the financing and the institutional capacity to implement needed adaptation programs.” While a 2021 report by UNCTAD outlined the need for reforming the international finance system in order to enable finance flows for climate adaptation in developing countries.
Nevertheless, there is little money for it. Since its inception, the fund has only managed to raise less than $1.5 billion. More specifically, it has raised $1.473.95 million as of June 2022. Of this, $1,193.79 million has been received to date, of which donations account for $982 million, as of June 2022. As a stark contrast, adaptation costs in developing countries alone are estimated to be $70 billion every year.
Interestingly, the bulk of funds came from donations rather than from the sales of certified emission reductions (CERs) issued by the Clean Development Mechanism under the Kyoto Protocol i.e. the 2% levy. This despite the fact that share of proceeds from CER was supposed to be the primary means of channeling money into the fund. Including income from investments, the AF had cumulatively received $1,235.05 million as of the end of June.
So far, a total of $1,012.8 million has been approved to finance adaptation projects and cover administrative costs of the Adaptation Fund. The remainder comprises an operational reserve to the tune of $3 million and undisbursed funds amounting to $219.25 million, which is invested in a basket of financial instruments. While the basket is dominated by government securities and cash/cash equivalents, it also includes covered bonds, investment promotion agencies, sovereign guarantees or supranational investments, forex swaps, asset backed securities, and corporate securities. The income from these investments has earned the AF an additional $41.26 million since 2020. The rate of returns, though, has diminished considerably in 2022 owing to the ongoing global economic downturn.
According to representatives of the AF, the decisions on these investments are made at the discretion of the World Bank, in order to ensure minimal risk. “The undisbursed cash balance of the AF Trust Fund is maintained in a commingled investment portfolio (“Pool”) for all trust funds managed by the World Bank. The government securities that the Pool invests in, based on the approval of the World Bank’s Credit Committee, are marketable bonds, notes or other obligations issued or unconditionally guaranteed by the government of a country. These securities are mainly issued by governments of developed markets, with only a small portion of emerging market government bonds.”
The method of funding and its insufficiency is relevant given that future funding for the Adaptation Fund, too, will be reliant on share of proceeds from sale of carbon credits under Article 6. CarbonCopy has previously covered other issues with market-mechanism reliant funding, some of which is not mandatory.
Adaptation is also a major theme at COP27, as is a push to “move from pledges to implementation”. It remains to be seen whether countries that are yet to deliver adaptation finance in line with pledges made at COP26 do so before COP27 to be held in November in Sharm El Sheikh, Egypt. And also whether funding for adaptation can be made more substantial and sustained.