Key messages

The OECD report “Aggregate Trends of Climate Finance Provided and Mobilised by Developed Countries in 2013-2020” (OECD, 2022[5]), released in July 2022, presented aggregate figures and trends to 2020, the initial target year of the USD 100 billion goal. The first section of the Key Messages recaps these.

The present complementary report, focused on the period 2016-2020, provides disaggregated analysis and insights relating to the distribution and concentration of climate finance provided and mobilised across climate themes, sectors, financial instruments, as well as based on different developing country characteristics and groupings (see “Insights from observed trends”, below). These insights may, however, not be representative of the wide range of individual characteristics of climate finance providers’ portfolios or of developing country circumstances.

The report also considers questions relating to the impacts and effectiveness of climate finance, as well as to meaningful mitigation action and transparency on implementation (see “Insights on effectiveness, impacts and transparency”, below).

  • USD 83.3 billion was provided and mobilised by developed countries for climate action in developing countries in 2020. While increasing by 4% from 2019, this was USD 16.7 billion short of the USD 100 billion per year by 2020 goal.

  • In 2020, public climate finance (both bilateral as well as multilateral attributable to developed countries) grew and continued to account for the lion’s share of the total (USD 68.3 billion or 82%). Private finance mobilised by public climate finance (USD 13.1 billion) decreased slightly compared to earlier years, while climate-related export credits remained small (USD 1.9 billion).

  • Mitigation finance still represented the majority (58%) in 2020, despite a USD 2.8 billion drop compared to 2019. Adaptation finance grew, in both absolute (USD 8.3 billion increase compared to 2019) and relative terms (34% in 2020 compared to 25% in 2019). Such an increase is, to a great extent, the result of a few large infrastructure projects. Cross-cutting activities remained a minority category (7%) almost exclusively used by bilateral public providers.

  • Mitigation finance focused mainly (46%) on activities in the energy and transport sectors. In contrast, adaptation finance was spread more evenly across a larger number of sectors and focused on activities in the water supply and sanitation sector, and agriculture, forestry and fishing.

  • As in all previous years, loans accounted for over 70% of public climate finance provided (71% or USD 48.6 billion in 2020, including both concessional and non-concessional loans). The share of grants was stable compared to 2019 (26% or USD 17.9 billion). Public equity investments continued to be very limited.

  • Over 2016-2020, climate finance provided and mobilised mainly targeted Asia (42%) and middle-income countries (43% and 27% for lower- and upper-middle-income countries respectively). Further, 50% of the total was concentrated in 20 countries in Asia, Africa and the Americas that represented 74% of all developing countries’ population.

Thematic split between mitigation and adaptation:

  • Climate finance provided and mobilised by developed countries in 2016-2020 largely focused on mitigation in relatively high-emitting countries. The likely drivers of this trend include more readily-available pipelines of sizeable and financially sustainable projects for mitigation than for adaptation.

  • The relative share of adaptation finance varied widely within and between country groups. Between 2016 and 2020, nearly half of total climate finance provided and mobilised for Small Island Developing States (SIDS) and Least Developed Countries (LDCs) targeted adaptation. Per capita adaptation finance in these countries was above the average for developing countries as a whole.

  • Many developing countries, including LDCs, lack adequate capacity to develop and implement climate finance projects, as well as to access and manage international funding, thus preventing them from securing larger volumes of both adaptation and mitigation finance.

Public finance instruments:

  • While loans represented the majority of both multilateral and bilateral public climate finance throughout 2016-2020, the instrument split varied significantly between provider types. The mandate and operating model of multilateral climate funds and bilateral aid agencies typically rely on paid-in contributions and budget allocations. As a result, these funds and agencies are able to commit more funds as grants. In contrast, the mandate and business model of many multilateral development banks (MDBs) and bilateral development finance institutions rely more on financial instruments that lead to repayment and interest (loans) or exit and return prospects (equity).

  • Grants represented a much higher share of finance for adaptation and cross-cutting activities than for mitigation between 2016 and 2020. Grants typically support capacity building, feasibility studies, demonstration projects, technical assistance, and activities with low or no direct financial returns but high social returns. Public climate finance loans are often used to fund mature or close-to-mature technologies as well as large infrastructure projects with a future revenue stream, which are predominant for mitigation finance as well as in middle-income countries.

  • Grants represented a larger share of climate finance for SIDS, LDCs and fragile states, compared to developing countries overall. Countries within these three categories often present economic and socio-political conditions that do not favour loan-based finance due to limited absorptive and repayment capacity. Recipient institutions and projects in middle- and high-income countries tend to have a relatively higher capacity to seek, absorb, deploy and repay loans.

Private finance mobilisation:

  • Increasing private climate finance mobilisation has proved challenging. After increasing between 2016 and 2017, it stagnated over 2017-2019 and dropped in 2020. The ability of developed countries to mobilise private finance for climate action in developing countries is influenced by many factors. These include the composition of bilateral and multilateral providers’ portfolios (mitigation-adaptation, instruments and mechanisms, geography, and sectors), policy and broader enabling environments in developing countries, as well as general macroeconomic conditions.

  • Adaptation continued to represent a small share of total private climate finance mobilised. In contrast to many mitigation projects, notably in the energy sector, adaptation projects often lack the revenue streams needed to secure large-scale private financing. It is also challenging to mobilise private finance for activities that increase the resilience of smaller actors, e.g. small enterprises, and farmers.

  • Public finance providers used different mechanisms to mobilise private finance in different country, sector and risk contexts. The data analysis in this report and a qualitative OECD survey of providers’ portfolios confirmed the key role of project finance, guarantees and syndicated loans in mobilising private finance at scale for large projects. Simple co-financing and credit lines were found to be well suited to target the mobilisation of relatively smaller actors.

  • Most private climate finance was mobilised for projects in middle-income countries with relatively conducive enabling environments and relatively low-risk profiles. There are, however, differences between different types of providers. Overall, MDBs mobilised a larger proportion of private finance for developing countries with a relatively higher risk profile than bilateral providers and, even more so than multilateral climate funds.

  • There are options for both providers and recipients to increase private finance mobilisation. This includes enhancing developing countries' national investment regulations and broader enabling environments, as well as the development of project pipelines and large-scale investment opportunities. On the provider side, the OECD survey suggests the potential to develop innovative financial mechanisms, and to better tailor the blending of public and private resources and instruments in different country, sector, and risk contexts.

  • The analysis in this report is based on official climate finance data reported by bilateral and multilateral providers. Methodologies to track adaptation- and mitigation-specific finance as well cross-cutting finance differ between providers and may vary over time, both of which can impact the volumes and thematic split of climate finance. Investments in large infrastructure projects also contribute significantly to year-on-year variations of public and mobilised private finance figures. Further efforts by individual public climate finance providers to report detailed activity-level data and methodological changes are key to fulfilling basic analytical needs and building trust.

  • Climate finance provided and mobilised by developed countries is a means to an end. Assessing its effectiveness is important but complex. Besides detailed activity-level impact analysis, it requires a holistic evaluation of changes achieved, which faces data limitations and difficulties to identify appropriate timeframes for evaluation and attribute causality. Moreover, effectiveness may be understood differently by different communities.

  • Continued efforts from both providers and recipients to better measure impacts could contribute to enhanced effectiveness assessments. This would include addressing the following challenges:

    • Aggregation of information available on the mitigation and adaptation outcomes of climate finance provided and mobilised remains challenging because such information is reported using different methodologies, approaches and indicators.

    • Developed countries have committed to the USD 100 billion per year goal in the context of “meaningful mitigation actions and transparency on implementation”. Only very limited information is available on the uses and impacts of climate finance received by developing countries and on actions implemented. This is in part due to the non-mandatory nature of developing countries’ reporting requirements under the UNFCCC on these issues, and the limited capacity of developing countries to collate such information.

  • There is a growing recognition that international action needs to look beyond direct climate-specific results, to be geared towards supporting, enabling and accelerating more generally the transition towards low greenhouse gas emissions and climate-resilient development. In this context, the integration by developing countries of climate change policies and targets (e.g. as laid out in Nationally Determined Contributions) into broader national development plans and processes is an important enabler for effective, country-owned climate action.

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