Reporting on Finance in the Global Stocktake of the Paris Agreement

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Date produced: 03/08/2020

1. Looking at how reporting on finance is dealt with in the Global Stocktake of the Paris Agreement (Article 14), is there sufficient teeth in its process and modalities (Decision 19/CMA.1) to ensure that a successful allocation of finance towards adaptation will be properly accounted for?

2. Would they capture the fact that resources are coming in from the private as well as the public sector?

Summary:

 The current modalities for the global stocktake (and the Paris Agreement itself) contain provisions which require that support (which includes finance) towards adaptation be considered as part of the global stocktake. Arguably, therefore, Parties should have the information required to assess levels of adaptation finance with the aim of making improvements where necessary.

Whether climate finance originating in the private sector is accurately captured in the global stocktake will depend on the sufficiency of underlying sources of information, as there is nothing in the current modalities that provides for this specifically.

Advice:

Article 14(1) of the Paris Agreement stipulates that the Conference of the Parties serving as the meeting of the Parties to this Agreement (“CMA”) “shall periodically take stock of the implementation of this Agreement to assess the collective progress towards achieving the purpose of this Agreement and its long-term goals (referred to as the “global stocktake)”. Enhancing transparency around the provision of climate finance was intended to be a key aim of the GST, evident in the following provisions of the Paris Agreement:

·       Article 14(1) states that the GST shall include consideration of, among others, “the means of implementation and support”.

·       Article 9 contains the core obligations concerning climate finance. Article 9(1) states: “Developed country Parties shall provide financial resources to assist developing country Parties with respect to both mitigation and adaptation in continuation of their existing obligations under the Convention”. Article 9(4) emphasises that financial support “should aim to achieve a balance between adaptation and mitigation” and should in particular consider “the need for public and grant-based resources for adaptation”. Reflecting the importance of the GST in monitoring the provision of climate finance, Article 9(6) states that “[t]he global stocktake referred to in Article 14 shall take into account the relevant information provided by developed country Parties and/or Agreement bodies on efforts related to climate finance”.

·       Article 13 provides for an “enhanced transparency framework for action and support”. Article 13(6) states that one of the purposes of this framework is, “to the extent possible, to provide a full overview of aggregate financial support provided, to inform the global stocktake under Article 14”. Article 13.8 states that “[e]ach Party should also provide information related to climate change impacts and adaptation under Article 7…”, and one could argue that the reporting requirements in the MPGs (Annex to decision 18/CMA.1) for information on financial support provided and mobilized under Article 9 include the provision of information on finance originating in the private sector, see, e.g. paragraph 123, which considers reporting on climate finance that is bilateral, regional or from other channels in nature. This paragraph requires that the type of support (including adaptation) is identified, as well as the funding source (including “other (specify)” which could be the private sector).

·       Article 7.14(c), which provides that the GST shall “[r]eview the adequacy and effectiveness of adaptation and support for adaptation”. In the Convention process, ‘support’ generally means finance, technology transfer and capacity-building.

The present query relates to Decision 19/CMA.1, adopted at COP24 (held in Katowice, Poland, in December 2018) and entitled “Matters relating to Article 14 of the Paris Agreement and paragraphs 99–101 of decision 1/CP.21” (“the GST Decision”). The GST Decision seeks to clarify the information to be provided as part of the global stocktake and to provide modalities for the provision and synthesis of that information. This query raises two questions about the effectiveness of the GST Decision in advancing the goals of the Paris Agreement, particularly when it comes to reporting on climate finance, each of which is addressed below.

Several provisions in the GST Decision are relevant in this context. Firstly paragraph 36 which states that the CMA:

Also decides that the sources of input for the global stocktake will consider information at a collective level on:

(c)             “[t]he state of adaptation efforts, support, experience and priorities, including information referred to in Article 7, paragraphs 2, 10, 11 and 14 of the Paris Agreement, and the reports referred to in Article 13, paragraph 8, of the Paris Agreemen

(d)            The finance flows, including the information referred to in Article 2, paragraph 1(c), and means of implementation and support and mobilization and provision of support, including the information referred to in Article 9, paragraphs 4 and 6, Article 10, paragraph 6, Article 11, paragraph 3, and Article 13, in particular paragraphs 9 and 10, of the Paris Agreement. This should include information from the latest biennial assessment and overview of climate finance flows of the Standing Committee on Finance;

(f)              Barriers and challenges, including finance, technology and capacity-building gaps faced by developing countries;”[1]

Paragraph 36(c) thus covers inputs on support for adaptation, support meaning finance, technology, transfer and capacity-building.

Furthermore, pursuant to paragraph 23 of the GST Decision, the secretariat will prepare synthesis reports on the information identified in paras 36 (c) and (d) which will be included as sources of input for the GST (para.37(e)). Paragraph 31 of decision 11/CMA.1 also requests the secretariat to include in the synthesis report called for in the GST Decision (para. 23(b)) an assessment of the support needs for adaptation of developing country Parties.

At its latest meeting in March 2020, the Adaptation Committee began its consideration of preparation of the synthesis report as an input to the GST, requested by the GST decision     (para. 23(b)) and decision 11/CMA.1 (para. 31). Document AC/2020/7 prepared in advance of the meeting on this matter can be found at this link: https://unfccc.int/sites/default/files/resource/ac17_6f_synthesis_GST.pdf.

The two questions raised in this query are answered in light of these provisions:

Question 1 – Ensuring allocation of finance towards adaptation is accounted for

The first question concerns whether the GST Decision sufficiently ensures that any allocation of finance towards adaptation will be properly accounted for.

It is worth noting that the purpose of the GST is to take stock of and “assess collective progress” toward meeting the long-term goals of the Paris Agreement, rather than making decisions on future action. That said, in the final phase of the GST, where the outputs of the GST are to be considered, decisions could be made on how climate finance could / should be better allocated to adaptation action in developing countries.

As we have seen, there are a number of provisions in both the Paris Agreement and the GST Decision itself which ensure that support (which includes finance) towards adaptation will form part of the GST. Article 7.14(c), PA envisages that the GST will review the support provided for adaptation. Whilst paragraph 36(d) of the GST Decision does not differentiate between finance directed towards adaptation and that directed towards mitigation (although some of the PA provisions to which it refers do emphasise the need for balance between support for mitigation and for adaptation, including Article 9(4) and 10(6)), para.36(c) of the same Decision explicitly contemplates that specific information on support towards adaptation efforts will be considered as part of the inputs to the GST. This is reinforced by para.31 of Decision 11/CMA.1. Arguably, therefore, Parties should have the information required to assess levels of adaptation finance with the aim of making improvements where necessary.

On the question of balance between adaptation and mitigation in the provision of climate finance (as per Article 9.4, PA) a paper published by Independent Global Stocktake, a non-governmental organisation, in December 2019[2] argues that: “It is not clear how the GST will address the definition of balance in order to understand progress toward this objective.”[3] The same report proposes that the global stocktake could consider a “loose benchmark” of 50% of climate finance being dedicated to adaptation, which would be consistent with the framework adopted by the Green Climate Fund Board in 2014.[4] Furthermore, decision 1/CP.16, paragraph 2(b) provides that “[a]daptation must be addressed with the same priority as mitigation and requires appropriate institutional arrangements to enhance adaptation action and support”, which it could be argued is aspirational although, admittedly, it does not specifically say 50-50.

Aside from the proportion of finance being directed towards adaptation, the UNFCCC Standing Committee on Finance has highlighted that current methods for estimating adaptation finance and its effectiveness are lacking.[5] This further affects whether any allocation of finance towards adaptation can be assessed to be “successful” or not. The SCF recently made a call for evidence to support the preparation of its first report on the determination of needs of developing country Parties related to implementing the Convention and the Paris Agreement. This report could help assess whether adaptation finance has been successful.[6]

More broadly, it is arguable that the effectiveness of the GST might be affected by the lack of benchmark for the assessment of finance, including adaptation finance. Whilst the PA sets out an obligation for developed countries to provide and mobilize finance, it does not however impose any quantifiable monetary obligation (the amount of USD 100 billion by 2020 constituting a political pledge only). It is thus unclear against what benchmark progress will be measured.

Question 2 – Accounting for private sector financing

The second question concerns whether the Global Stocktake Decision will facilitate accurate capturing of climate finance originating in the private as well as in the public sector.

The GST Decision does not refer expressly to any mechanism for ensuring that private sector funding is accounted for (or even distinguished from public sector financing). Instead, it may be said that the Decision indirectly facilitates accounting of private sector financing by referring to sources of information that will feed into the global stocktake and which will, it is hoped, incorporate such accounting themselves. For example, paragraph 36(d) of the Decision states that information on finance flows should “include information from the latest biennial assessment and overview of climate finance flows of the Standing Committee on Finance”. In its most recent Biennial Assessment (of 2018), the Standing Committee on Finance drew attention to new methodologies for measuring private sector climate finance.[7] The effectiveness of the GST in accounting for private finance will depend on whether such underlying sources of information do so satisfactorily, rather than on any independent modalities in the GST Decision. As mentioned above, a possible source of information for private sector funding could be included in the biennial transparency reports (BTRs) where paragraph 123 of the Annex to Decision 18/CMA.1 (on bilateral, regional and other channels of funding) asks for information on funding type and source[8].

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[1] Note that there is no legal obligation placed on developing countries to report on finance (including adaptation finance) needed and received. This last source of input will thus be dependent on developing countries choosing to submit this information.

[2] See Independent Global Stocktake, “Understanding finance in the Global Stocktake” (December 2019) <https://www.climateworks.org/wp-content/uploads/2020/05/Understanding-Finance-in-the-Global-Stocktake_iGST_ODI.pdf>.

[3] Ibid, p 11.

[4] Ibid, p 12.

[5] See UNFCCC Standing Committee on Finance, “2018 Biennial Assessment and Overview of Climate Finance Flows: Technical Report” (2018) <https://unfccc.int/sites/default/files/resource/2018%20BA%20Technical%20Report%20Final.pdf> (see for example p 5 of Executive Summary).

[6] A separate but related issue concerns what counts as adaptation finance: in some cases, it might be difficult to distinguish ‘pure’ development projects from projects focused on addressing the adverse impacts of climate change.

[7] Ibid, pp 35–39.

[8] Note, however, that the MPGs do not provide guidance on what counts as private finance, leaving it to countries’ discretion as what they determine it to be. This may make it more difficult to compare the information submitted.