working paper

Locally Led Climate Adaptation

What Is Needed to Accelerate Action and Support?

Stefanie Tye Isabella Suarez
Download PDF

2. Landscape of Existing Investments that Could Be Tapped Into to Advance Locally Led Adaptation

It is important to understand the current climate finance landscape to identify how different funding entities and processes could help enable and support locally led adaptation. The purpose of this section is to describe the main entities in the climate finance space, including funders and institutions, and how finance flows from the international to the subnational level. The majority of climate and development finance, including for adaptation, is deployed at the international and national levels.

2.1 Key Actors in Climate Finance

Climate finance flows to the local level from bilateral and multilateral international funders or funds, from national sources, and from subnational mechanisms. Finance traditionally flows via various intermediaries, like those highlighted below and in Figure 1, before reaching the local level.

Developed country funders or donors, and their individual bilateral institutions, are important actors. For example, in Germany, the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety and the Federal Ministry for Economic Cooperation and Development, among others, give resources to other agencies, such as the German Society for International Cooperation (Deutsche Gesellschaft für Internationale Zusammenarbeit; GIZ), which are not directly funded from Germany’s annual budget. In addition to contributing to global funds, bilateral actors have their own programs that emphasize devolved funding.

Government bodies, particularly national governments’ development finance institutions, are often in charge of distributing funding from both international funders and their national budgets, which is in turn allocated from the subnational to the district or municipality level. Both the type and structure of this trickle-down process depend on the level of political, administrative, and fiscal decentralization within countries (UNDP et al. 2013). This process is made even more difficult where transfers are untargeted and unconditional. Finance from nonpublic sources may reach local actors in a more direct way through civil society organizations (CSOs). National climate funds can operate with similar external and domestic sources as well. Subnational flows include locally generated revenues and at that level can make up a proportion of local funding.

Multilateral climate funds draw funds from various sources (including countries’ bilateral development agencies). UN agencies and multinational and regional development banks fall under this category. Adaptation-focused multilateral climate funds include the Global Environment Facility (GEF) and its special trust funds; the Least Developed Countries Fund (LDCF) and Special Climate Change Fund (SCCF); the Adaptation Fund (AF); and Pilot Program for Climate Resilience (PPCR); as well as crosscutting climate funds like the Green Climate Fund (GCF).

The instruments used to deliver on pledges affect the level of risk that funds can tolerate in their portfolios, which in turn affects both their ability to mobilize climate finance at scale and the types of projects that are funded. The LDCF, SCCF, and AF are capitalized solely through grants, giving them great flexibility in the risk profile of their portfolios (Amerasinghe et al. 2017). While the Climate Investment Funds (CIF), GEF, and GCF are also capitalized through grants, some member countries provide contributions as loans or capital (Amerasinghe et al. 2017). The AF, GEF, and GCF are pioneering direct access modality, as well as launching enhanced direct access modalities through country institutions and systems (Amerasinghe et al. 2017).

Nongovernment organizations and the private sector (e.g., international development and microfinance firms) are other key actors. In addition to climate financing in the form of loans, grants, subsidies, credit, or savings products, these institutions sometimes provide financial services for vulnerable communities and people living in poverty.

Figure 1 | Climate Adaptation Finance Flows

Source: Adapted from Restle-Steinert et al. 2019; Patel et al. 2020.

Start reading