Climate finance investments need a clear purpose, showing how these investments will help climate mitigation by reducing greenhouse gas emissions or how they will help climate adaptation by improving the resilience of infrastructure, communities, and livelihoods.

Mobilizing greater climate finance was one of the four key outcomes promoted at COP26. That is an important positive step towards greater climate action but it does not in itself guarantee improved resilience or a reduction in emissions.

Climate finance investments need a clear purpose, showing how these investments will help climate mitigation by reducing greenhouse gas emissions or how they will help climate adaptation by improving the resilience of infrastructure, communities, and livelihoods.

Opportunities exist for better targeting and design of climate finance. The emphasis of climate finance accounting is on identifying at the design stage how much of an investment will likely contribute to mitigation or adaptation. The actual climate results that are expected to be achieved should be reflected in the results frameworks of individual investments and of country programs. However, the link between climate finance and climate results is often poorly defined.

Without a clear causal pathway towards climate results, there is a risk of distorted incentives that reward large volumes of climate finance for heavy infrastructure irrespective of the levels of climate outcomes that may be achieved. In particular, this may incentivize less attention to adaptation, where project size is typically smaller than for mitigation. 

Recent evaluations point to weaknesses in the tracking of climate finance towards intended outcomes. One found that while country strategies are increasing attention to the country or region’s climate change challenges, they are not underpinned by sound climate diagnosis and robust results frameworks.

We must look beyond climate finance and keep our eyes on the prize, climate results.

Climate risk assessments of proposed investments are critically important in identifying climate risks and proposing measures to manage these risks. However, these assessments do not always result in changes in design and when these actions are not reflected in results frameworks they are not well tracked. There is often no systematic ex post analysis of performance against agreed measures.

While 70% of recent approvals are being subject to climate risk assessments, only half of mitigation projects and less than a third of adaptation projects have an outcome level indicator in their results frameworks. Similarly, another evaluation found that the depth of impact made by its interventions cannot be monitored with the set of indicators currently used.

There are three ways climate finance can be more focused on results:

• Underpin country strategy and programming with robust and systematic climate diagnostics to clearly specify the path of engagement and results expected through public and private sector operations. Such diagnostics are needed both to make the case with governments and clients for climate action and to provide a sound footing for developing a tailored pipeline of investments that meets their needs.
• Improve the balance of incentives that rewards investments that not only achieve increases in climate finance but more importantly deliver cost-effective climate outcomes. Development financing institutions and their clients can support these incentives by incorporating climate results into their value for money decision-making processes.
• Extend the lens of assessment of climate finance to the full project cycle, with robust indicators that follow the causal linkages between the climate financed components of an investment and the achieved mitigation or adaptation results, so that measures that work well can be identified, disseminated and scaled-up. The learning cycle should be embedded into each investment’s monitoring and evaluation system, so that early, intermediate and ex post lessons can be channeled into the design of future investments.

Climate finance tracking has been instrumental to identify financial flows in a more systematic manner and raise climate ambitions. A similar level of rigor is now needed to bridge the knowledge and evidence gap between climate finance and climate results. By developing the causal linkages between finance and results, with the systematic capturing of lessons learnt, climate finance can be directed more efficiently toward climate action that works and delivers results.

COP26 is receding in our memory, but to keep its achievements and the goals of the Paris Agreement alive we must look beyond climate finance and keep our eyes on the prize, climate results.

About the authors

Garrett Kilroy, Principal Evaluation Specialist, Independent Evaluation Department, ADB. More on Garrett here.

Nathan Subramaniam, Director, Independent Evaluation Sector and Project Division (IESP), Independent Evaluation Department (IED). More on Nathan here.

Disclaimer: This guest blog was originally produced by the authors on ADB website on 10 March 2022. The views expressed in this guest blog are the authors' own and do not necessarily reflect the views of the Independent Evaluation Unit of the Green Climate Fund.