Three significant deficiencies in funding for climate adaptation in developing nations

Developing nations necessitate investments totaling hundreds of billions of dollars annually to help them confront the escalating threat of climate change. Without these financial resources, an increased risk of extreme floods, fires, and hurricanes will imperil countless lives, and millions of individuals in the global south will be pushed into severe poverty. Nevertheless, the current state of affairs reveals significant deficiencies in global funding for climate adaptation.

In the latest Adaptation Finance Gap Update, part of the UN Environment Programme’s (UNEP) Adaptation Gap Report for 2023, we scrutinize recent developments in adaptation funding. Our primary focus lies on the flow of public adaptation funds from developed countries’ governments to developing countries since the implementation of the Paris Agreement.

This article identifies three major shortcomings in adaptation finance and elucidates the reasons behind these gaps, even as nations pledge to augment these funds.

1. Financial Shortfall:
The estimated annual adaptation costs for developing countries during this decade range from $215 billion to $387 billion, as per the most recent Adaptation Finance Gap Update report. While public funds from developed nations are not the sole source of adaptation finance, they remain a pivotal source, particularly for low-income countries. Despite their minimal contribution to causing climate change, people in the least developed countries (LDCs) and small-island states often face heightened exposure to climate hazards and are more vulnerable to climate-related disasters. The Paris Agreement stipulated achieving balance in climate finance between adaptation and mitigation, yet more funds have been allocated to emissions reduction than to climate impact preparedness. The commitments made by developed nations have fallen significantly short of the costs and needs expressed by developing countries. The observed flow of public adaptation finance from these nations has consistently remained below $30 billion annually. At the COP26 climate summit in Glasgow, developed countries pledged to double their adaptation finance contribution by 2025. Nevertheless, the progress toward this goal has fluctuated since the baseline year of 2019, making it challenging to achieve the target.

2. Lack of Local Finance:
Local organizations, communities, and individuals are at the forefront of climate change impacts and often offer innovative, sustainable solutions to address these challenges. Therefore, it is crucial that these local entities play a significant role in funded adaptation projects. However, there has been a lack of clarity regarding the intentional allocation of adaptation funding to benefit local communities. Our analysis provides comprehensive estimates of adaptation finance that primarily target local communities, encompassing both bilateral and multilateral sources. Previous assessments have primarily covered dedicated climate funds such as the Green Climate Fund, the Adaptation Fund, and the Global Environmental Facility, which constitute only a minor share of total public adaptation finance, approximately 9%. Our assessment reveals that less than 17% of total international public adaptation finance has been directed toward projects with a specific focus on local communities, emphasizing the urgent need to increase financial support to these communities.

3. Struggling to Reach the Ground:
Efficient fund utilization is essential to ensure that funds serve their intended purpose and do not inadvertently create new challenges. Our research indicates that a substantial portion of funding does not reach its intended recipients. Between 2017 and 2021, we estimate that only 66% of allocated funds successfully reached their recipient countries, with the remaining funds not reaching developing countries due to various reasons, including project delays and capacity limitations. In contrast, 98% of general development finance, covering areas such as education and healthcare, was successfully disbursed during the same period. This underscores the unique challenges in disbursing funds for adaptation projects, which include insufficient understanding of local markets during project planning, limited climate policy knowledge among decision-makers, and bureaucratic delays in fund approval and disbursement. The disbursement gap varies regionally, with South Asia receiving only 51% of allocated funds, while sub-Saharan Africa, home to most LDCs, had a higher disbursement ratio of 79%.

It is essential to note that these figures primarily represent data from bilateral sources, which are country-to-country funding. Comprehensive data on disbursements from multilateral organizations, including the World Bank and other development banks, remains limited, despite these sources contributing the majority (61%) of international public adaptation finance for the global south.

In conclusion, our analysis underscores the multifaceted nature of adaptation finance, emphasizing the need for alignment with local circumstances and a collaborative approach involving both financiers and recipients to address existing gaps. Bridging these gaps holds the potential to promote climate justice, where vulnerable developing countries are not disproportionately burdened by climate change, while neglecting these issues could worsen loss and damage in those nations. Negotiations at the upcoming COP28 in the United Arab Emirates offer a crucial opportunity for world leaders to establish measures to address these challenges.