FfD4 Countdown: Vulnerable countries need access to sufficient climate finance, but it must also be tailored to their needs

As climate change impacts communities, ecosystems, and economies globally, the need for countries to efficiently mobilize finance for their climate change priorities is increasing.

The 4th International Conference on Financing for Development (FfD4), where countries will agree on the agenda for development finance for the next decade, presents a key opportunity to address these needs. As mentioned in the first draft of the conference’s outcome document, it is critical that developing countries, especially those highly vulnerable to the impacts of climate change, receive sufficient finance for mitigation, adaptation, and resilience building.

However, the current text does not sufficiently recognize that countries’ circumstances are highly specific. Their needs and priorities vary greatly, depending on their geographic, political, and economic contexts and the level of climate risk they are exposed to. This calls for a more tailored or, in some cases, phased approach that will allow countries to truly build resilience and effectively access the resources necessary to adapt to the changing climate.

Why Is It Crucial for FfD4 to Address Sources of Climate Finance?

According to the Intergovernmental Panel on Climate Change, approximately 40% of the global population now lives in areas highly vulnerable to climate change impacts. There is an urgent need to accelerate the implementation of the countries’ adaptation priorities, but insufficient finance remains one of the main barriers. According to the UN Environment Programme, the adaptation finance gap is estimated to be between USD 194 billion and USD 366 billion per year for developing countries.

Relying solely on public international funding will not be enough to ensure that countries’ adaptation priorities can be implemented, especially given the current decline in global development aid. Countries therefore need to look across diverse domestic, international, public, and private options for climate finance.

Some developing countries may not currently be in a position to increase domestic resources for adaptation finance or attract private sector investments. In this case, a phased approach may be needed to increase the mobilization of other sources of adaptation finance.

Developing countries, especially those highly vulnerable to climate change impacts, also need to access sufficient and adequate finance for adaptation and resilience building through mechanisms that do not exacerbate their debt burdens.

Financial instruments must be tailored to the specific national circumstances of developing countries, especially in least developed countries (LDCs), which often face significant challenges in creating conditions for the successful implementation of innovative financial instruments for climate change adaptation.

What Is Currently Missing in FfD4’s Approach to Climate Finance?

The text currently being discussed commits to ensuring that “developing countries that are particularly vulnerable to the adverse impacts of climate change receive sufficient climate finance to support mitigation, adaptation and resilience-building.” It mentions a range of financing instruments, including carbon finance, risk insurance, debt swaps, and climate resilience funds, that should respond to countries’ needs and priorities and help build capacity. 

However, the text uses the word “receive,” which seems contradictory in the context of using instruments like carbon finance, which usually implies mobilizing climate finance within developing countries themselves. The draft also overlooks the fact that the appropriateness of these instruments can vary based on countries’ national circumstances and capacities, not just their “needs and priorities.” To effectively scale up the use of innovative financial instruments for climate change adaptation and mitigation in LDCs, for example, a tailored approach might be needed to identify the most appropriate instruments for each national circumstance. For instance, high levels of debt and institutional weaknesses make it difficult for LDCs to issue catastrophe bonds, and the absence of appropriate regulatory frameworks and market infrastructure hinders the implementation of biodiversity credits. Establishing a carbon credit market also requires strong compliance mechanisms, including independent emissions evaluations, strict enforcement, and transparent regulators, which require significant capacity and public investment. 

The draft recognizes the importance of scaling up climate finance from all public and private sources. However, it does not sufficiently recognize that some countries, due to their specific circumstances, depend heavily on official development assistance and other forms of external aid to finance their adaptation needs. This dependency makes them vulnerable to fluctuations in international aid and changes in donor priorities. 

LDCs face unique challenges in mobilizing domestic finance for adaptation due to narrow fiscal bases, high poverty rates, and weak tax systems. Additionally, they are often unattractive to private sector investors due to perceived high risks stemming from weak regulatory frameworks, political instability, and underdeveloped financial markets. A phased approach is needed to address these issues through securing international public finance while progressively increasing domestic resources and private sector investments. Strengthening institutional capacity, improving fiscal and regulatory systems, and creating incentives to de-risk private investments are essential steps in this process.  

What Should Countries Agree on at FfD4?

• If the focus of the text is on ensuring sufficient climate finance is available for vulnerable developing countries instead of being received from developed countries, we suggest changing the wording from “receive” to “have access to” or “secure” sufficient climate finance.
• As the appropriateness of these instruments can vary based on countries’ national circumstances and capacities, and not just their “needs and priorities,” we suggest adding “via the appropriate financing instruments.... that can adequately respond to their national circumstances, needs, and priorities....”
• Lastly, to further reflect that each country’s needs are specific, we recommend adding that we “acknowledge that “a tailored and phased approach may be required to help developing countries effectively mobilize sufficient climate finance.”