When the 26th United Nations Climate Change Conference ended in overtime two weeks ago, there was recognition that developing nations—which have contributed least but suffer most from climate change—need far greater funding to adapt.

At COP15, held in 2009 in Copenhagen, the world’s wealthiest countries pledged to give poorer nations yearly climate funding, to reach an amount of at least $100 billion a year from 2020 through 2025. The $100 billion figure was a nice, round number, but nothing about reaching this goal in the intervening years has been simple, especially after early 2020, when the global Covid-19 pandemic decreased international climate assistance to, and domestic climate allocations by, developing nations.

Donors routinely inflate their actual contributions, there is no accepted standard for what types of projects count toward “climate action,” and funding can be difficult to account for, vanishing somewhere between donor and project. 

Further, funding from wealthy nations in 2019 was just short of $80 billion. Because of the complexity involved with tracking funds, there is roughly a two-year time lag in determining global contributions.

The promised money was also intended to be split 50-50 between projects for adaptation and mitigation—altering systems and ways of life to adjust to climate change, versus reducing and avoiding greenhouse gases. But at the moment, the split is closer to 25 percent for adaptation and 75 percent for mitigation, meaning that many people in developing nations aren’t being adequately protected against sea level rise, flooding, hurricanes, high temperatures and droughts.

“Can there be peace and prosperity if one-third of the world literally prospers and the other two-thirds of the world lives under siege and face calamitous threats to our well-being?” Prime Minister Mia Mottley of Barbados asked during the opening ceremony of COP26. 

But this is only the current state of affairs, and none of this addresses whether or not projects are actually effective.

A new study on climate financing in the developing world by the World Resources Institute, a global research nonprofit based in Washington, found that fewer than half of developing countries that signed the Paris Agreement have reported how much money they need to meet their national targets for reducing greenhouse gases. Meanwhile, fewer than a quarter have reported how much they need to adapt to the ravages of climate change. The study, which analyzed 17 countries, also said that developing nations need better mechanisms to track climate funding.

A recent report from the United Nations Environment Programme estimated that the least developed countries currently need about $70 million for adaptation funding per year. By 2030 that amount could rise to between $140 billion and $300 billion, given the increasing severity of storms, flooding and other climate-related natural disasters.

International Climate Assistance: A Bewildering Mix of Grants and Loans

When nations agreed to the $100 billion figure, they never said what the mix would be between grants that don’t have to be repaid and loans by either public lenders or private banks that do.

In 2019, the Organization of Economic Co-operation and Development estimated that grants made up $16.7 billion while loans accounted for $44.5 billion of public climate finance. It also estimated that loans made up 71 percent of all international climate finance.

The preference for loans is largely explained by the profit motive.

“More financing is going to projects that are funding large energy projects, building retrofits, things like that,” said Molly Caldwell, co-author of the WRI study about the widely disproportionate amounts of money flowing to mitigation efforts. Investors are attracted to projects “that are more likely to have a return on investment, versus adaptation and resilience projects that are focused on vulnerable communities and are less likely to have a return.” 

But how to count loan financing is itself a source of contention. A 2020 report from Oxfam asserted that, instead of including the entire loan toward climate finance totals, only the money saved from borrowing at below-market rates by developing countries should be tallied. Using this method reduces the reported public climate finance average for 2017 and 2018 by about two-thirds—from $59.5 billion per year to somewhere between $19 billion and $22.5 billion.

At COP26, developing countries pushed for a greater share of grants going forward and for debt forgiveness because further loans would only increase their massive debt burdens. A United Nations Development Programme report from April estimated that 72 developing nations will owe about $598 billion in gross debt between 2021 and the end of 2025.

A greater portion of grants would mean more projects for adaptation. But whether or not developing nations receive them, some financiers are committed to giving an equal amount to adaptation projects.

During COP16 in Cancun, Mexico, the United Nations stipulated that a significant share of multilateral funding should move through its own Green Climate Fund, which was formally established at that conference. The fund, which is headquartered in South Korea, has so far committed $10 billion toward 190 climate projects, striking a nearly 50-50 balance between adaptation and mitigation. On the adaptation side, for instance, the projects included scaling up Uzbekistan’s natural disaster early warning systems. As an example of mitigation, the projects included support for solar power to rural parts of Mali.

Simon Wilson, head of communications for the Green Climate Fund, said it was critical in funding adaptation measures to make sure that they are sustainable in future years.

At this year’s COP26, wealthy parties agreed to double yearly funding for adaptation projects by 2025, which would amount to about $40 billion. But a study by the International Institute for Environment and Development, a policy research organization located in London, estimated that donors overreport their contributions by 47 percent. Furthermore, from 2014 through 2018, donor nations reported $34.9 billion in “adaptation-related development finance” to the least developed countries. But the study found that only $5.9 billion of that total was put toward projects with a primary focus on adaptation. It also found that locals are often not given significant opportunities to participate in projects and even less often to lead them.

But such pledges do nothing to address the fact that what constitutes climate finance is extremely malleable. According to the WRI report, Mexico had a recent increase in climate finance, but only because it started counting money spent on natural gas. The report also noted a similar situation in Ghana.

Natalia Alayza, who also co-authored the WRI report, said that some countries’ climate finances included the health sector, which increased dramatically during the pandemic.

Covid-19 Reduced Spending on Climate

While including health as part of climate spending created the appearance of increased climate spending by some countries, the pandemic actually had the opposite effect across the developing world.

The WRI report found that, during the pandemic, 10 of the 17 countries examined were forced to “cut funding for many climate-related sectors to free up money to address pandemic-related expenditures and revenue losses. … governments reallocated budgets to increase liquidity, prevent layoffs, sustain payment chains, strengthen health infrastructure, and implement response measures.”

During the pandemic, South Africa’s Environmental Affairs Department cut 2020 allocations for sustainable management and air quality by 51 percent. The initial budget for Peru’s Ministry of Environment was reduced by 34 percent in 2020 and by 35 percent in 2021. Ministries involved in climate mitigation, like transportation and energy, also saw budget decreases in the countries analyzed by the WRI study.

Foreign climate aid from wealthy countries was also reduced. Finance for projects with a “significant” focus on the climate dropped “from 25 percent in 2019 to 17 percent in 2020.” Projects for adaptation and mitigation, those with a “principal” focus on the climate, fell from 18 percent to 14 percent in the same period of time.

Beyond funds drying up, Covid-19 has also made it difficult for climate projects to proceed for safety reasons. 

“It’s also just been very practically difficult for project teams to visit sites and move forward with consultations with local communities,” said Wilson.

Some countries, like Nepal and Pakistan, requested that their foreign climate aid be redirected toward pandemic-related activities, according to the report.

But even before the pandemic, national budgets were already buckling because of natural disasters. For the 17 countries analyzed, in 2020 alone, hurricanes, cyclones, flooding and tropical storms easily surpassed $10 billion in damage.

Beyond Adaptation and Mitigation, a New Discussion of “Loss and Damage”

Before the two-week climate conference wrapped up in Glasgow, wealthy nations started moving toward their promise to double adaptation project funding to $40 billion by 2025. This included the Least Developed Countries Fund, which supports 46 nations and received a record $413 million from 12 donors. Donations to the Adaptation Fund also broke a record when 16 nations pledged $356 million. 

But even as developing countries twisted the arms of donor nations, there was another financial battle forming on the horizon.

Delegates from the least developed countries have said that it’s too late for adaptation in some cases and that large numbers of their people need money to rebuild their lives elsewhere. This call in recent years for “loss and damage” financing, separate from adaptation and mitigation, would broadly address lives, lands and livelihoods. The idea gained more attention than ever at this year’s conference, but so far, wealthy nations have pushed back in order to avoid liability. Scotland, this year’s host country, was an exception and became the first nation to contribute to loss and damage.

But the issue is poised to become a greater subject of conversation at next year’s summit in Egypt. In the closing hours of COP26, Lia Nicholson, lead negotiator for Antigua and Barbuda, which chairs the 39-member Alliance of Small Island States, expressed her displeasure that further discussions of loss and damage were tabled for another day.

“We firmly believe,” Nicholson said, “that the new loss and damage finance facility will be adopted at the next COP.”

Saleemul Huq, director of the International Centre for Climate Change and Development, an environmental research organization based in Bangladesh, put a finer point on it.

“From my point of view the COP26 outcome was a betrayal of the demands of the vulnerable developing countries,” Huq said. “This does not mean that we will give up, far from it, we will come back even stronger in COP27.”