New Report Outlines Need for Quality Interventions in Climate Finance Goal Under Discussion at COP29

Washington, D.C. - As the global community prepares to finalize the New Collective Quantified Goal (NCQG) for climate finance at the UN climate conference in Azerbaijan next month, the Environmental Defense Fund (EDF) published a new report emphasizing the actions needed to improve the quality of climate finance, alongside boosting quantity.

In the new report, "Quality Matters: Strengthening Climate Finance to Drive Climate Action ", EDF underscores the urgency of addressing structural challenges and creating strong enabling environments to maximize the impact of climate finance in developing countries. By focusing on three aspects - concessionality, access, and impact - EDF aims to ensure that climate finance truly meets the needs of developing countries and supports effective climate action.

"Scaling up climate finance alone won't be enough. It's equally important to prioritize quality and ensure that these funds are effectively deployed to empower countries to take ambitious climate action," said Juan Pablo Hoffmaister, Associate Vice President for Global Engagement & Partnerships at EDF. "The decisions made in the NCQG at COP29 will determine how we can maximize the impact of every dollar invested and accelerate climate action."

This report was developed by compiling and analyzing research on quality climate finance from academia, development institutions and climate NGOs, and through engaging in MDB reform processes and UNFCCC negotiations. The report delves into the current issues developing countries face in receiving concessional, accessible and impactful finance. For example, according to the Organization for Economic Co-operation and Development, between 2013 and 2022, only 41% of loans from the Multilateral Climate Funds were concessional, and only 23% of loans from Multilateral Development Banks (MDBs) were concessional. High proportions of non-concessional finance drive up debt burden and risk of economic instability for developing countries, reducing the effectiveness of climate finance.

Challenges in access are also apparent, as many developing nations report, due to fund-specific requirements and excessive paperwork, and local communities often struggle to access meaningful support. Moreover, very little of this funding actually reaches local communities, where it is most needed. A 2021 study revealed that only 46% of international climate adaptation funding allocated to least developed countries was aimed at empowering local actors.

Addressing these issues is critical to the success of the NCQG, where scaling the quantity of finance must be accompanied by better quality. The NCQG is an element of the Paris Agreement, designed to set a new financial target to support developing countries in their climate actions post-2025. It aims to fill persistent gaps in climate finance, building on the $100 billion target set in 2009 and providing a more realistic and ambitious financial framework.

To ensure that the NCQG prioritizes high-quality climate finance and focuses on issues of concessionality, access, and impact, the report calls for the NCQG text to maintain existing language on quality, and to include new language on:

• Strengthening quality considerations in the provision and mobilization of climate finance
• Fostering stronger complementarity between multilateral institutions, particularly for multilateral climate funds (MCFs)
• Increasing concessional finance capacity and use of blended finance at MDBs and MCFs
• Supporting developing countries in aligning climate objectives with national planning and budgeting
• Improving measurements of climate risk at MDBs and MCFs when making financial decisions

The report further offers recommendations for how multilateral institutions can implement these elements and enable a successful NCQG. Recommendations from the report include:

• Concessionality: Advancing reforms at multilateral development banks, increasing transparency and scale of concessional facilities, and addressing sovereign credit rating barriers.
• Access: Adopting the Multidimensional Vulnerability Index, simplifying bureaucratic procedures, establishing comprehensive disaster response financing mechanisms, and investing in readiness initiatives.
• Impact: Improving coordination between multilateral climate funds as part of NDCs and developing stronger reporting measures.

"By prioritizing quality, we can ensure that climate finance drives transformative, equitable, and sustainable climate action in developing countries," said Leslie Labruto, Managing Director for Sustainable Finance at EDF. "It's time to move beyond quantitative goals and focus on the qualitative impact of climate finance."