The Asian Development Bank agreed to issue Fijian dollar-linked bonds, expand its assistance programmes in Kiribati, Tonga and Tuvalu, support the Ireland Trust Fund for Building Climate Change and Disaster Resilience in Small Island Developing States, and promote the development of the Islamic financial services industry in Asia and the Pacific.
The Adaptation Fund approved USD 10 million to enhance climate resilience in Bangladesh.
A SEI study released in April finds that the most vulnerable nations are the least likely to be selected as finance recipients by both bilateral and multilateral donors.
5 May 2019: The Annual Meeting of the Board of Governors of the Asian Development Bank (ADB) in April highlighted the socioeconomic impacts and costs of climate change in the region, including the debt burden arising from disaster recovery. Several publications emphasized that Pacific island nations are seen as facing particularly high risks, and highlighted adaptation and policy challenges.
Multilateral and bilateral adaptation finance activities, including for projects seeking to enhance climate resilience and targeting vulnerable communities in other regions, were also announced over the last month. Yet a study released in April by the Stockholm Environment Institute (SEI) shows that the most vulnerable nations are the least likely to be selected as finance recipients by both bilateral and multilateral donors. This Update discusses these developments and challenges to achieving the goals enshrined in the Paris Agreement on climate change.
Adaptation Fund Supports Climate Vulnerable Communities in Bangladesh
Climate change remains the major challenge faced by many economies. Bangladesh is one of the highly-exposed countries in Asia, threatened by impacts of both slow- and rapid-onset climate-driven disasters, including sea level rise, saline intrusion, cyclones, storm surges, floods, extreme heat and droughts. The Adaptation Fund approved USD 10 million in support of a five-year project in Bangladesh titled, ‘Adaptation Initiative for Climate Vulnerable Offshore Small Island and Riverine Charland in Bangladesh.’ Jointly implemented by the Ministry of Environment, Forest and Climate Change and the UN Development Programme (UNDP), the project supports the country’s national priorities set out in the Bangladesh Climate Change Strategy and Action Plan and its Nationally Determined Contributions.
A total of USD 32.5 million was approved by the Fund’s Board in March in Bonn for new projects in Armenia, the Dominican Republic, Bangladesh and Western Balkans to serve Paris Agreement implementation. Read the SDG Knowledge Hub adaptation finance update on the Adaptation Fund Board March meeting here.
ADB Promotes Adaptation Finance in the Asia-Pacific Region
ADB’s Board of Governors addressed the socioeconomic impacts and costs of climate change in the region during its annual meeting, held in Nadi, Fiji, from 1-5 May, where ADB agreed to provide a USD 2 million grant for the Nadi Flood Alleviation Project. Meeting participants examined challenges in the area of disaster recovery, high-cost structures, social service delivery, gender and labor. These were assessed in ADB’s Pacific Economic Monitor, which highlights that Pacific island nations are among the most risk-exposed nations globally, and provides the near-term economic outlook for the Pacific and specific policy challenges, as presented in the Asian Development Outlook 2019. On disaster recovery, the reports note that a significantly higher debt burden than expected was observed, demonstrating the heavy cost of necessary infrastructure reconstruction, rehabilitation and upgrading when grant funds are limited.
The meeting revealed ADB’s standing, showing that the Bank’s lending and grant operations in 2018 grew to a record USD 21.6 billion, compared to USD 13.9 billion in 2013, an increase of 55%. ADB’s report titled, ‘2018 Development Effectiveness Review’ (DEfR), assesses the Bank’s performance and progress in implementing its strategy. The DEfR demonstrates that ADB’s response to climate change and support for gender equality accelerated. The share of ADB operations supporting climate change adaptation and mitigation during the 2016-2018 review period reached 56%, surpassing the 2020 target of 45%. The share of committed sovereign operations supporting gender mainstreaming increased to 52%, exceeding the 2020 target of 50% of overall ADB operations. Achievement of gender equality results also remained above target, with 76% of completed operations successfully delivering their intended results in this priority area.
In spite of targeting groups vulnerable to climate change, multilateral donors do not prioritize the most vulnerable within those groups.
Speaking about implementation of ADB’s Strategy 2030, ADB President Takehiko Nakao said priority will be given to: reducing poverty and inequalities; climate change mitigation and adaptation efforts across the Pacific; accelerating progress in gender equality; as well as support for regional cooperation and integration, and expanding the Bank’s activities in education, health and agribusiness.
Among other activities in April, the ADB:
- Agreed with the Government of Fiji on issuing offshore Fijian dollar-linked bonds by ADB, intended to mobilize funding from international investors where the proceeds of the planned bonds will enable local-currency ADB loans and help to reduce foreign exchange risk for ADB’s borrowers;
- Agreed to establish country offices in Kiribati, Tonga and Tuvalu to enhance the impact of ADB’s growing assistance programmes in these countries and further expand the Bank’s support in the Pacific;
- Signed a Memorandum of Understanding (MoU) with the Islamic Financial Services Board (IFSB) to promote the development of the Islamic financial services industry in Asia and the Pacific;
- Adopted a resolution to allocate USD 841.4 million in net allocable income from its 2018 Ordinary Capital Resources; and
- Agreed with the Government of Ireland to establish the Ireland Trust Fund for Building Climate Change and Disaster Resilience in Small Island Developing States (SIDS), with an initial six-year programme of funding of USD 13.4 million for the period 2019-2024.
New and Ongoing Adaptation Support for Farming and Forest Communities in Sri Lanka, El Salvador and Paraguay
In April, the World Bank announced its support of USD 150 million to Sri Lanka for projects aiming to improve the climate resilience and agricultural productivity of small-scale farmers, and support priority infrastructure through public-private partnerships (PPPs). The two supported projects include: a USD 140 ‘Climate Smart Irrigated Agriculture Project’ in the dry zone of the country, including a USD 125 million credit from the International Development Association (IDA), with a USD 10 million contribution from the Government of Sri Lanka and a USD 5 million contribution from the project beneficiaries; and a ‘Framework Development and Infrastructure Financing to Support Public-Private Partnerships Project,’ supported with a USD 25 million loan to mobilize and sustain development investments. The loan has a 20-year maturity, including a nine-year grace period. The project receives USD 2 million counterpart funding.
The Green Climate Fund (GCF) and the Food and Agriculture Organization of the UN (FAO) signed the funding agreement for the five-year USD 127.7 million ‘RECLIMA Project,’ aimed at building climate resilience in farming systems in El Salvador’s Dry Corridor. The FAO-designed projects aims to strengthen resilience of smallholder farmers by promoting the use of seeds tolerant to drought. It will benefit from USD 35.8 million in funding support, originally approved by the GCF in October 2018. In addition to the GCF grant, the project will receive USD 91.8 million from the Government of El Salvador and the Initiative for the Americas Fund (FIAES).
In Paraguay, vulnerable families, including from indigenous communities, depend on forests for their livelihoods, energy and income. They actively safeguard Paraguay’s forests, and support the government’s efforts in this regard. The GCF and FAO signed the funding agreement for a five-year USD 90 million project titled, ‘Poverty, Reforestation, Energy and Climate Change’ (PROEZA), which will be supported with a USD 25 million grant from the GCF. The Government of Paraguay, which co-finances the project with USD 65 million, will work together with the GCF and FAO to build the climate resilience of local populations through investments for low-emission development. The GCF approved the project in March 2018.
SEI Study: Most Climate Vulnerable Countries Are Unable to Access Finance Proportionate to Level of Need
A study by the Stockholm Environment Institute (SEI) titled, ‘Climate Change Adaptation Finance: Are the Most Vulnerable Nations Prioritized?’ warns that “the allocation of adaptation finance is not consistently aligned with the sentiment of the Paris Agreement.” The findings demonstrate that:
- The most vulnerable nations are the least likely to be selected as finance recipients by both bilateral and multilateral donors;
- Multilateral donors are found to allocate more adaptation finance to SIDS, yet they are not observed to prioritize vulnerable nations in the selection stage;
- Multilateral donors are less orientated towards recipient need than their bilateral counterparts; and
- Countries that are most vulnerable to climate change receive smaller allocations of adaptation finance from bilateral donors than their less vulnerable counterparts.
The paper finds that bilateral donors allocate more adaptation finance to recipients with: a higher level of need, determined by gross domestic product (GDP) per capita; more strategic importance, for example with whom they share a larger amount of bilateral trade; and higher levels of good governance, where aid is presumed to be more effective. Multilateral donors, the authors note, prioritize well-governed nations. In spite of targeting groups vulnerable to climate change, multilateral donors do not prioritize the most vulnerable within those groups. The study concludes that there are barriers that limit the ability of the most climate vulnerable countries to access a share of adaptation finance proportionate to their level of need.
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The SDG Knowledge Hub publishes monthly climate finance updates, which largely focus on multilateral financing and cover, inter alia, mitigation and adaptation project financing news and lessons, institutional events and news, and latest developments in carbon markets and pricing. Past climate finance updates can be found under the tags: Finance Update: Climate Change; and Finance Update: Sustainable Energy.