Introduction

What is climate finance? On their website, the UNFCCC states that climate finance “seeks to support mitigation and adaptation actions that will address climate change”.^[1] The Standing Committee on Finance (SCF) has an operational definition that fleshes this out slightly: “Climate finance aims at reducing emissions, and enhancing sinks of greenhouse gases and aims at reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts.”^[2]

While these definitions capture the overall intentions of climate finance, there has been little agreement on any further details of what constitutes this finance, even though we are now 15 years beyond developed countries’ initial pledge to provide US$100 billion of it.

Does any project with a positive impact on mitigation or adaptation count as climate finance, regardless of its overall objective? Given that general economic development is often touted as the best adaptation strategy,^[3] how should adaptation finance be identified within broader development finance? Could fossil fuel finance ever count as mitigation (if it promotes efficiency or captures emissions)? How should projects be counted when they have contrasting effects on adaptation and mitigation? On what basis should we calculate the climate share of a development project?

Different countries have arrived at different answers to all these questions, and this has led to inconsistent reporting. This inconsistency has led to a lack of faith in the headline numbers, and in turn, has impacted developing countries’ trust.^[4] Bhutan’s submission to the SCF on behalf of the Least Developed Countries Group explicitly states that the “lack of an agreed and common definition of climate finance, undermines the trust between parties”,^[5] a sentiment echoed in other submissions. This matters: while ambition in tackling climate change was not explicitly predicated on financial support, many have argued that the promise of climate finance was necessary for securing the Paris Agreement,^[6] and was therefore instrumental in raising climate ambition. Failure to deliver on this promise, or even on how to measure whether it has been delivered, may make securing future climate ambition more challenging.

As well as impacting trust, ambiguity around how progress towards the US$100 billion goal should be measured has reduced the target’s impact – enabling countries to become more inclusive in what they count as climate finance over time^[7] or even explicitly expand their definition. Although the OECD estimates that US$83.3 billion was spent on climate finance in 2020 (and that the goal was subsequently met in 2022, two years late),^[8] the climate relevance of many projects receiving that funding is highly contested.^[9] Moreover, the lack of consistent measurement over time means that it is not clear how much countries were already spending, making the true increase impossible to discern.^[10] For any future goal to be successful in motivating greater flows of finance to countries who need it for funding their development and national adaptation plan/nationally determined contribution goals, practical considerations need to be baked in from the outset. They should not be seen as secondary details, to be ironed out long after a big, headline-grabbing number has been agreed.

This report explores the views of officials from different climate finance providers and common issues arising from countries’ reporting. It also examines the data: how transparent are different providers? Are they following international guidance? What can machine learning models tell us about the accuracy of their data?

The next chapter discusses the importance of greater consistency in measuring climate finance. Chapter 3 presents quantitative analysis of different countries’ reporting practices (how much information countries provide on their climate finance, how consistent this is between the main datasets (UNFCCC and OECD) and what machine learning models can tell us about quality of reporting from different providers). Chapter 4 focuses on qualitative information on climate finance reporting practices and challenges. This evidence comes from conversations with current and former specialists in climate finance reporting, from different provider countries, the OECD and other stakeholders.

From this evidence, we develop a set of recommendations that would promote greater consistency in climate finance reporting and allow (despite the technical and political constraints within which Parties operate) a clearer picture of global progress towards climate finance goals. Without this clarity, the NCQG currently under discussion at the UNFCCC risks being plagued by the same problems as the US$100 billion goal.