This issue brief discusses different ways to improve the current system for reporting and compiling information on public financing for climate change. Its goal is to help Parties to the UNFCCC develop robust reporting processes for climate finance.
Reporting and reviewing financial information has become an increasingly urgent issue in the international climate negotiations. In the Copenhagen Accord, which resulted from the United Nations Climate Change Convention in Copenhagen in 2009, developed countries pledged to provide USD$30 billion for the period of 2010-2012 and $100 billion per year by 2020 for climate adaptation and mitigation in developing countries. Developing countries want assurances that developed countries are fulfilling their climate finance pledges. To address this need, the Bali Action Plan (2007) mandates that support from developed countries for developing country Nationally Appropriate Mitigation Actions be “measurable, reportable and verifiable.” The Copenhagen Accord, building on these provisions, calls for “financing by developed countries [to] be measured, reported and verified in accordance with existing and any further guidelines adopted by the Conference of the Parties,” and that accounting of such finance is “rigorous, robust and transparent.” However, countries have yet to agree on next steps for tracking progress against climate finance pledges under a post-2012 international climate regime and what, if any, common reporting format will be required.
Current United Nations Framework Convention on Climate Change (UNFCCC) reporting guidelines are neither transparent nor comprehensive, and efforts by multilateral and bilateral development finance institutions to fill this gap are emerging but have so far remained limited in scope. As a result, existing data collection systems provide only limited information on the levels of financing, what financing is used for and which countries are benefiting. They do not provide information on whether funds are new and additional. The result is a lack of coordination among donor countries to ensure that funding efforts address needs in a balanced and thorough way that avoids duplication. This also generates a lack of trust between developed and developing countries that hinders progress in the negotiations for a post-2012 international treaty to address climate change.
Therefore, for public climate financing to be evaluated and flow effectively and efficiently, it is critical that data on climate finance are reported using a common reporting system as well as reviewed. Depending on the level of detail required by a reporting system, the reported data should help determine how Parties are meeting their financial commitments, improve understanding of sectoral and technological investment trends, and lead to assessments of the effectiveness of different forms of financing.
The goal of this paper is to help Parties to the UNFCCC develop robust reporting processes for climate finance, starting with a decision in Cancun that addresses the measurement, reporting, and verification (MRV) of finance. The paper discusses:
The characteristics and principles of an improved reporting system for climate finance.
How and what kind of financial data are currently collected and reported by the UNFCCC, the OECD DAC, private organizations, and multilateral development banks (MDBs).
Options to improve on current reporting systems, including a proposed reporting format.
The potential implications and operational consequences of an improved reporting system for the review process, institutional structures, and fast-start climate finance.
This paper aims to inform not only the nature of the text to be adopted by the Conference of the Parties at COP-16, but will also be pertinent over the next two years as improved reporting guidelines are drafted, agreed to, and implemented.
An ideal reporting process for climate finance should ensure that reporting by developed countries is complete, transparent, comparable, accurate, and efficient. However, current reporting of public sector financing for climate change projects by bilateral and multilateral institutions do not completely fulfill these principles. Consequently, Parties to the Convention should at COP-16:
Request the SBSTA to revise the guidelines for the reporting of information in national communications by Annex I Parties to the Convention, part II: UNFCCC reporting guidelines on national communications (Decision 4/CP.5), including the development of reporting formats for finance, with a view to adoption of the enhanced reporting guidelines by COP-17.
The process of revising the guidelines should be informed by the insights and experiences of the Multilateral Development Banks (MDBs), bilateral financing institutions (BFIs), the OECD DAC, and experts from developed and developing countries.
Parties could significantly improve the transparency of financing by adopting a standardized financial reporting format with common definitions and methodologies to quantify climate finance. However, in launching an effort to either revise or initiate a new means to collect financing data, Parties to the Convention will need to determine the kinds of data they want a climate finance reporting system to provide. This will determine the extensiveness of any expanded data collection effort and its likely cost.
Improved climate finance data alone will not be able to shed light on whether or not funds for climate change are new and additional to official development assistance, a topic on which there are widely divergent political views. Better data would eventually allow Parties to determine from a technical standpoint whether there has been an increase or decrease in climate finance over time. However, judging newness and additionality is a subsequent and separate step which necessitates a political agreement on methodologies and a reliance on other data sources outside of the UNFCCC. A transparent reporting process can nevertheless help inform this discussion and build trust and understanding between developed and developing countries.
Parties should consider implementing a more robust process to review reported data. This could include launching voluntary pilot projects to establish how reviews could be successfully conducted, using independent, non-political technical financial experts, formally establishing clear rules and guidelines for civil society participation in the review process, and improving record keeping so that data between countries can be compared.
A revised reporting system will likely require the redesign of existing databases and search engines. If Parties wish to have a centralized data system, they will need to decide where such a system should be located and will need to develop new procedures for collecting and processing financial data.
The introduction of an improved reporting system will take time to implement. It will thus not satisfy the need for more transparency in the short-term, and in particular for fast-start funding under the Copenhagen Accord. It is important to ensure that financial support to developing countries is accounted for in a clear and transparent manner during the fast-start period through existing reporting systems and through short-term multilateral efforts and efforts on the part of donor countries. Lessons learned from this experience could shape the implementation of new reporting and review systems in the longer term.
With the exception of financing for renewable energy, there are limited data on how much financing is currently being provided by the private sector through channels such as venture capital funds, bank loans or equity finance. Further research is needed to track private sector funds for climate change, including the amount of private sector funds leveraged with public funds.