Shaping Conditions for Fair, Equitable and Enduring Climate Finance

Collins Otieno, HivosOpinionTuesday, February 11, 2025Inter Press Service

Feb 11 (IPS) - The global commitment to fair climate finance is at a crossroads. COP29 concluded with a disappointing New Collective Quantified Goal on Climate Finance (NCQG), leaving developing nations at risk of being left behind. With the U.S. withdrawing from the Paris Agreement and slashing development aid, prospects for more ambitious fair climate finance are getting out of sight.

Decisions like these not only threaten global cooperation on climate change but will also fail to meet its core purpose in supporting the most affected communities in adapting to and mitigating climate change. Now, more than ever, fair and equitable climate finance - such as increased grant-based funding and debt relief - is critical.

In Africa, the impacts of climate change are stark and undeniable. Extreme weather events on the continent surged from 85 in the 1970s to over 540 between 2010 and 2019, causing 730,000 deaths and USD 38.5 billion in damages.

The increasing frequency and severity of floods, droughts, and storms are threatening food security, displacing populations, and putting immense stress on water resources. According to the World Bank, climate change could push up to 118 million extremely poor people in Africa into abject poverty by 2030 as drought, floods, and extreme heat intensify. A stark reality that underscores the urgent need for robust climate finance to implement adaptation and mitigation strategies to safeguard and secure the continent's future.

At the same time, climate response remains critically underfunded in Africa. From the figures released by the Climate Policy Initiative, the continent will need approximately USD 2.8 trillion between 2020 and 2030 to implement its Nationally Determined Contributions (NDCs) under the Paris Agreement.

However, current annual climate finance flows to Africa are only USD 30 billion, exposing a significant funding gap for climate adaptation and mitigation strategies.

Climate Finance at COP 29

COP 29’s main objective was to deliver on a finance goal that would see the world off the tipping point. However, after two weeks of nearly failed climate diplomacy, negotiators agreed to a disappointing USD 300 billion annually by 2035. This amount falls short of the USD 1.3 trillion per year figure, supported by the Needs Determinant Report, that many developing countries had advocated for.

Collins Otieno, Hivos

Nevertheless, the Baku to Belem Roadmap has been developed to address the climate finance gap. This framework, set to be finalized at COP30 in Brazil, offers a crucial opportunity to refine finance mechanisms to effectively and equitably meet the needs of developing countries.

Why the finance outcome of COP 29 could leave developing countries behind

Beyond the insufficient funding, the NCQG lacks a strong commitment to equity, a key principle of the Paris Agreement. The principle of Common but Differentiated Responsibilities (CBDR) emphasizes that developed countries should bear a greater share of the financial burden. However, the NCQG merely states that developed nations would "take the lead" in mobilizing USD 300 billion, reflecting a lack of firm commitment.

A major concern is the climate debt trap for developing nations. Much of the climate finance provided is in the form of loans rather than grants, worsening existing debt burdens and limiting investments in sustainable development. Without stronger commitments to public grants and additional funding, developing countries risk falling into a cycle of debt that hinders climate action.

Moving forward: shaping conditions for fair, equitable and enduring climate finance

To ensure COP 29's finance outcomes do not leave the Global South behind, several actions are needed.

Firstly, debt relief is crucial. Approximately 60% of low-income countries are already in or near debt distress. Between 2016 and 2020, 72% of climate finance to developing nations was in loans, while only 26% was in grants. Reducing debt burdens would allow developing countries to allocate more resources to climate projects, improve fiscal stability, and attract additional investments.

Similarly, given the mounting climate finance debts in low-income developing countries, increased grant-based financing for climate action is needed. In 2022, developed countries provided around USD 115.9 billion in climate finance to developing countries, but a significant portion was in the form of loans.

Jaël Poelen, Hivos

Heavy reliance on debt-based financing exacerbates financial burdens on these nations. Grant-based finance, on the other hand, aligns with equity principles and ensures that funding effectively supports adaptation and mitigation.

Another potential path is leveraging private sector investment. The private sector plays an essential role in climate finance. However, its involvement often prioritizes profit over genuine climate benefits. Strategies must ensure that private investments align with climate justice principles. To address this, approaches are needed such as those used by Bill and Melinda Gates.

Lastly, implementing robust governance and transparent mechanisms is critical. This includes developing detailed reporting templates, public participation in decision-making, and clear monitoring systems to track climate finance flows and prevent double counting.

While the developed world is rapidly changing its relationship with the rest of the world from aid to trade, the price of not providing equitable grant-based, public climate finance will be economic losses, health impacts, increased disaster costs, food insecurity, biodiversity loss, and infrastructural damage. Quite simply, taking the equity conditions into account is the way forward if we are to ensure that the outcomes of COP 29 leave no low-income developing nation in the Global South behind.

Collins Otieno is a Climate Finance and Innovations Officer at Hivos. He is a licensed Associate Environmental Impact Assessment expert with the National Environment Management Authority of Kenya, a certified policy analyst, and has extensive experience in climate finance, having worked in the sector for over eight years.

Jaël Poelen is the Global Advocacy and Communications Officer at Hivos for the Voices for Just Climate Action Program, which aims to amplify the voices of people and communities most affected by climate change.

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