International Climate Finance Inquiry Submission
Submission on behalf of Conservation International-UK. Conservation International is a global environmental NGO with c. 1700 staff working in over 35 countries worldwide delivering large-scale ecosystem conservation for people, nature and climate. We have in-depth experience of delivering public finance projects for climate and nature across the Global South.
Executive Summary:
- The Government is to be congratulated for being on track to deliver its £3bn of ICF3 for nature-based solutions goal by March 2026 despite the reduction in the overall aid budget. Particular areas of success in ICF3 spending have included programmes focussed on forests and oceans.
- The Government should build on this precedent by earmarking at least a third of ICF4 to nature-based solutions, with half of that dedicated to forests (echoing the specific and very successful forest earmarks in ICF1, ICF2 and ICF3).
- Most nature ICF should go to direct nature protection and restoration activities for the benefit of communities. The vast majority of nature ICF should also be grant finance, with reduced allocations to multilaterals that do not primarily deliver grant finance.
- The ICF4 spending pledges must be accompanied by a radical improvement in transparency and reporting, including itemised publication of all UK ICF spend (including spend under the nature and forest ringfences) each calendar and financial year within six months of year-end, in a format that is interrogatable by civil society and individual taxpayers. Under present processes, formal ICF reporting can take up to three years to be made public, by when holding decision-makers to account is no longer possible. When a member of the EU, the Government used to publish such information annually.
- The Government should remove the new ICF accounting methodologies introduced by the last Government. For instance, 30% of all humanitarian spending (e.g. emergency food aid deliveries) in some Least Developed Countries is now automatically counted as ICF, even if there has been no climate-specific programming. This distorts the overall reporting and does not deliver climate and nature outcomes.
The Success of Nature-Based Solutions in ICF3
The £3bn commitment to nature-based solutions to climate change in ICF3 has produced some impressive results for climate and nature, demonstrating the impact that this spending can have.
Areas of particular success include forests and oceans. On forests, the UK was the driving force behind the COP26 Leaders’ Declaration on Forests & Land Use, and is part of the Global Forest Finance Pledge, the Indigenous Peoples & Forest Communities (IPLC) Forest Tenure Joint Statement and the Congo Basin Joint Statement. This leadership has been underpinned by the commitment to spend £1.5bn on forests under ICF3, with excellent and highly respected programming led by the joint FCDO-DESNZ International Forests Unit.
On oceans, FCDO-DEFRA introduced the Blue Planet Fund, which is partly ICF-funded and one of the only major public funds supporting Sustainable Development Goal 14 (‘Life under Water’), the least funded of all the SDGs. The ocean is our most important ally against climate change- it absorbs over 90% of excess heat and about a third of human-caused CO2, buffering the planet from much more severe warming.
Nature and Forests Earmarks in ICF4
It is vital that nature is again prioritised within this funding envelope in a manner commensurate to meet the UK’s commitments under both the climate and nature conventions, and as a core part of achieving the SDGs. Alongside the new $300bn NCQG climate finance commitments made in Baku, the UK has committed to supporting the provision of at least $30bn a year for international nature finance by 2030 as a part of the Kunming-Montreal Global Biodiversity Framework.
It is our view that the current proportion of ICF3 dedicated to nature must represent a floor rather than a ceiling of UK ambition, and at least a third of ICF4 needs to be allocated towards nature-based solutions. Half of this nature-based solutions earmark should then be dedicated to forests. This would build on the highly successful precedents in previous ICF budgets (20% of ICF1, 20% of ICF2 and £1.5bn under ICF3 having been dedicated to forests). Any removal of a forests earmark in ICF4 would thus be a particularly backwards-step.
Direct Grant Finance as the Key Funding Mechanism
Public finance is unique, in that it does not necessarily need to seek a return. Private finance for climate and nature meanwhile must be return-seeking and is therefore generally going to flow to middle-income countries and the more lucrative sectors / comparatively wealthier regions of lower-income countries where earning a return is possible. Public finance must therefore prioritise those places which private finance cannot reach, or these places and communities will simply otherwise be entirely left behind in mitigating and adapting to the climate and nature crisis. These poorest areas with subsistence economies can only readily absorb grant finance, and this must be a priority for a majority of the UK’s ICF. And even more so because many Global South countries are struggling in the face of acute debt challenges. Prioritising the provision of grant finance, as opposed to loans, is therefore essential.
Radically Improving the Transparency of ICF Spending
In October 2023, the previous Government made a number of changes to the UK ICF reporting standards without any public consultation. These represented a significant cut (approximately £2bn) in the UK’s total climate finance commitment, and should be reversed.
One reporting change was that 30% of humanitarian spending in the poorest 10% of the world’s countries is now automatically classified as ICF, without making a precise calculation. In 2022, Afghanistan was the single largest recipient of bilateral humanitarian aid, receiving £325.8m. 30% of this (£164.8m) is then classified as climate finance, making Afghanistan one of the largest, if not the largest, single recipient of UK ‘climate finance’ that year, despite receiving precisely zero specific climate-related programming. This would include the classification of at least £38.4m in emergency food aid (30% of £128m) as ‘climate finance’ in Afghanistan alone.
When part of the EU, the UK aligned with EU processes and did annual reporting on its ICF spending with a nine-month lag. Now, the formal policy is to report biannually, and then with an approximately 12-month lag on top of that. This means that taxpayers will not formally get to know how ICF was spent in 2023 until the end of 2026, which is totally inappropriate for any levels of scrutiny and accountability to be possible.
The changes that are needed to ICF transparency going forwards are:
- The Government should publish an itemised list of all UK ICF spend (including spend under the nature and forests ringfences) by programme and spend each calendar and financial year, within six months of the respective year close, in an accessible spreadsheet format (e.g. ods/csv) with columns denoting financial instrument (grant / concessional loan / non-concessional loan / equity / other), type of support (mitigation / adaptation / cross-cutting) spending ringfence eligibility (nature (forest) / nature (other) / none) and related coefficients (where relevant), and nature and forest spend values.
- The Government should include three new columns- ICF (non-nature), ICF nature (non-forest) and ICF nature (forest)- within the project-level disclosure reported annually through the UK aid statistics reporting process.
- The Government should publish, on an annual basis as part of the ICF results reporting process, an itemised list of all the projects contributing to total current reported ICF results, by year and KPI value.