Executive Summary

As Parties to the United Nations Framework Convention on Climate Change (UNFCCC) design a post-2020 climate agreement and establish their national contributions within it, the question of progress toward existing climate finance targets has become a sticking point. While mobilizing $100 billion will not meet the climate investment challenge by itself, the goal is currently the primary political benchmark for assessing progress on climate finance. This paper aims to make a positive contribution in the lead up to Paris by first unpacking the key variables Parties have emphasized in debates about “what counts”, and then proposing an approach to classifying climate finance that Parties could use as a starting point for their analyses and interpretations. It takes no position on what should count towards the $100 billion: instead it organizes different aspects of climate finance in politically relevant ways that could help facilitate clearer understanding and convergence.

This paper builds on existing work by Climate Policy Initiative (CPI), Overseas Development Institute (ODI), World Resources Institute (WRI), and others including the UNFCCC’s Standing Committee on Finance on mapping and tracking the landscape of climate finance. It distills the debate into five key variables that have emerged as relevant to what Parties consider to “count” as climate finance:

1. Motivation – the extent to which a financial flow was explicitly designed to reduce greenhouse gas emissions or support climate adaptation.
2. Concessionality / source – the legitimacy of public versus private sources of climate finance, and the degree of “softness” of the finance reflecting the benefit to the recipient compared to a loan at market rate.1 To simplify categorization and facilitate debate we combine “source” with “concessionality” in this paper, though we recognize this is an imperfect conflation.
3. Causality – the extent to which a contributor’s intervention (whether public finance or policy) can be said to have mobilized further investment in climate-relevant activities.
4. Geographic origin
5. Recipient

Each of these variables is explored in depth in section 4 of the paper. In all the diagrams used to represent them, different categories are organized into concentric circles according to political consensus (what we refer to as “onion diagrams”). The closer a category is to the center of the onion diagram, the more notional consensus there is among stakeholders that it should count toward the goal. The key issues considered are summarized in the figure below.

While some stakeholders may care only about one or two of these factors, most probably assign some weight to most, if not all of them.

None of the diagrams in the paper indicate the relative size of flows. We recognize that in order to move beyond a conceptual discussion, numbers will need to be associated with the various layers and rings of each onion, though poor data quality and availability related to some of the variables remains a substantial constraint and we highlight important accounting issues that affect how flows of climate finance are being counted.

However, while quantifying flows is an essential step and an area of both current and future work, it can also tempt Parties to first look at the numbers and only then to decide what kinds of flows should count. This paper encourages stakeholders to instead discuss the principles behind their views before focusing on the numbers to support deeper reflection on underlying assumptions and preferences.

Advancing the debate

The above diagram and others in the paper are tools that can help structure debates about this issue, offer politically relevant categorizations of flows, and allow Parties to draw their own conclusions about what should count towards the $100 billion. We have also provided a diagram in Section 5 that allows stakeholders to shade in the cells they believe should count towards the commitment.

Even with efforts to distill the debate over “what counts” to a handful of variables, reaching consensus would be very challenging.  While this paper does not provide definitive solutions, it supports deeper reflection on underlying assumptions and preferences.

Such reflection may help to de-politicize these debates while fostering better mutual understanding of perspectives and preferences. We also believe the insights highlighted in this paper are relevant beyond the $100 billion issue, including for discussions about financing for development, what counts as official development assistance, and other current debates on defining and monitoring international finance commitments.