COP21 is about the big issues. But are the right questions asked? One existential factor is whether we can limit overall global warming this century to 1.5 degrees or will we cope with a rise of above 2 degrees. This is the big carbon debate. 

Everyone agrees that there is a lot of adaptation required to build resilience to an overall increase of even 1.5 degrees. This leads to another question: Is climate adaptation finance new money with specific objectives? Or does it comprise existing (and new) development funding, which in any case should promote resilience? 

This proves impossible to answer and is the wrong question to ask.

Instead we should be inspired by the transformation sought by the Sustainable Development Goals. The question is: Adaptation requires transformation of existing behaviour and practice, how can climate finance be transformational?

This was addressed during two ONE UN side events at COP21 on December 8th. Firstly, during the side event on “Financing Climate Change” David Jackson, UNCDF’s Director of Local Development Finance argued that a project approach is ineffective in transforming behaviour. Instead mechanisms need to be established that reward resilience building through regular investment cycles. Furthermore, central and local governments should develop the capacity to implement these. The latter is crucial because worldwide, local governments are responsible for most resilience and adaptation expenditure, whether or not this is flagged as ‘climate’ finance. Unfortunately, project finance does not encourage this transformation. Instead it constrains climate finance to limited activities, with high overheads, that are difficult to scale up.

At the same meeting, His Excellency Ngan Chamroen from Cambodia, Head of the National Committee for Subnational Democratic Development Secretariat informed the meeting that Cambodia has decided on the transformation and is applying to the Green Climate Fund (GCF) to scale up the Local Climate Adaptive Living Facility (LoCAL), which is a mechanism governed by the Least Developed Countries and hosted by UNCDF. LoCAL provides its member countries with a global standard for local government adaptation and a monitoring system to ensure compliance. This enables Cambodia to secure GCF financing for a blended finance model that mixes global climate finance with national fiscal transfers for a programme of local resilient investments planned and managed by local governments and communities. LoCAL also provides a link to the latest climate science to ensure that local perceptions of vulnerability are crosschecked with global thinking. It does this by applying the systems in place in Korea and Germany – modified to an LDC context. Incidentally, these two countries have their own versions of LoCAL. German local governments hedging their bets and baking in to their investment plans resilience to four-degree temperature rise.

This theme was expanded later on 8th December at a second ONE UN side event on Cities and Climate Change. Transformation means changing the way resilience is financed. Moving from projects to systemic approaches that build domestic capacities. One way is to unlock the latent capital within the economies of least developed countries and recycle it through revenue generating infrastructure that strengthens, for example food security in cities, or urban adaptation to increased flooding. Benin has joined the Local Finance Initiative (LFI) that builds the capacity of local banks and pension funds to finance these investments nationally, with international funds playing the role of seed capital. Municipalities in Benin will be able to match the LFI mechanism of domestic private finance with their own revenues of public finance and transfers from central government. This blended finance will be applied to tackle some of the critical climate change challenges faced by small and medium sized cities in Benin. The existing funding architecture of ODA projects and relatively limited transfer to local governments from central government central is insufficient for Benin’s urban adaptation. A transformation is required.