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What counts as climate financing for developing nations? Rich countries are deciding for themselves

Updated: Jun 5, 2023

hand holding burning U.S. hundred dollar bills
Image Credit: Jp Valery // Unsplash

According to a Reuters investigation, while wealthy countries pledged $100 billion a year to help reduce the effects of global warming, large sums are going to the strangest of places, from hotels, gelato shops, and Italian chocolatiers, to a coal plant and airport expansions, that on their surface seem to have little to do with mitigating and adapting to climate change.

The report, released in June, showed how $2.6 billion dollars were used to open up each of these ventures, financed by Italy, the United States, and Japan to developing nations across Asia, as well as Haiti, Bangladesh, and in Egypt. All were written off as “climate finance” to help these nations reduce their greenhouse gas emissions. One case, in particular, was financed by Belgium to produce a 2015 romantic film titled “La Tierra Roja,” set in the Argentine rainforest.

A hotel in Haiti, financed by the U.S. gave money to a branch of the Marriott franchise to add an infinity pool, a rooftop restaurant, and better gym facilities, Does this count as climate funding? According to the U.S., it does, as the report shows it was written off as hurricane and flooding-resiliency because the hotel is placed in an area where it is unlikely to be affected by sea level rise.

In 2015 when the Paris Climate Agreement was inked, developed nations pledged $100 billion annually to help developing and emerging economies deal with climate change, and so far, they’ve come up quite short.

The lack of funding for these nations — which typically deal with the brunt of climate change — is even more troubling when there is little to no regulation or uniform accountability standards around climate pledges, and according to the U.N. Climate Change secretariat via Reuters the developed nations like the U.S. have staved off setting those uniform standards, leaving it to them to decide what counts as climate finance and what doesn’t.

Thus, with a lack of standards and required transparency, climate finance money goes toward a movie that touches on deforestation without actually combatting the jungle-clearing that plagues Argentina, where in the last four decades alone, one-fifth has been lost.

While across history, art like film has had a big hand in instigating social change, Argentina is currently experiencing an unprecedented drought that scientists say is linked to elongated and more intense climate change-fueled heat waves.

The report shows that from 2015 to 2020, 35 governments reported a total of more than $182 billion in grants, loans, bonds, equity investments, and other contributions, all labeled “climate finance,” calling into question the ventures this money has funded.

“This is the wild, wild west of finance,” Mark Joven, Philippines Department of Finance undersecretary, who represents the country at U.N. climate talks, told Reuters. “Essentially, whatever they call climate finance is climate finance.”

Some countries do submit detailed reports, however, with the United Kingdom, Canada, and the Netherlands providing tens of billions of dollars toward renewable energy projects and others that build resilience to natural disasters, aligning with the receiving nation’s climate goals.

Still, according to the report, most of the billions of dollars go undocumented.

As the report found, some money reported as going to “alternative power sources,” was invested in coal-fired power, airports, and crime-fighting rather than solar panels and wind turbines with little to no justification.

More than $65 billion-worth was so vague, it couldn’t be distinguished where the money went to and another sizable portion did not even label its intended recipient country, opening up the possibility of a deluge of greenwashing across the Global South from the pin of the Global North.

“People deserve more,” Iqbal Kabir, a Bangladeshi official working at the intersection of climate change and health issues, said via Reuters.

“They are spending it on other projects, depriving the issues like women's health, children's health, and salinity intrusion,” — all of which can be connected to climate change by prioritizing things like public health from air pollution, safety from natural disasters, and reliable, clean electricity.

As a whole, the Reuters team scrutinized thousands of records, cross-checking them with U.N. reports, and information by other agencies like the Organisation for Economic Co-operation and Development (OECD) which tracks progress toward the $100 billion goal.

These records accounted for a slim 10% of the total funding used so far, or roughly $3 billion, causing skepticism over where the rest of the money is going.

The Reuters report comes as the U.S. Securities and Exchange Commission is working on establishing laws around domestic climate financing. This will likely mean the possibility of increased regulation surrounding environmental, social, and governance (ESG) rules that would require public companies to disclose their greenhouse gas emissions and climate-related risks, as well as plans for mitigating those risks, for example.

This possibility comes as more countries tighten rules around climate investing within their borders, and makes the news of greenwashing all the more ironic.

Still, with the 28th Conference of the Parties on climate change (COP28) happening this November, and the COP27-era agreement for a loss and damage fund which would finance rebuilding and adaption due to climate disasters in developing nations, accountability and standardization around the fund may arise as a big theme.

A slew of questions like the size of the fund, the duration, which countries will most contribute, what counts as a developing and emerging nation, if the money will be tied to emissions and reductions, where it goes, and how it will be governed and accounted for will all be debated. And while climate accounting technology from startups is most effective when regulations exist to incentivize its use, this tech may play a valuable role especially if emissions, climate risk, or carbon accounting standards come out of the conference which will be held in Dubai.

Time, however, will tell if the funds are put where they’re needed and aren’t yet another headline revealing a case of international greenwash.

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