Development and application of a methodology on climate finance as part of a country’s transparency framework

The Initiative for Climate Action Transparency (ICAT) aims to help countries assess the impacts of their climate policies and actions, and fulfil their transparency commitments. It does this by increasing the overall transparency capacities of countries, including the capacity to assess the contribution of climate policies and actions on GHG levels and on countries’ development objectives, and providing appropriate methodological information and tools to support evidence-based policy-making. ICAT’s innovative approach is to integrate these two aspects. 

ICAT focuses on countries that can highlight the benefits of increased transparency to demonstrate policy impact and evidence-based action. ICAT will generate evolving methodological guidance and extract best practices, to be publicly available to all actors, increasing the global knowledge base. ICAT’s work is country-driven, efforts build on existing Monitoring, Reporting and Verification (MRV) systems and knowledge in countries and complement previous or on-going activities by other initiatives, where applicable. 

Countries have identified a need for targeted expertise to design and implement Monitoring, Reporting and Verification (MRV) systems that satisfy the provisions of the Paris Agreement’s Enhanced Transparency Framework (ETF). These systems will enable them to track finance received as well as identify the financial flows required to implement their Nationally Determined Contributions (NDCs). Enabling the development of robust country-driven strategies to properly cost their NDCs and identify sources of finance will be vital to achieve the objectives of the Paris Agreement and Agenda 2030. However, while NDCs are a creation of the Paris Agreement, their effectiveness as planning documents is linked to how thoroughly they are embedded in whole-of-government processes that ensure climate and Sustainable Development Goals (SDG) co-benefits are effectively captured. As a result, these systems will need to not just identify sources and uses of so-called climate finance but ensure that all finance is directed towards low-carbon and resilient solutions that support the transformational, economy-wide changes required to implement the Paris Agreement as well as the broader sustainable development agenda.

Developing an accurate picture of climate finance at the national level requires identifying the stakeholders, sources of finance, data points, policies and measures that are climate-related and included in a country’s NDC. The ability to monitor, report and verify climate-related finance and climate-related benefits at the national level is a critical element for developing countries to develop their Biennial Transparency Reports (BTR) under the Paris Agreement. The ETF foresees reporting by developing countries on support, including finance needed and received, and the degree to which countries can accurately quantify  these requirements and justify their needs will enhance their ability to implement their NDCs. Another relevant element of the Paris Agreement is Article 2.1 (c) which foresees making “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”

Understanding what is meant by climate finance can differ greatly by organization and country. While there are some clear specifications, there is no operational definition of climate finance within the UNFCCC process and across financial institutions. As such it is important to establish a consistent definition within a country’s specific context while respecting internationally agreed concepts. It is important to not only gain a complete understanding of what is meant by climate finance at the national level, but to undertake a thorough assessment to understand the processes, policies and measures that are in place, are planned or are needed to meet the needs and expectations of society.

Climate finance has traditionally been regarded as project-based, meaning financing secured on a project-by-project basis and designed to meet a climate-related objective. With the adoption of the Paris Agreement and its rulebook, however, climate finance has become the main component for funding NDCs as well as increasing ambition and action on climate change. This increased ambition can refer both to the level of ambition of the measures included in the NDC itself but also to the climate benefits of actions taken that are additional and co-financed, for example, through credits generated under Article 6 of the Paris Agreement. Shifting to a programmatic basis for climate finance is essential under the Paris Agreement, and this requires a broader basis for the Monitoring and Evaluation (M&E) of finance, in particular a link to national MRV and NDC tracking frameworks. Thus, to be effective policy makers need to be able to monitor climate finance flows and assess associated climate benefits (in terms of emissions reductions and beyond) and place this in the context of NDC implementation progress.   

Article 6 will be an important element to address in any system established to monitor, verify, and report on climate finance, including under its sustainable development tool as decided at COP26. To fulfill the  sustainability component existing methodologies may be insufficient in identifying associated climate impacts.

ICAT is thus seeking a grantee(s) to develop a methodology that supports the tracking of climate finance at the national level in the context of NDC implementation and the benefits associated with climate action and that enables integration of such data in a country’s transparency framework. 

Entities interested in submitting proposals in response to this CFP are hereby invited to prepare proposals and send them to icat@unops.org, no later than 11 February 2022, 23:59 CEST.