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Module 01Climate Finance EssentialsLesson 3Country Readiness to Use Climate Finance
Presentation Script
Climate Finance Essentials
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Climate Finance Essentials
Lesson 3 – Country Readiness to Use Climate Finance Presentation Script
1. Home
Welcome to Lesson 3 of eCourse for climate finance. Click Next to begin.
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Lesson 3 – Country Readiness to Use Climate Finance Presentation Script
2. Introduction
In this lesson, you will learn about the types of national systems and
capacities needed to effectively use climate finance. You will understand
what support is needed to improve capacity to establish nationally-
appropriate systems to manage climate finance. You will also become
more familiar with the various tools, mechanisms and modalities
available from different development partners in helping countries with
their climate finance readiness.
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3. Tangible activities of readiness
Climate finance readiness is a term used to describe processes at the
regional, national and local levels to prepare for climate finance. For
example, a readiness initiative aims to strengthen climate finance
allocation, enhance resource management and coordinate international
flows.
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4. Understanding climate finance readiness
There may not be a silver bullet to achieving climate-finance readiness,
but the United Nations Development Program (UNDP) has conceptualized
the common elements of readiness and the key national capacities
required to build and strengthen these elements. There are four
components: capacities of countries to plan for, access, deliver and
monitor climate finance, both internationally and domestically, in ways
that are catalytic and fully integrated with national development
priorities.
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5. Reflection Question
Before we continue, take a moment to reflect on your own
understanding of climate finance readiness.
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6. Understanding climate finance readiness
In this lesson, you will review the four main components to readiness -
the capacities of countries to 1) plan for, 2) access, 3) deliver, and 4)
monitor climate finance. You will begin by examining why planning of
climate finance is so critical and what national systems and capacities
could help pull all of these pieces of information together to formulate a
financial plan for effectively using climate finance.
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7. Planning for climate finance readiness
Planning for the supply, management and use of climate finance
resources is a fundamental step in ensuring the effective, efficient and
equitable use of climate finance. Planning also includes assessing climate
finance flows and allowing policymakers to match their priorities with
available resources. In doing so, countries can plan how to integrate
resources and sequence them over time. The overall aim of the planning
component of climate finance readiness is to strengthen financial
planning capacities to ensure integration of climate finance within
national development and budgetary processes.
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7.1. Planning for climate finance readiness
In order to conduct financial planning of climate finance, countries will
first need to arrive at prioritized climate actions in line with overarching
development priorities. Many countries are already achieving this by
preparing green, low-carbon and climate-resilient growth strategies.
Planning to use climate finance effectively draws from strong national
systems and capacities to identify the resources required for the chosen
priority activities and draft the financial plan for managing such flows. A
starting point is to examine existing resources are already being used for
climate change activities. Consider these key questions to help plan for
climate finance.
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7.2. Planning for climate finance readiness
The following tools can support the process of identifying the resource
flows required for priority activities and the plan associated with
sequencing such flows. Click on each image for more information.
An investment and financial flows assessment (I&FF) creates a
baseline of existing expenditures at the sectoral scale and maps
this on to priority climate-related activities to identify gaps. I&FFs
are a way to forecast future investment flows needed to reach a
given set of climate goals and priorities.]
A climate public expenditure and institutional review (or CPEIR)
that assesses current on-budget climate finance expenditures
across sectors. CPEIRs have provided insight into the importance
of finance flowing through national budgets and helped raise
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awareness of climate finance as not just an environmental issue,
but in fact one that straddles many sectors of a country's
economy.]
Visit the website: www.climatefinanceoptions.org “.
The World Bank has developed an e-learning course on
Investment Planning towards Low Carbon, Climate Resilient
Development, which gathers experiences from the first years of
the Climate Investment Funds (CIFs) to respond to the needs of
governments and other actors regarding how to prepare and
finance climate change strategies, policies and plans.]
7.3. Planning for climate finance readiness
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Another central capacity in the climate finance planning process is
matching supply to demand. This process includes the ability to estimate
costs for priority actions and then match those costs to different sources.
This requires knowledge of the international climate finance flows.
For those domestic projects being funded by public climate finance that is
on budget, such capacities for climate finance readiness might include
directing finance toward climate change activities, but also shifting
funding of existing activities that have detrimental climate impacts (such
as fossil fuel subsidies) to more climate-friendly investments.
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8. Accessing climate finance
Also vital for climate finance readiness is the capacity for countries to be
able to directly access resources from different sources, and then blend
and combine those resources at the national level in order to access a
wider range of financial instruments. There are currently two new access
modalities which have emerged over the years; these are “direct access”
and “enhanced access” to climate finance. We will now briefly introduce
the traditional access modality and learn how this compares to these two
emerging access modalities.
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8.1. Accessing climate finance
Traditional, multilateral access is when eligible countries work through
multilateral implementing entities (UN agencies or Multilateral
Development Banks) which handle strategic and operational
management and implementation of the resources. Activity execution is
then shared at the international and national level. The graphic shown
here visually explains this traditional access mode. Click on each entity to
see expanded definitions of each body. An example of this traditional
access mode is the Global Environment Facility or GEF, where eligible
countries access resources through a GEF Agency. Click on the GEF logo
to learn more.
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Direct
In contrast to the traditional access mode you just learned about, direct
access allows accredited entities from recipient countries to access
financial resources directly from the Fund without passing through an
intermediary institution like an agency. Activity implementation and
execution is then handled at the national level. The Adaptation Fund
pioneered direct access to finance through the use of National
Implementing Entities. Click on the Adaptation Fund logo to learn more.
As you can see, using direct access modalities requires national or sub-
regional entities to have strong fiduciary capacities, safeguard
compliance and implementing and executing capacities in order to
directly access finance.
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Enhanced
Enhanced access mode shifts strategic fund management to the national
domain, with some international fund oversight. The rest of the
implementing and executing responsibilities are fully devolved to the
national level implementing and executing entities. Enhanced access
mode is anticipated as an option for the Green Climate Fund.
Click on the logo to learn more.
You will see that enhanced access will likely require more substantial
financial management capacities, including legal arrangements for
holding funds in trust, and governance systems to oversee allocation and
report on the use of resources.
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8.2. Accessing climate finance
As countries directly access resources from different sources, they then
need to be able to blend and combine those resources at the national
level in order to access a wider range of financial instruments.
Transferring the ability to combine and blend climate finance to the
national level increases recipient country ownership over how finance is
used and in what form. Both combining and blending require specific
financial mechanisms and capacities at the national level.
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Combine
Combining climate finance means bundling different types of finance
within a single project. Resources can be combined through a national
financial mechanism, such as a national development bank, and national
climate fund or a simple trust fund, where resources are allocated
together side by side. An example is The China CDM Fund, which is a
national fund provides grants funded by revenues from CDM projects,
earnings from CDM business operations, and other sources. Click on the
link to learn more
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Blend
Blending climate finance means using one resource to restructure the
terms of another resource. Blending requires different, more complex
financial capacities. Resources must be held on an entity's balance sheet
together, and depending on the nature of the blending, may be
reformulated into different financial instruments (for example lowering
interest rates or extending repayment period of a loan). Banking
capacities are therefore critical. National systems can also be blended to
benefit national capacity to access heightened climate finance. A clear
example is the Development Bank of Southern Africa's management of
the South Africa Green Fund - click the box to learn more.
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8.3. Specific national capacities for accessing finance
Regardless of the mode of accessing finance, or whether combining or
blending resources, effective use of climate finance requires recipient
countries to be able to formulate bankable project and program
proposals. Review the range of national capacities listed here that will
serve countries in accessing climate finance.
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9. Delivering climate finance
The third component to climate finance readiness involves the capacities
to deliver finance and implement and execute activities at the regional,
national or local level. This is a key component of ensuring that climate
finance contributes to effective and transformative actions at the
national level. Delivering climate finance resources requires national
systems that provide financial oversight and management, as well as
execution services such as procurement, contracting or hiring.
Coordination among entities is essential to ensure that project-level
activities are in line with national development planning and strategies at
the macro level. There are two core capacities required for climate
finance to be delivered effectively. Implementation and execution
services. We will now take a look at each capacity and the entities and
systems required for each. Click on each button to learn more.
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Implementation
Implementing entities are responsible for identifying, overseeing and
appraising programs/projects for the provider of finance. They may also
be involved in blending and combining finance. Capacity is also needed
within the public financial management system to deliver resources to
implementing partners, whether line ministries and government agencies
or external contractors, and to ensure that resources are spent on
effective and sustainable mitigation and adaptation measures. A clear
example of an Implementing Entity is the Bangladesh Climate Change
Resilience Fund - click the box to learn more.
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Execution
Executing entities receive funding to undertake programs of work and
may utilize sub-contracting agreements to complete these activities. The
require transparent procurement procedures, reporting and project
management capacities. There is a major emphasis on preparing entities
to undertake either implementation and/or execution roles, particularly
in the context of ensuring capacities of direct access entities.
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9.1. Delivering climate finance
Capacity development is often needed to develop a local talent pool
ready to undertake the work of funded climate projects. One example is
vocational training for professionals like architects, engineers,
contractors, builders, and clean energy installers. Another example is
individual guidance related to project design choices, such as technology
selection or supply chain management. One tactic for capacity
development is utilizing local centers of expertise in the functional areas
where more training is required.
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9.2. Delivering climate finance
With multiple sources of finance, often in multiple forms and some with
national budget implications, coordination systems at the project-level
are essential. Strong coordination minimizes redundancies and ensures
climate finance flows are in line with national strategies for low-carbon
and climate-resilient growth. One approach is to entrust coordination to
a multi-stakeholder steering committee rather than a national level body.
Central to coordination is preventing groups from being marginalized
from climate finance opportunities. A good example is projects that
Reduce Emissions from Deforestation and Land Degradation (REDD)
which involve a large number of stakeholders at the project scale - click
on the box to learn more
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10. Monitoring climate finance
The last important element to effectively using climate finance is
monitoring and evaluating the impact of climate finance on mitigation
and adaptation goals. More climate finance support also becomes readily
available if positive development and climate results can be
demonstrated - as such, capacities and national systems for climate
finance monitoring and evaluation are critical to have in place as part of
readiness preparations to effectively use (and catalyze increased flows of)
climate finance.
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10.1 Monitoring climate finance
Climate finance monitoring and evaluation is needed to understand what
financial resources are flowing where, for what purposes and how
effectively they abate GHG emissions and/or build resilience. Monitoring
and evaluation are critical steps for helping decision-makers come full
circle in a dynamic planning process for utilizing climate finance. As data
on financial flows is collected, decision-makers can shore up weaknesses.
Central to capacities for monitoring and evaluation is a system to record
and calculate results, and using these inputs in evaluation analysis of
climate finance to determine the impacts of the investment on climate,
poverty, national development priorities.
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10.2 Participant Question
That's correct! All of the above are correct!
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10.3. Monitoring climate finance
As part of climate finance readiness preparations, countries can get ready
to monitor financial expenditures on climate change activities flowing
within and outside the national budget. Building database systems and
information-collection processes to record results from climate finance is
vitally important. Also, developing indicators and assessment processes
help countries determine whether climate finance is being used
effectively to meet set-out environmental, economic and social
objectives. With the growing demand to learn more about climate
finance monitoring and evaluation, stay tuned for future e-learning
courses that will specifically explore this topic.
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11. Summary of national capacities required for climate finance readiness
Recapped here are the four components of climate finance readiness.
Applying this framework for climate finance readiness can, in practice,
build on existing institutions and programs to manage resources at the
national level.
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12. Reflection Question
Now, take a moment to reflect on any existing structures countries are
using to pull together all of their climate finance readiness needs. How
does your country handle ongoing climate finance readiness
management?
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13. Challenges and opportunities: national climate funds
Many countries are creating National Climate Funds to help handle
ongoing climate finance readiness management. While national climate
funds can serve the multiple roles for planning, accessing and
implementing climate finance, as well as occupying fiduciary roles, they
are not necessarily the “silver bullet” solution to effective use of climate
finance. Many national climate funds are themselves lacking the
resources and support necessary to manage climate finance. This is an
opportunity for countries to turn to existing institutions that already have
the capacities to carry out the multiple roles a national climate fund
would undertake. The message is that climate finance readiness does not
necessarily require countries to create new organs for effectively using
climate finance.
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14. World Bank climate finance readiness initiatives
The World Bank is playing a significant role in supporting countries with
their climate finance readiness, laying the ground for new climate
financing instruments, mechanisms and approaches to planning,
accessing and managing finance. These ongoing programs shown here
help build pipelines of bankable projects and programs, which support
country readiness to facilitate access to finance and increased impact of
climate finance used effectively. Click on each logo to learn more.
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15. UNDP and partners climate finance readiness initiatives
UNDP has been a leader in the field of climate finance readiness by
working cooperatively with developing countries to build national
capacities for improved planning, accessing, managing, and monitoring of
finance flows. The programs listed here are delivered in partnership with
donors and other UN agencies and improve enabling environments for
public and private climate finance. Click on each logo to learn more.