The amount of development assistance funds available for climate mitigation and adaptation is small relative to the increasing need for it and relative to the magnitude of private capital flowing to developing countries. Improving domestic revenue mobilization, for instance through taxation, can only go so far because many developing countries have relatively small economies. Furthermore, the global pandemic and economic recession only add to the numerous, urgent competing needs for public expenditures.
Obtaining large amounts of additional capital for climate mitigation and adaptation investments will require greater private sector engagement and access to international and domestic capital markets for debt and equity. It will also require accessing new sources of financing from institutional investors and impact investors. Development assistance organizations can play a major role in helping to leverage new private sector sources of financing, but they will have to change strategies and approaches and move from supporting small pilots to achieving impacts on a much larger scale.
In early 2020, the USAID-funded Climate Economic Analysis, Development, Investment, and Resilience (CEADIR) Activity completed a major report, Climate Finance Assessment: Opportunities for Scaling Up Financing for Clean Energy, Sustainable Landscapes, and Adaptation. This report describes a range of approaches for development assistance organizations to help accelerate financing for climate mitigation and investments. It emphasizes international and domestic private sector investment, but also addresses multilateral, bilateral, and domestic public investment.
This report draws on USAID’s substantial experience in supporting investments in clean energy, sustainable landscapes, and climate adaptation as well as the experiences of other donors, development banks, and the private sector. It describes the status of climate-related investments and recent trends.
Three building blocks of climate-related investment provide a basis for the report:
- Establishing an enabling environment to boost incentives for public and private sector investment;
- Strengthening capacity of governments, public and private sector implementers, and investors to participate in the design, implementation, and financing of climate investments; and
- Creating and strengthening financing mechanisms for project preparation, financing and co-financing, and risk mitigation.
The report contains separate chapters on clean energy, sustainable landscapes, and climate adaptation opportunities for expanding investment consistent with the finance building blocks framework. Many of the opportunities have been successfully used for investments in climate mitigation or adaptation or other development sectors at various scales, levels of resources, and timeframes. The criteria for including opportunities in this report included the national, subnational, and local context, costs, timeframe, replicability, scalability, impact potential, and value for money. Each chapter describes experiences, case studies, tools, platforms and networks, and financial instruments.
An annex contains definitions of key financial terms and instruments. Another annex describes the general advantages and disadvantages of various types of financial instruments.
The intended audience includes USAID missions and bureaus, partner governments, bilateral and multilateral donors, multilateral and government development banks, financial institutions, impact investors, businesses, nongovernmental organizations, and foundations.
The typology of opportunities and examples presented in this report also has broader sectoral applicability beyond clean energy, sustainable landscapes, and climate adaptation.
Dr. Eric Hyman is an Economist in the USAID Economic Growth, Education, and Environment Bureau’s Economic Policy Office. Dr. Hyman was previously Economist and Environmental Officer at the U.S. African Development Foundation and Chief of Program Evaluation at EnterpriseWorks Worldwide/Appropriate Technology International. He has a Ph.D and M.R.P in Environmental Planning from the University of North Carolina at Chapel Hill and a B.A. in Economics and Environmental Science from the University of Virginia.