By Staff Reporter
Japan, France, Germany, the United States and other wealthy nations are reaping billions of dollars in economic rewards from a global program meant to help the developing world grapple with the effects of climate change, a Reuters review of U.N. and Organisation for Economic Cooperation and Development data shows.
The financial gains happen as part of developed nations’ pledge to send $100 billion a year to poorer countries to help them reduce emissions and cope with extreme weather.
By channeling money from the program back into their own economies, wealthy countries contradict the widely embraced concept that they should compensate poorer ones for their long-term pollution that fueled climate change, more than a dozen climate finance analysts, activists, and former climate officials and negotiators told Reuters.
Wealthy nations have loaned at least $18 billion at market-rate interest, including $10.2 billion in loans made by Japan, $3.6 billion by France, $1.9 billion by Germany and $1.5 billion by the United States, according to the review by Reuters and Big Local News, a journalism program at Stanford University. That is not the norm for loans for climate-related and other aid projects, which usually carry low or no interest.
At least another $11 billion in loans – nearly all from Japan – required recipient nations to hire or purchase materials from companies in the lending countries.
And Reuters identified at least $10.6 billion in grants from 24 countries and the European Union that similarly required recipients to hire companies, nonprofits or public agencies from specific nations – usually the donor – to do the work or provide materials.
Offering climate loans at market rates or conditioning funding on hiring certain companies means that money meant for developing countries gets sent back to wealthy ones.
“From a justice perspective, that’s just deeply reprehensible,” said Liane Schalatek, associate director of the Washington branch of the Heinrich-Boll Foundation, a German think tank that promotes environmental policies.
Analysts said grants that require recipients to hire wealthy countries’ suppliers are less harmful than loans with such conditions because they do not require repayment.
Sometimes, they said, the arrangements are even necessary – when recipient countries lack the expertise to provide a service. But other times, they benefit donors’ economies at the expense of developing nations.
That undermines the goal of helping vulnerable nations develop resilience and technology to cope with climate change, the climate and finance sources said.
“Climate finance provision should not be a business opportunity,” Schalatek said. It should “serve the needs and priorities of recipient developing countries.”
Many of the conditional loans and grants Reuters reviewed were counted toward developed nations’ pledge to send $100 billion a year by 2020 to poorer countries disproportionately harmed by climate change.
First made in 2009, the commitment was reaffirmed in the 2015 Paris climate agreement. Roughly $353 billion was paid from 2015 through 2020.
That sum included $189 billion in direct country-to-country payments, which were the focus of the Reuters analysis.
More than half of that direct funding – about 54% – came in the form of loans rather than grants, a fact that rankles some representatives from indebted developing nations such as Ecuador.
They say they should not have to take on more debt to solve problems largely caused by the developed world.
Countries of “the global south are experiencing a new wave of debt caused by climate finance,” said Andres Mogro, Ecuador’s former national director for adaptation to climate change.
At the same time, several analysts said, rich countries are overstating their contributions to the $100 billion pledge, because a portion of their climate finance flows back home through loan repayments, interest and work contracts.
“The benefits to donor countries disproportionately overshadow the primary objective of supporting climate action in developing countries,” said Ritu Bharadwaj, principal researcher on climate governance and finance at the International Institute for Environment and Development, a UK policy think tank.
Rich nations defend their climate funding
Representatives of the main agencies that manage climate funding for Japan, Germany, France and the United States – the four countries reporting the most such funding to the U.N. – said they consider the amount of debt a country is already carrying when deciding whether to offer loans or grants. They said they prioritize grants to the poorest countries.
About 83% of climate funding to the lowest-income countries was in the form of grants, the Reuters review found. But those countries also received, on average, less than half as much climate funding as higher-income nations that mostly received loans.
“A mix of loans and grants ensures that public donor funding can be directed to countries that need it most, while economically stronger countries can benefit from better-than-market rate loan conditions,” said Heike Henn, director for climate, energy and environment at Germany’s Federal Ministry for Economic Cooperation and Development. Germany has contributed $45 billion in climate funding, 52% of it loaned.
The French Development Agency (AFD) offers developing nations low interest rates that would normally be available only to the richest countries on the open market, said Atika Ben Maid, deputy head of the AFD’s Climate and Nature Division. About 90% of France’s $28 billion contribution came in the form of loans – the highest share of any nation.
”This is a classic example where a bad loan, which has been given to a country in the garb of climate finance, will create further … financial stress.”
Ritu Bharadwaj, principal researcher on climate governance and finance at the International Institute for Environment and Development
A U.S. State Department spokesperson said loans are “appropriate and cost-effective” for revenue-producing projects. Grants typically go to other types of projects in “low-income and climate-vulnerable communities.” The United States provided $9.5 billion in climate funding, 31% of it loaned.
“It should also be emphasized that the climate finance provisions of the Paris Agreement are not based on ‘making amends’ for harm caused by historic emissions,” the spokesperson said, when asked whether collecting market-rate interest and other financial rewards contradicts the spirit of the climate finance program.
The Paris Agreement does not state outright that developed nations should make amends for historic emissions. It does reference principles of “climate justice” and “equity” and notes countries’ “common but differentiated responsibilities and capabilities” to grapple with climate change. It makes clear that developed countries are expected to provide climate finance.
Many interpret that language to mean that wealthy nations have a responsibility to help solve climate-related problems they had an outsized role in creating, said Rachel Kyte, an Oxford University climate policy professor who was World Bank special envoy for climate change in 2014 and 2015.
Protesters seek to hold polluters to account on the Global Day of Action for Climate Justice in Quezon City, Metro Manila, Philippines, on December 9, 2023. REUTERS/Lisa Marie David
But the agreement was short on specifics. The pledge said nations should mobilize climate finance from “a wide variety of sources, instruments and channels.” It did not define whether grants should be prioritized over loans. Nor did it prohibit wealthy nations from imposing terms advantageous to themselves.
“It’s like setting a building on fire and then selling the fire extinguishers outside,” Ecuador’s Mogro, who was also former climate negotiator for the G77 bloc of developing countries and China, said of the practice.
Big needs, limited funding
Reuters and Big Local News reviewed 44,539 records of climate finance contributions reported to the U.N. Framework Convention on Climate Change (UNFCCC), the entity in charge of keeping track of the pledge. The contributions, from 34 countries and the European Union, spanned 2015 through 2020, the most recent year for which data are available.
The UNFCCC does not require countries to report key details of their financing. So reporters also reviewed 133,568 records collected by the Organisation for Economic Cooperation and Development (OECD) to identify hiring conditions tied to climate-related finance over the same period.
The review confirmed that developed countries counted some conditional aid toward their $100 billion climate finance commitment. Because the UNFCCC records lack detail, Reuters could not determine if all such aid was counted.
To better understand the funding patterns revealed by the data, reporters consulted 38 climate and development finance analysts and scholars, climate activists, former and current climate officials and negotiators for developing nations, and representatives of development agencies for wealthy nations.
The Reuters findings come as countries try to negotiate a new, higher climate financing target by the year’s end. The U.N. has estimated that at least $2.4 trillion a year is needed to meet the targets of the Paris climate agreement, which included keeping the average global temperature from rising more than 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels.
Recent spending pales in comparison. Wealthy countries likely met the $100 billion annual goal for the first time in 2022 through direct contributions from country to country as well as multilateral funding from development banks and climate funds. The OECD estimates that wealthy nations funneled at least $164 billion toward the climate finance pledge via multilateral institutions – about 80% of it loaned – between 2015 and 2020, in addition to countries’ direct contributions.
Reuters was unable to determine the percentage of those loans that carried market interest rates or hiring conditions, due to uneven reporting by multilateral groups.
At least $3 billion of the direct spending went to projects that did little to help countries reduce emissions or guard against the harms of climate change, a June 2023 Reuters investigation found. Large sums went to a coal plant, a hotel, chocolate shops and other projects with little or no connection to climate initiatives.
A deepening hole
Heavily indebted countries face a vicious cycle: Debt payments limit their ability to invest in climate solutions, while extreme weather causes severe economic losses, often leading them to borrow more. A 2022 report by the United Nations Development Program found that more than half of the 54 most severely indebted developing nations also ranked among the most vulnerable to the effects of climate change.
With the amount of financing for climate projects still far from what’s needed, however, some analysts argue that lending needs to be part of the climate finance equation.
Development aid representatives from the U.S., Japan, France, Germany and the European Commission say loans enable them to funnel far more money to significant projects than they could if they relied solely on grants.
In interviews with Reuters, eight representatives who have worked on climate issues in developing nations said they consider loans to be necessary to fund ambitious projects given the limited funding wealthy nations have allocated for climate finance. But they said future pledges should require that rich nations and multilateral institutions be more transparent about the lending terms and offer guardrails against loans that create suffocating debt.
“The way the international financial system works at the moment… is to dig even deeper a hole,” said Kyte, the former World Bank climate envoy who recently advised Britain in climate negotiations. “We have to say, ‘no, no more digging, we’re going to fill the hole and lift you up.’”
By Staff Reporter
Japan, France, Germany, the United States and other wealthy nations are reaping billions of dollars in economic rewards from a global program meant to help the developing world grapple with the effects of climate change, a Reuters review of U.N. and Organisation for Economic Cooperation and Development data shows.
The financial gains happen as part of developed nations’ pledge to send $100 billion a year to poorer countries to help them reduce emissions and cope with extreme weather.
By channeling money from the program back into their own economies, wealthy countries contradict the widely embraced concept that they should compensate poorer ones for their long-term pollution that fueled climate change, more than a dozen climate finance analysts, activists, and former climate officials and negotiators told Reuters.
Wealthy nations have loaned at least $18 billion at market-rate interest, including $10.2 billion in loans made by Japan, $3.6 billion by France, $1.9 billion by Germany and $1.5 billion by the United States, according to the review by Reuters and Big Local News, a journalism program at Stanford University. That is not the norm for loans for climate-related and other aid projects, which usually carry low or no interest.
At least another $11 billion in loans – nearly all from Japan – required recipient nations to hire or purchase materials from companies in the lending countries.
And Reuters identified at least $10.6 billion in grants from 24 countries and the European Union that similarly required recipients to hire companies, nonprofits or public agencies from specific nations – usually the donor – to do the work or provide materials.
Offering climate loans at market rates or conditioning funding on hiring certain companies means that money meant for developing countries gets sent back to wealthy ones.
“From a justice perspective, that’s just deeply reprehensible,” said Liane Schalatek, associate director of the Washington branch of the Heinrich-Boll Foundation, a German think tank that promotes environmental policies.
Analysts said grants that require recipients to hire wealthy countries’ suppliers are less harmful than loans with such conditions because they do not require repayment.
Sometimes, they said, the arrangements are even necessary – when recipient countries lack the expertise to provide a service. But other times, they benefit donors’ economies at the expense of developing nations.
That undermines the goal of helping vulnerable nations develop resilience and technology to cope with climate change, the climate and finance sources said.
“Climate finance provision should not be a business opportunity,” Schalatek said. It should “serve the needs and priorities of recipient developing countries.”
Many of the conditional loans and grants Reuters reviewed were counted toward developed nations’ pledge to send $100 billion a year by 2020 to poorer countries disproportionately harmed by climate change.
First made in 2009, the commitment was reaffirmed in the 2015 Paris climate agreement. Roughly $353 billion was paid from 2015 through 2020.
That sum included $189 billion in direct country-to-country payments, which were the focus of the Reuters analysis.
More than half of that direct funding – about 54% – came in the form of loans rather than grants, a fact that rankles some representatives from indebted developing nations such as Ecuador.
They say they should not have to take on more debt to solve problems largely caused by the developed world.
Countries of “the global south are experiencing a new wave of debt caused by climate finance,” said Andres Mogro, Ecuador’s former national director for adaptation to climate change.
At the same time, several analysts said, rich countries are overstating their contributions to the $100 billion pledge, because a portion of their climate finance flows back home through loan repayments, interest and work contracts.
“The benefits to donor countries disproportionately overshadow the primary objective of supporting climate action in developing countries,” said Ritu Bharadwaj, principal researcher on climate governance and finance at the International Institute for Environment and Development, a UK policy think tank.
Rich nations defend their climate funding
Representatives of the main agencies that manage climate funding for Japan, Germany, France and the United States – the four countries reporting the most such funding to the U.N. – said they consider the amount of debt a country is already carrying when deciding whether to offer loans or grants. They said they prioritize grants to the poorest countries.
About 83% of climate funding to the lowest-income countries was in the form of grants, the Reuters review found. But those countries also received, on average, less than half as much climate funding as higher-income nations that mostly received loans.
“A mix of loans and grants ensures that public donor funding can be directed to countries that need it most, while economically stronger countries can benefit from better-than-market rate loan conditions,” said Heike Henn, director for climate, energy and environment at Germany’s Federal Ministry for Economic Cooperation and Development. Germany has contributed $45 billion in climate funding, 52% of it loaned.
The French Development Agency (AFD) offers developing nations low interest rates that would normally be available only to the richest countries on the open market, said Atika Ben Maid, deputy head of the AFD’s Climate and Nature Division. About 90% of France’s $28 billion contribution came in the form of loans – the highest share of any nation.
”This is a classic example where a bad loan, which has been given to a country in the garb of climate finance, will create further … financial stress.”
Ritu Bharadwaj, principal researcher on climate governance and finance at the International Institute for Environment and Development
A U.S. State Department spokesperson said loans are “appropriate and cost-effective” for revenue-producing projects. Grants typically go to other types of projects in “low-income and climate-vulnerable communities.” The United States provided $9.5 billion in climate funding, 31% of it loaned.
“It should also be emphasized that the climate finance provisions of the Paris Agreement are not based on ‘making amends’ for harm caused by historic emissions,” the spokesperson said, when asked whether collecting market-rate interest and other financial rewards contradicts the spirit of the climate finance program.
The Paris Agreement does not state outright that developed nations should make amends for historic emissions. It does reference principles of “climate justice” and “equity” and notes countries’ “common but differentiated responsibilities and capabilities” to grapple with climate change. It makes clear that developed countries are expected to provide climate finance.
Many interpret that language to mean that wealthy nations have a responsibility to help solve climate-related problems they had an outsized role in creating, said Rachel Kyte, an Oxford University climate policy professor who was World Bank special envoy for climate change in 2014 and 2015.
Protesters seek to hold polluters to account on the Global Day of Action for Climate Justice in Quezon City, Metro Manila, Philippines, on December 9, 2023. REUTERS/Lisa Marie David
But the agreement was short on specifics. The pledge said nations should mobilize climate finance from “a wide variety of sources, instruments and channels.” It did not define whether grants should be prioritized over loans. Nor did it prohibit wealthy nations from imposing terms advantageous to themselves.
“It’s like setting a building on fire and then selling the fire extinguishers outside,” Ecuador’s Mogro, who was also former climate negotiator for the G77 bloc of developing countries and China, said of the practice.
Big needs, limited funding
Reuters and Big Local News reviewed 44,539 records of climate finance contributions reported to the U.N. Framework Convention on Climate Change (UNFCCC), the entity in charge of keeping track of the pledge. The contributions, from 34 countries and the European Union, spanned 2015 through 2020, the most recent year for which data are available.
The UNFCCC does not require countries to report key details of their financing. So reporters also reviewed 133,568 records collected by the Organisation for Economic Cooperation and Development (OECD) to identify hiring conditions tied to climate-related finance over the same period.
The review confirmed that developed countries counted some conditional aid toward their $100 billion climate finance commitment. Because the UNFCCC records lack detail, Reuters could not determine if all such aid was counted.
To better understand the funding patterns revealed by the data, reporters consulted 38 climate and development finance analysts and scholars, climate activists, former and current climate officials and negotiators for developing nations, and representatives of development agencies for wealthy nations.
The Reuters findings come as countries try to negotiate a new, higher climate financing target by the year’s end. The U.N. has estimated that at least $2.4 trillion a year is needed to meet the targets of the Paris climate agreement, which included keeping the average global temperature from rising more than 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels.
Recent spending pales in comparison. Wealthy countries likely met the $100 billion annual goal for the first time in 2022 through direct contributions from country to country as well as multilateral funding from development banks and climate funds. The OECD estimates that wealthy nations funneled at least $164 billion toward the climate finance pledge via multilateral institutions – about 80% of it loaned – between 2015 and 2020, in addition to countries’ direct contributions.
Reuters was unable to determine the percentage of those loans that carried market interest rates or hiring conditions, due to uneven reporting by multilateral groups.
At least $3 billion of the direct spending went to projects that did little to help countries reduce emissions or guard against the harms of climate change, a June 2023 Reuters investigation found. Large sums went to a coal plant, a hotel, chocolate shops and other projects with little or no connection to climate initiatives.
A deepening hole
Heavily indebted countries face a vicious cycle: Debt payments limit their ability to invest in climate solutions, while extreme weather causes severe economic losses, often leading them to borrow more. A 2022 report by the United Nations Development Program found that more than half of the 54 most severely indebted developing nations also ranked among the most vulnerable to the effects of climate change.
With the amount of financing for climate projects still far from what’s needed, however, some analysts argue that lending needs to be part of the climate finance equation.
Development aid representatives from the U.S., Japan, France, Germany and the European Commission say loans enable them to funnel far more money to significant projects than they could if they relied solely on grants.
In interviews with Reuters, eight representatives who have worked on climate issues in developing nations said they consider loans to be necessary to fund ambitious projects given the limited funding wealthy nations have allocated for climate finance. But they said future pledges should require that rich nations and multilateral institutions be more transparent about the lending terms and offer guardrails against loans that create suffocating debt.
“The way the international financial system works at the moment… is to dig even deeper a hole,” said Kyte, the former World Bank climate envoy who recently advised Britain in climate negotiations. “We have to say, ‘no, no more digging, we’re going to fill the hole and lift you up.’”
