Climate Finance: What Needs to be Done!
Updated: Oct 23
About this paper
This collection brings together three original papers on measuring climate finance: Steve Cutts on lessons from the US$100 billion goal, Simon Scott's pocket guide to measurement methods, and Hedwig Riegler on practical reporting problems illustrated by Austria's experience. Their shared concern is that climate-finance pledges need clear definitions, agreed accounting and reporting methods, and accountable burden-sharing. These historical papers include analysis written in 2024 before COP29; their figures and references are preserved in that context.
Editorial note: The original text follows in its historical context. References to rules, proposals, figures and future events reflect the source document, rather than an update to the present day.
The US$100 Billion Climate Finance Goal and Official Development Assistance: Lessons for Future Funding Commitments
By Steve Cutts1
Executive Summary
In this article, former UN Assistant Secretary-General Steve Cutts identifies the key problems with the $100 billion a year climate finance target and draws lessons for the setting of any future target.
Ever since the $100 billion goal was first agreed at the Copenhagen COP 15 years ago, there have been arguments and confusion about its definition, measurement, reporting and, crucially, burden-sharing obligations. This has damaged trust between developed and developing countries, which must be restored in any future target-setting.
Two new reports, one by the OECD and the other by Oxfam, illustrate the problems, but also help clarify what needs to be done.
The OECD’s Report on “Climate Finance Provided & Mobilised by Developed Countries 2013-22” shows that gross climate finance mobilised in 2022 finally met the $100 billion commitment, two years late. But the Report also suffers from an inconsistent approach to measuring “concessionality” in loans and a consequent distortion of the relative financial burden being borne by bilateral and multilateral donors.
The Oxfam report, in contrast, focuses on the burden-sharing aspect, and picks apart how the OECD’s “donor club”, the Development Assistance Committee (DAC), has introduced an overly generous methodology for calculating the grant element in bilateral loans. As a result, the DAC massively overstates the net cost to rich countries in extending these climate-related loans. Oxfam’s methodology yields far more robust results, and leads to the conclusion that the “real value” of climate finance provided by rich countries in 2022 was only between $28 billion and $35 billion.
The OECD/DAC’s methodology does not just flatter the performances of its member countries; it also provides a powerful financial incentive for donors to extend climate finance (and development aid more generally) in the form of loans and equity investments rather than the much-needed grants. And it discourages investment in multilateral climate funds that are in fact more generous in their financial terms than bilateral finance.
Against this background, the paper makes five recommendations:
1. Any new agreement on targets for climate finance needs clarity on definitions, measurement, accounting methodology and reporting.
2. Future financial targets must include agreements on burden-sharing by countries, and not be expressed merely as “global aspirations”.
3. Donor reporting on financial effort in non-grant instruments should follow the robust Oxfam methodology, not the self-serving and inaccurate DAC methodology.
4. Debt forgiveness should not be counted towards climate finance targets.
5. The international community should divest the OECD/DAC of its role in setting the rules for measuring ODA and, by extension, the financial effort in climate loans and equity investments.
I. Background
“Never again should such a ‘commitment’ be made on such a slapdash basis…”
In 2009, at the 15th UN Climate Conference (COP 15) held in Copenhagen, a commitment was made by developed countries to:
“a goal of mobilizing jointly US$ 100 billion a year by 2020 to address the needs of developing countries.”
Regrettably, however, these words were not backed by any agreed definition of international climate finance, what should count, how it should be counted, or how the burden should be shared among developed countries. In 2022, in a Report2 for which we provided technical input, this led Oxfam to conclude that
“Never again should an international climate finance ‘commitment’ be made on such a slapdash basis, with no clarity on what counts and who is committing what, or even a plan to agree such matters. The fallout has been a free-for-all in which developed countries alone have been left to count the money, and most have used that free hand liberally to exaggerate their own generosity.”
The almost total lack of clarity around the $100 billion target has poisoned international relations for 15 years. Official figures based on developed country reporting against the target have been strongly contested, and allegations of “greenwashing”, double-counting and inconsistencies (across time and providers) have abounded. Meanwhile, many developing countries and NGOs were under the impression that the $100 billion would be “new and additional resources”, as there was a longstanding understanding that this would be true for climate finance commitments, and the words were even used in the same paragraph 8 of the Copenhagen Decision3. However, the linkage in the text itself was ambiguous and the suspicion is that many bilateral aid projects that would have been funded in any event are now labelled as “climate financing”.
“Changes need to be made before COP 29 later this year…”
Developed countries have promised to do better with their future financing commitments. In 2011, the OECD’s Development Assistance Committee adopted a Recommendation on Good Pledging Practice4 which spelled out the principles that future aid pledges should observe so as to ensure that they were credible, achievable and properly monitored. These included specific guidelines to ensure the clarity, comparability, realism, measurability and accountability of future funding commitments.
Against this background, we support the recommendations of a recent Development Initiatives Report5 for:
- Greater consistency in how climate finance is defined and reported,
- Better shared review and auditing processes,
- Better reporting on impact, to build a stronger understanding of whether funding is enough and well targeted, and
- Approaches to remove the capacity constraints that might limit the implementation of these changes.
The first of these – consistent definition and reporting – is key. Without it, none of the others are possible. And this consistent reporting must extend to the real financial effort each developed country is making in climate finance, which is now part of official reporting to the UNFCCC. Among other benefits, provided it is properly measured, this would remove the current incentives for donor countries to provide official financing support in the form of equity investments and loans (which serve to increase the debt burden of developing countries) instead of much-needed grants.
These changes cannot wait. They need to be in place before COP 29, when the “new collective quantified goal on climate finance” is scheduled to be agreed. What is not clear from the current work programme6 is whether the COP will also make recommendations on burden-sharing (which it should), so that individual donor countries can be held accountable for their progress.7
In this paper, we demonstrate the need for these changes by examining two recently issued reports:
- OECD: Climate Finance Provided and Mobilised by Developed Countries in 2013-2022
- Oxfam: Climate Finance Short-Change, 2024 Update
Both are serious efforts to provide the public with important, relevant information on the fulfilment of $100 billion target. Both agree that developed countries failed to meet the target in both 2020 and 2021. But both also suffer from the lack of clarity in the way the target was originally defined, and particularly from the failure to set out a rigorous methodology for measuring real donor effort. These flaws have led to abuses that have short-changed developing countries, and they must not be repeated in any new target.
II. OECD Report: “Climate Finance Provided and Mobilised by Developed Countries in 2013-2022”
i) The Findings
Under the Copenhagen Agreement, the OECD was given no formal role for the collection or monitoring of data relating to the provision of climate finance or for measuring progress towards the $100 billion commitment.
However, in light of the overlap of its membership with the developed countries expected to provide climate finance, and the existence of a system of “Rio markers” used by the OECD’s Development Assistance Committee to track climate-related aid, the OECD saw an opportunity to provide estimates of climate finance in the run-up to the 2015 COP meeting in Paris. Five months before the meeting, it received a request for such estimates from the finance ministers of France and Peru8, and it parlayed this into a major report published just before the conference itself. It has since produced annual update reports, though with changes in methodology to give greater weight to countries’ official reporting to the UN, in preference to Rio marker data.
Accordingly, the latest version this Report9 comprises its:
“…analyses of progress towards the goal set under the United Nations Framework Convention on Climate Change (UNFCCC) for developed countries to mobilise USD 100 billion annually for climate action in developing countries.”
Unlike the Oxfam approach (see below), the OECD uses measures of gross disbursements which, of course, makes official flows and mobilised private flows (which cannot be expected to be concessional) comparable.
Accordingly, the OECD figures comprise four categories of finance:
- Bilateral public climate finance provided by developed countries’ institutions (notably bilateral aid agencies and development banks);
- Multilateral public climate finance provided by multilateral development banks (MDBs) and multilateral climate funds;
- Climate-related official export credits, provided by export credit agencies (ECAs) in developed countries; and
- Private finance mobilised by bilateral and multilateral public climate finance, attributed to developed countries.
The major conclusion of the report is that the goal of $100 billion was achieved for the first time in 2022, and that a total of $115.9 billion in climate finance for developing countries was mobilised by developed countries in that year.
The OECD noted that public climate finance (multilateral and bilateral combined) accounted for almost 80% of the total; while mobilised private finance made up most of the remainder. Climate-related export credits remained “small and volatile”.
Of concern was the revelation that both multilateral and bilateral public finance continued to be dominated by loans, which comprised nearly 70% of the total. Below we set out our explanation for why this continues to be the case, despite calls from all quarters for the provision of far more grants.
ii) The Problems
“The OECD/DAC’s false accounting of concessionality has a detrimental impact on the mix of climate finance…”
The OECD claims twice that its analyses are based on “a robust accounting framework”10, but this needs qualification, since at the same time they acknowledge that, in practice, different providers use different methodologies both to identify climate themes in their projects and to determine their climate-specific amounts. So while the OECD’s statistical architecture may be sound, the reporting within it can hardly be regarded as a robust comparative data set.
However, the biggest problem with the OECD report is in the way it distinguishes between “Concessional and non-concessional loans” in Box 3 in that report (reproduced as an annex to this paper for ease of reference).
1. The first sentence in this section comprises a definition:
“A concessional loan is extended to a borrower on more preferential terms than those available on the market”
Here, it would have been better to say simply that concessional loans involve a concession – i.e. a gift or grant element offered by the lender.
The “market” faced by the borrower is not the true test of concessionality, at least from the point of view of measuring the lender’s financial effort. This is why multilateral development banks (MDBs) and multilateral climate funds offer many loans on more preferential terms than borrowers could find on the international capital markets, yet do not claim these are “concessional”. Indeed, the penultimate sentence in the same box acknowledges this fact, noting that these bodies’ “non-concessional loans are [on]…better terms than the market”.
This is possible because World Bank and other international institutions are able to use their excellent credit ratings to raise and re-lend funds to developing countries at more advantageous rates than those countries could obtain on the market. These operations are not considered concessional by the MDBs or the multilateral climate funds, as there is no cost to these bodies in making them. In the end, the Report gets it right when it observes that “Multilateral institutions require external grant resources to extend concessional loans” – and it follows this through by scoring unsubsidised multilateral loans as non-concessional.
2. While the Report ends up getting concessionality right when it deals with multilateral climate finance, it makes a big mistake on the concessionality of bilateral flows. This is because it follows the flawed methodology recently introduced by OECD’s Development Assistance Committee (DAC), a “donors’ club” of rich countries which has perverted the definition of concessionality used in its ODA measure in ways that over-count the effort in its members’ loans. For bilateral loans only, the DAC has redefined concessionality through arbitrary “grant element” formulae which score almost all long-term lending on unsubsidised terms as ODA.
As a result of its inconsistent treatment of bilateral and multilateral concessionality, Figures 12 and 13 in Box 3 wrongly suggest that bilateral climate finance loans are more concessional than multilateral climate loans. Analysis in the Oxfam report discussed below shows that this is clearly untrue in the case of multilateral climate funds, which in fact offer more favourable terms overall than bilateral loans. The loans from these multilateral climate funds only appear to be less advantageous than bilateral loans because the DAC has artificially ruled many bilateral loans as concessional when in reality they are not.
In fact, if one were to apply the DAC’s overly generous methodology for determining concessionality of bilateral loans to other flows (using discount rates of up to 9% for the calculations), then most MDB lending and export credits would also be deemed “concessional”.
3. Finally, the inference that much more donor effort is required in loans to the poorest countries due to higher “grant element” thresholds in the DAC methodology (45% for low-income countries versus only 10% or 15% for middle-income countries) is misleading. The higher threshold is offset by a higher discount rate.11 And while the DAC justified higher discount rates for loans to poor countries on the ground that they were riskier, it later made all its “risk margins” indefensible by deciding that its members would score extra ODA anyway if risk materialised and relief had to be given.
For more on the massive exaggeration of ODA in bilateral loans, see https://www.odareform.org/oda-loans
Of course, distinctions between concessional and non-concessional loans do not directly affect the OECD Report’s “headline” figures, which focus on the face value of loans, not the “donor effort” or net financial contribution by the donor. However, this false accounting has a real and detrimental impact on the mix of climate finance, as it offers perverse incentives to provide bilateral financing – which easily scores as ODA – in preference to multilateral financing. The DAC’s lax rules on scoring ODA for bilateral transactions also encourage developed countries to offer climate finance on terms at little or no cost to the donor, instead of giving grants…just when these are most needed.
III. OXFAM: Climate Finance Short-Changed, 2024 Update
i) The Findings
“The ‘true value’ of climate finance provided by rich countries in 2022 was only between $28 billion and $35 billion…”
On 9 July, Oxfam published a note entitled “Climate Finance Short-Changed, 2024 Update”12 with an accompanying Press Release, “Rich countries overstating “true value” of climate finance by up to $88 billion, says Oxfam”.13 I was pleased to have co-written this report and advised on the methodology used to assess the financial effort in official loans.
Rather than count the face-value of the loans, the Oxfam report scores only the grant equivalents of climate-related loans, in order to show the real financial effort being made by the donors in extending these loans. This builds on Oxfam’s successful advocacy for the UN Framework Convention on Climate change to invite donors to report on the gift value of their assistance. While the OECD’s approach of counting the full face-value of loans has the merit of allowing comparisons across official finance and mobilised private finance, the Oxfam approach is rooted in climate justice. After all, the rationale behind the climate financing commitment is that richer countries are not only more able to pay, but more importantly should pay for the damages caused by climate changes that they, and not the developing countries, have caused. After all, this is in accordance with the “Polluter Pays Principle” that is (usually) so strongly supported by OECD countries.
Using a robust methodology that considers the donors’ real costs in raising funds for on-lending and taking into account the risk of non-repayment, Oxfam concludes that the “true value” of climate finance provided by rich countries in 2022 was only between $28 billion and $35 billion.
ii) The implications
“The OECD-DAC’s method of scoring financial effort is far too generous to bilateral donors…”
The table below draws data from Tables 1 and 2 in the Oxfam Report. The first column shows the average grant element percentages of bilateral donors, according to the OECD/DAC’s over-generous calculation method already discussed. These translate directly into the ODA scored by each donor. By contrast, the second column shows how Oxfam’s figures, using a far more robust method for calculating donor effort14, yield much lower figures. For example, properly assessed, the average grant element of Japan’s loans in 2022 was 38.6%, while the OECD has scored them at 69.5%, and France’s “true” grant element of its loans for that same year was 5.0%, whereas under the flawed OECD methodology, it was scored at 34.2%.
Donor Country | OECD ODA Grant Element | Oxfam Estimation of True Grant Element |
Australia | 60.2% | 30.2% |
Belgium | 80.3% | 53.0% |
Canada | 99.3% | 25.5% |
France | 34.2% | 5.0% |
Germany | 28.6% | 3.8% |
Italy | 12.7% | -2.2% |
Japan | 69.5% | 38.6% |
Spain | 64.4% | 17.1% |
Weighted average | 51.8% | 21.6% |
Noting that this finding is consistent with several other studies, Oxfam concludes that:
“Our estimate of the financial effort in bilateral loans is less than half the OECD’s.”
The bottom line is that, of the $115.9 billion that the OECD estimates as total climate finance, Oxfam has concluded that less than one-third represented real donor financial effort by wealthy countries. And Oxfam’s method showed once again that the OECD-DAC’s method of scoring of financial effort was far too generous to bilateral donors.
IV. The source of the problems: the DAC’s flawed ODA accounting
“The exaggeration of ODA in OECD figures is even greater than that for Climate Finance…”
In its calculations, Oxfam includes additional margins to cover the risk of non-repayment of the loan. This boosts donors’ figures, but it is perfectly correct as long as one accepts Oxfam’s assumption that:
“…contributing countries will not be allowed to claim any future debt relief for these loans as climate finance.” (Page 9, Oxfam Methodological Note)
However, when it comes to measuring development assistance (as opposed to climate finance) the OECD/DAC does allow donors to score ODA for the costs of debt relief after a loan defaults…despite the fact that ODA has already been scored for assuming this same risk at the time the loans were made (See Box below).
History of Double-Counting Non-Repayment Risk as ODA.
When the DAC decided to move away from cashflow accounting of ODA and to a system of estimating the grant equivalent/donor effort of loans on an ex ante basis, it also decided to account for the credit risk up-front in its ODA calculations. It therefore made the following pledge:
We agree that the cost of risk should not be double counted. Changing the measurement system from net flows to risk-adjusted grant equivalents will therefore also change the basis on which we report on debt relief of ODA loans. We have therefore agreed that the rules on reporting ODA debt relief will need to be updated to rule out double counting.
(https://one.oecd.org/document/DCD/DAC(2014)69/FINAL/en/pdf Paragraph 14):
However, the DAC later reneged on this promise, and decided to allow donors to score ODA for the cost of debt relief when it is agreed, as well as retaining all the ODA scored up-front for assuming the credit risk on the vast majority of loans that are fully repaid. As we and other commentators have observed, this means that donors are being allowed to score ODA twice for the same risk, resulting in a significant exaggeration of ODA in all loans.
Accordingly, when it comes to a true up-front calculation of ODA, the credit risk margins should be omitted to recognise that more ODA will be scored later for any risks that actually occur.
And when the “credit risk” margins are removed from upfront calculations (see graph below), the “donor effort” of the major lenders declines significantly. The “negative” average grant elements of France and Germany show that these donors are actually making healthy profits of between 12% and 16% from their so-called concessional loan programmes, despite the fact that the OECD has allowed them to score almost $2.5 billion of ODA from these climate loans alone. The net financial flows are actually moving from the poorer developing countries to the rich country governments, yet donors are scoring ODA for this!
The much smaller programmes of Italy and Spain also register “negative” grant equivalents, showing that they too will make real profits on their loans, as long as they are repaid (while scoring extra ODA if they are not repaid). The biggest lender of all, Japan, is different in that it does provide a real subsidy in its loans, but the DAC’s over-generous methodology greatly exaggerates this, as it wrongly credits Japan with ODA of more than $5 billion, when the true sum is a small fraction of this.
The Exaggeration of “Grant Element” in Loans for Major Donors
Original chart: OECD ODA grant elements compared with risk-free grant elements for France, Germany and Japan. The chart is distinct from the preceding Oxfam comparison, which includes risk margins.
V. Equity Investments and Grant Equivalents/Elements
In Oxfam’s report, it counts “Equity and Shares in Collective Investment Vehicles” as having a zero grant element. This is correct since, as the report states, these instruments are, as a rule, assessed as commercially viable (and the development finance institutions – DFIs – making these investments do indeed generate a positive financial return across their equity portfolios). Accordingly, while equity investments may bring developmental and climate-related benefits to developing countries, they do not entail donor effort in terms of net financial contributions by rich countries. In fact, again, they actually comprise net financial flows moving from poorer developing countries to the richer donors.
Nevertheless, the OECD/DAC, after decades of excluding such commercially-viable investments from ODA, now does allow donors to count them, even where they are highly profitable. Simon Scott drew attention on this website to an example15 presented in an official OECD/DAC document showing how, despite making a profit of $31m or 77.5% on 7-year investments of $40m, $5.86m is scored as ODA.
VI. Overall Conclusions
We welcome that Oxfam has thrown a spotlight on the exaggeration of donor effort by the OECD/DAC, something that a number of NGOs (and, of course, the ODAReform.org website) have been highlighting for some time now.
The negative implications of the OECD/DAC’s overcounting of ODA in non-grant instruments, whether loans or equity investments, are manifold:
- Donors are stealthily cheating on their ODA and climate finance commitments, pretending to be generous and making financial effort, when the truth is very different.
- Donor country taxpayers, developing country governments and others are deceived into believing that the richer donor countries are being far more generous than they are in providing financial assistance for climate change (and development more generally).
- This is because the donors’ club of the DAC has instituted a methodology for calculating “donor effort”, which is then scored as ODA, in a way that is designed to inflate their own aid statistics.
- Whereas in the past, one could have expected OECD leadership of the late 1990s and early 2000s to have commissioned an independent review of ODA statistics, there has so far been no appetite in the current leadership to do so. This is despite the risk that the corruption of ODA and climate finance statistics threaten to besmirch the reputation of the OECD for robust statistics in other areas, and even though the current practices breach the OECD’s own Council Recommendation on Good Statistical Practice16.
- However, today, the hope for reform from within is forlorn. The club of donors, unhindered by the voices of developing countries, have exhibit a self-congratulatory groupthink mentality. This has been likened to dogs running a dog show…awarding themselves rosettes at every turn. In such an environment, reform rests on whether a coalition of the Global South can emerge to divest the OECD of its role in setting the rules for measuring ODA and, by extension, the financial effort in climate loans and equity investments.
- Real aid, whether to tackle climate change or development more generally, is being reduced as donors are claiming ODA for profitable loans and equities, reducing the pressure (or in some cases legal requirement) to increase aid expenditure.
- Contrary to international commitments, net finance is often flowing away from developing countries, saddling them with additional debt, and moving into the pockets of rich donor countries, which is the antithesis of climate justice and the “polluter pays principle”. As we have said many times on ODAReform.org, developing countries are being made to pay for climate change they did not cause, while donors are claiming credit for aid they have not given!
- The grants developing countries need, including for climate adaptation projects, are disincentivised. As Oxfam notes,
“It is concerning that the overcounting of developed countries’ effort linked to providing loans when reporting Official Development Assistance (ODA) provides an incentive for donors to extend climate finance as loans rather than as much-needed grants.”
Providing massive financial incentives for developed countries to extend climate-related loans and equity investments over grants (after all, why give money away when a donor can hit its ODA targets while making a profit!) runs counter to the needs of the poorest countries which are less credit-worthy, and to the need for more adaptation projects in particular that do not generate revenues from which loan repayments can be made.
VII. Recommendations
In light of the foregoing, we make the following Recommendations:
1. At COP 29 in Baku, any agreement on new financing targets should include far greater clarity around how climate finance is defined, measured, counted and reported. Donors should observe the principles enunciated in the DAC Recommendation on Good Pledging Practice.
2. Future financing targets must include an agreement on burden-sharing. The fact that there is “collective” responsibility whereby all developed countries are accountable for meeting the current $100 billion target means that, in reality, no country can be held properly accountable.
3. Future donor reporting on their financial effort, through non-grant instruments of loans, equity investments etc., should be in accordance with the methodology used by Oxfam in its 2024 report17, “Climate Finance Short-Changed, 2024 Update” and not according to the discredited OECD/DAC methodology.
4. Given the Oxfam methodology includes an allowance for non-repayment risk (thereby allowing developed countries to score additional grant equivalent for this risk), it should be specifically agreed that no further grant equivalents will be scored for forgiving any climate loans that are not fully repaid.
5. The international community should divest the OECD/DAC of its role in setting the rules for measuring ODA and, by extension, the financial effort in climate loans and equity investments. This should be reassigned to an independent body, comprising statistical experts from both donor and developing countries, and free from the political control of like-minded donors with a conflict of interest.
Annex: Reproduced from OECD Report, “Climate Finance Provided and Mobilised by
Developed Countries in 2013-23
Original OECD annex reproduced in Steve Cutts’s paper: Box 3 on concessional and non-concessional loans, with bilateral and multilateral climate-finance charts for 2016–2022.
Source notes
1 Note on the Author:
Steve Cutts co-wrote Oxfam’s recently-published “Climate Finance Short-Changed, 2024 Update”, advising on the methodology used to assess the financial effort in official loans. Steve also founded the campaigning website ODAReform.org.
Having previously served as Assistant Secretary-General (ASG) at the United Nations, ASG at the Commonwealth Secretariat and both Chef de Cabinet and Deputy Executive Director at the OECD, Steve is currently a Partner at Independent Economics.
3 https://unfccc.int/resource/docs/2009/cop15/eng/l07.pdf 4 https://legalinstruments.oecd.org/public/doc/269/269.en.pdf 5 https://devinit.org/resources/climate-finance-earning-trust-through-consistent-reporting/executive-summary/
6 https://unfccc.int/NCQG 7 One of the stipulations in the OECD Recommendation on Good Pledging Practice is that “Global pledges by the donor community should be an actual sum of individual donor pledges, and these pledges should as far as possible be compatible in their terms, dates, baselines, and units of measurement.” 8 See https://www.oecd-ilibrary.org/docserver/9789264249424-en.pdf?expires=1721715459&id=id&accname=guest&checksum=37B8F2DF69D90C8984A71B958932A D20 page 8.
10 Page 1, 2nd paragraph; Page 24, 1st paragraph.
11 High discount rates produce high grant equivalents. The DAC applies discount rates of 6% p.a. for loans to Upper Middle Income Countries, 7% for loans to Lower Middle Income Countries and 9% for loans to Least Developed Countries and other Low Income Countries. Since 2018, the World Bank has been offering unsubsidised loans at a total cost of around 1.5%.
12 https://oxfam.app.box.com/s/q32guouexhj6proorwm8f14sv6nvan77 also available as a UNFCCC resource: https://unfccc.int/sites/default/files/resource/Oxfam_Climate_Finance_Short-Changed_2024_update_CSNA_Estimate_Methodology_Note.pdf 13 https://www.oxfam.org/en/press-releases/rich-countries-overstating-true-value-climate-finance-88-billion-says-oxfam?form=general 14 As the Report notes, the methodology used by Oxfam is, perhaps ironically, drawn from the OECD’s own “international standard for determining tied aid loans’ concessionality level”. This standard is
administered by the OECD’s Export Credits Division, which is separate from both its Environment Directorate (which produces the Climate Finance Report) and the DAC, which produces the ODA figures.
17 We would be happy to provide technical assistance with this: ODAReform@icloud.com
Your pocket guide to measurements of “climate finance”
by Simon Scott
Purpose
This note offers a briefing on the current state of international measurements of climate finance flows to developing countries.1
Its starting point is paragraph 8 of the “Copenhagen Accord” reached at COP15, which agreed that:
Scaled up, new and additional, predictable and adequate funding […] shall be provided to developing countries; and that
developed countries commit to a goal of mobilizing jointly USD 100 billion dollars a year by 2020 to address the needs of developing countries. This funding will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance; and that
New multilateral funding for adaptation will be delivered through effective and efficient fund arrangements, with a governance structure providing for equal representation of developed and developing countries. A significant portion of such funding should flow through the Copenhagen Green Climate Fund.
Measurement challenges
Before going into the details of available measurements, it is important to notice the following points about the above commitments, which are sometimes misunderstood:
1. The $100 billion was a total, collective figure: no individual developed country promised any specific amount
2. The $100 billion did not have to be provided directly by developed countries, but would only need to be “mobilized” by them
3. The $100 billion could include private flows, as long as they were “mobilized” by developed countries
4. The Green Climate Fund was only one prospective channel among many; it was not promised $100 billion.
It is also important to know that, although the 2020 deadline has passed, the target is still “live”, since in 2015 it was extended to 2025, with a promise to set at least as high a target for later years.
Beyond these facts, however, the set-up presents numerous grey areas. Who is to report? What does “commit to mobilizing jointly” mean in practice, and what is the precise import of all those adjectives – “scaled up”, “new”, “additional”, “predictable” and “adequate”. Do amounts actually have to be spent by 2020, or only committed by then? And what qualifies as “climate funding” in the first place?
Unfortunately there is no clear answer to these questions, nor even as to who ought to resolve them. As the United Nations puts it, "There isn't a formal set of instructions that would directly assign responsibility to an organisation for collection, processing, and dissemination of statistics" on the achievement of the target. This has led to a chaotic reporting situation, with at least four competing ways of calculating climate finance for developing countries. Let us now briefly describe and assess these.
1 This note does not address the issue of total climate-related expenditure, which is mainly within countries, and which has recently been estimated at over $1 trillion annually.
UNFCCC Reporting on Sustainable Development Goal indicator 13.a.1
The closest approach to globally agreed figures on climate finance are those reported to by “UN Climate Change” (the Secretariat of the United Nations Framework Convention on Climate Change) to the United Nations Statistics Division under Sustainable Development Goal Indicator 13.a.1, "Amounts provided and mobilized in United States dollars per year in relation to the continued existing collective mobilization goal of the $100 billion commitment through to 2025".
However, these figures cannot give a definitive answer as to whether the target is being met or not because – as we have already seen – the measurement methodology was never properly spelled out. The UN's metadata note puts it this way:
There is no common agreement on the methodology to measure progress towards the USD 100bn commitment under the UNFCCC. Data provided through Biennial Reports reflects the reporting of financial support provided to developing countries by Annex I Parties to the Convention. … Each Party reports climate-specific finance provided and their underlying assumption and methodologies in accordance with the guidance [my bolding here and later]
Despite the variation in methodologies among reporting countries, the UN allows users to add up the figures up on its website, and this shows "total financial support provided" against indicator 13.a.1 as hovering around $50 billion for all years between 2017 and 2020, the last year for which data are currently available -- the figure for 2020 being $52.5 billion. However, it is most important to note that the UNFCCC specifically states that “…this data should not be interpreted as an indicator in relation to the achievement of the collective mobilization goal of $100 billion commitment.”
OECD Climate Finance report
A second approach is the annual Climate Finance report produced by the OECD Environment Directorate, the first edition of which provided figures in advance of the Paris COP conference in 2015 for total climate finance, including mobilised private flows which are not counted in the UNFCCC data.
The OECD figures are higher than those under SDG indicator 13.a.1, because they specifically include mobilised private finance and also higher figures for multilateral finance, where for most agencies they show outflow figures from multilateral agencies instead of the inflow figures reported to the UNFCCC by contributors to those agencies. In both respects they can claim to be following the original Copenhagen Accord which stated that “This funding will come from a wide variety of sources, public and private, bilateral and multilateral.”
The OECD Climate Finance report total for 2020 was $83.3 billion; for 2022 it estimates the total at $115.9 billion, thus exceeding $100 billion for the first time.
The OECD report offers significant improvements on the UNFCCC figures, but its data on bilateral official flows remain the unstandardised figures submitted by various parties. Moreover, for multilateral figures, the report has to resort to a complicated and heterogenous procedure that varies according to the nature of the available raw data.
There is also a problem with the report’s subtotals. It adopts the new, excessively permissive definition of “concessionality” which the OECD-DAC (see below) now uses to score bilateral official development assistance (ODA). This leads it to classify too much bilateral climate finance as concessional, and not enough as non-concessional. Among other things, this gives a false impression that bilateral climate finance is given on more generous terms than that from multilateral climate funds.
OECD-DAC “Rio Marker” data
Another part of the OECD, its Development Assistance Committee (DAC), has for many years offered a third way of measuring climate finance, based on its system of “Rio Markers” that identify activities with a “principal” or “significant” climate objective.
In a similar fashion to the UN, the DAC admits to limitations on the nature of the resulting data:
The Rio markers apply to activities as a whole, i.e. the score given applies to all components of an activity, some of which may be more climate-related than others. For this reason, the markers are considered descriptive rather than strictly quantitative: they allow for an approximate quantification of development finance that targets the climate objectives, mitigation, adaptation, or both […]
Rio markers are also used to report on Other Official Flows (OOFs) on a voluntary basis.
Once again, however, these faults do not stop the DAC from adding up the available reporting and presenting the resulting figures as totals. Accordingly, it reports bilateral climate finance for developing countries in 2020 as totalling almost $45 billion of official development assistance and nearly $1.5 billion of other official flows. In addition it flags another $4 billion for mobilised private flows, which would give a grand total of $50 billion -- but this does not include multilateral finance.
It is important to note that the OECD-DAC cedes primacy to the OECD Environment Directorate’s Climate Finance report’s methodology – already described – as a way of measuring performance against the $100 billion target taken up by SDG 13. It also reiterates that
The methodology to calculate the climate finance figures in support of the USD 100 billion goal does not use bilateral Rio markers data submitted to the OECD, but instead uses bilateral climate finance data reported directly to the UNFCCC.
“TOSSD” measurements
The proposed new measure of Total Official Support for Sustainable Development (TOSSD”), incubated in the OECD but now managed by an “International Forum”, offers a fourth approach to measuring climate finance benefiting developing countries.
TOSSD presents itself with less caveats than the other measures discussed here. It states boldly that
TOSSD…is designed to monitor all official resources flowing into developing countries for their sustainable development, but also private resources mobilised through official means. It also measures contributions to International Public Goods.
in five years' time [i.e., by February 2026…] TOSSD should become the pre-eminent measure of financing sustainable development in developing countries
Nevertheless, the TOSSD portal does not show climate finance figures directly, but only in the form of the percentage of total TOSSD which its reporters have marked as contributing to SDG Goal
13. Dollar figures can only be calculated by applying these percentages to TOSSD totals. For 2020, TOSSD shows 11.9% of “Pillar I” of TOSSD contributing to Goal 13, and 18.4% of “Pillar 2”. Applying these percentages to the totals shown for the respective “Pillars” makes a total of $42 billion.
This figure is lower than any of the above estimates, despite the fact that “Activities that limit anthropogenic emission of GHGs, including gases regulated by the Montreal protocol, are eligible in principle” – which allows in much more than finance specifically for developing countries. Total official mitigation spending in 2020 was originally estimated at around $300 billion a year, with significant new data sources having been identified since that would push that figure higher. It therefore appears that so far, few TOSSD reporters have decided to report their domestic expenditure on climate mitigation as contributing to SDG 13. This may or may not be because they consider it outside the true scope of Goal 13.
Conclusion
We have briefly considered four possible methods of measuring climate finance flows to developing countries. These yield four possible totals in 2020: $52 billion, $83 billion, $50 billion plus multilateral flows, or $42 billion.
Among the methods, the OECD Climate Finance report seems the best in terms of fidelity to the 2009 Copenhagen Accord, though it still suffers from several unavoidable limitations.
Measurement problems were inevitable because the $100 billion target was not adequately specified, leaving room for interpretation as to what might be counted. In addition, no agency was put in charge of measurement, and no authority was given to any entity to harmonise reporting so that coherent totals could be produced. The resulting situation is one of bureaucratic waste, with multiple organisations and groups producing figures compiled on disparate bases, and with all figures in the final analysis being unsatisfactory.
The obvious lesson is that the international community needs to become much more serious about any future target-setting for climate finance, or development finance more generally. The DAC Recommendation on Good Pledging Practice provides a useful checklist of essential steps to ensure that future development financing targets are meaningful and accountable, and can be measured on a clear, sound, and agreed basis.
[Revised November 2025 to fix broken links]
What isn’t measured properly, won’t be managed properly: Climate finance as a case in point
By Hedwig Riegler
Around 2011, the slogan “If you can’t measure it, you can’t manage it” was emblazoned, in oversize letters, on the walls of the OECD Conference Centre in Paris. The quote from which this motto was derived1 is attributed to the Austrian-born US-American economist and management thinker Peter Drucker. What Drucker meant is that you can’t know whether or not you are successful unless success is defined and tracked. So, on the eve of a new global agreement on climate finance, do we know whether or not the existing USD 100 billion a year climate finance goal was achieved? Was it defined and tracked well enough to give a reliable answer?
Clearly, the answer to this question is No. As my colleague Simon Scott shows in the companion piece to this article, there are at least four competing ways of tracking climate finance for developing countries, and even the best of them admits to serious deficiencies in its measurement of performance against the target caused by poor initial design of the target, inadequate definitions, methodological inconsistencies, and reporting gaps.
I was a consultant to the Austrian Ministry of Environment and participated in its working group on climate finance (AGIK) up to end-2019, and I witnessed my country’s struggles to set up a climate finance reporting system despite the absence of a solid international reporting framework. I thought it might be useful if I briefly traced these problems from their origins in the Copenhagen pledge, through the dilemmas they caused at national level, to the impact they had on global measurement. I hope this may help the planners of future pledges to design them in ways that allow them to be properly followed up and monitored – which is not the case with the Copenhagen pledge.
Key points of reference
The USD 100 billion pledge was contained in paragraph 8 of the Copenhagen Accord of 2009, which stated inter alia that:
Scaled up, new and additional, predictable and adequate funding as well as improved access shall be provided to developing countries…The collective commitment by developed countries is to provide new and additional resources, including forestry and investments through international institutions, approaching USD 30 billion for the period 2010 – 2012 [this came to be known as the “Fast Start” financing pledge]…In the context of meaningful mitigation actions and transparency on implementation, developed countries commit to a goal of mobilizing jointly USD 100 billion dollars a year by 2020 to address the needs of developing countries. This funding will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance. [My bolding]
Austria‘s data collection and reporting to international entities on this commitment started systematically in 2012 and was institutionalised in 2013 by issuance of a “Climate Finance Strategy” (covering the period 2013 to 2020), which included rudimentary stipulations on how climate finance would be counted in Austria (i.e., basic eligibility criteria). A revised edition (2017) was issued with refinements of both the strategy and (in its Chapter 6) national criteria for counting climate finance.
1 Originally: “you can’t manage what you can’t measure”.
Major definitional gaps
National discussions soon focused on two major definitional questions which were subject to different interpretations by different officials dealing with climate finance and/or representing Austria in relevant international bodies. These were:
1) What does “mobilising” mean in the context of the USD 100 bn goal? Because in counting finance, several options offer themselves. Are we talking about pledges, commitments, or actual disbursements? And what decisions by developed countries can be considered as “mobilising” these actions? Different answers to these questions can give vastly differing results.
2) What does the agreed wording that climate finance should be “new and additional” mean? This very basic question gave rise to a contentious internal debate, with some holding that what was already reportable to the OECD’s Development Assistance Committee (DAC) as Official Development Assistance could not simultaneously be counted as climate finance, while others held that ODA was to be considered a part of climate finance, though perhaps with the caveat that “new and additional” should be interpreted as “on top of our usual ODA/GNI ratio” – whatever “usual” might be taken to mean given the major fluctuations observed in Austria’s performance.
The group arguing that ODA could be part of the USD 100 bn had some substantial arguments on their side. The “new and additional” phrase, which was specifically attached to the USD 30 bn Fast Start pledge, was not repeated for USD 100 bn pledge. Moreover, upon the coming into force of the United Nations Framework Convention on Climate Change (UNFCCC, 1994), the DAC had agreed that greenhouse gas emission reduction and climate change adaptation goals were to be “mainstreamed” into ODA portfolios, which meant that all concessional, official climate finance to developing countries would score as ODA anyway.2 To track the degree of “mainstreaming”, the DAC statistical system then developed a system of markers (the “Rio Markers”) under which each activity reported would be marked if it appeared to be addressing either mitigation or adaptation as a primary or significant secondary objective. Thus the markers had four non-zero values: mitigation-significant, mitigation-primary, adaptation-significant, and adaptation-primary.
The mainstreaming approach and the DAC marker system meant that there was a clear overlap of the climate goals of Development Cooperation (ODA), present since the mid-1990s, and the goals emerging from the Copenhagen Accord and the subsequent 2015 Paris Agreement. How this overlap in international goal-setting was to be dealt with when tracking total climate finance was not addressed concretely, in the end leaving interpretation of the vague notion of “new and additional” to each party to the agreements.
The definitional problems viewed from Austria’s national perspective
A decision on the meaning of both “mobilise” and “new and additional” clearly had to be made before starting a data collection that could satisfy Austria’s national and international reporting requirements. But the international reporting obligations themselves were still unclear at this point. In particular, the first reporting requests by UNFCCC left it up to parties to make their own choice of whether to report financial commitments or disbursements (gross or net) – they merely requested countries to specify what was being reported.
2 The same applied to the goals of the other two conventions signed at the 1992 “Earth Summit” held at Rio de Janeiro – on biodiversity and combating desertification, both of which also contained promises of “new and additional” funding.
This “anything goes” approach by the UNFCCC Secretariat created a major problem right from the start. For while, in each activity-level notification, it would be possible to include both commitment and disbursement data, as well any return flows, a total had to be produced to track performance against the quantitative commitments made in the Copenhagen Accord, and the nature of this total had to be clear and uniform for all reporting countries. Did the USD 30 bn in “Fast Start” Finance in the period 2010 to 2012 and the USD 100 bn per year by 2020 refer to commitments, or gross disbursements, or net disbursements; and what counted as “mobilised” and “new and additional”?
It was obvious from the outset that aggregation was necessary, and not only for reporting to the UNFCCC. As an EU member state, Austria was also obliged to track its national contribution (120 million euros) to the voluntary collective pledge made by the EU on the USD 30 bn “Fast Start” Finance objective. This was to be tracked by EUROSTAT. In addition, in compliance with transparency promises, Austria would be publishing annual reports showing how its performance against the climate finance commitments was progressing. Such national publication of climate finance totals (with breakdown into major sub-totals) would set off a time series that would make it very difficult to later on change the quantitative variable chosen for aggregation.
Austria’s main decisions
In the end, Austria decided to define the two key terms in the Copenhagen Accord as follows:
- On “mobilising” it chose commitments (the volume of finance contracts signed) as the financing variable it would use to calculate totals that count against the quantitative targets. This was based on the interpretation that “mobilise” meant “set in motion” and that the financial commitment, rather than actual disbursement, most closely reflected that meaning.
- On the “new and additional” issue, Austria decided that all ODA would be treated as part of climate finance, since it would not make sense to exclude finance for developing countries that was targeted to climate mitigation and/or adaptation just because it was classified as ODA. Only very few discussants suggested excluding ODA, and the fact that this would have excluded a significant share of climate finance may well have influenced the decision, which was taken at political level.
A first analysis of Austria’s data revealed that almost all activities relevant to the climate finance goals were equally reportable to the DAC statistical system – as OOF (Other Official Flows), OSEC (Officially Supported Export Credits), or even officially mobilised private finance, on which the DAC had started to collect and publish data from 2012. Therefore, the decision was taken that data collection on climate finance in Austria would be fully harmonised with the DAC system so as to avoid inconsistencies or major contradictions in Austria’s dataset.
It is important to emphasise that these were national decisions, and that there was no harmonisation with the approaches of other countries, or even other EU countries. In particular, a survey in 2015 showed that nearly two-thirds of donors chose to report on disbursements rather than on Austria’s chosen variable of commitments.
Additional features of Austria’s approach
Further methodological choices arose from the decisions just described. The most important were:
- to use the DAC Rio Markers for identifying activities with mitigation and/or adaptation objectives, and to extend the use of those markers beyond DAC reporting obligations, which were limited to ODA activities, to also cover other official flows (OOF); and
- to then use the markers as a basis for an estimated quantification: projects bearing either of the two “significant objective” markers would be scored as climate finance at 50% of the committed amount, while “primary objective” projects would be scored at 100%.
Again, these were Austria’s national decisions, and other countries took other decisions. By 2015, most countries were still not applying markers to OOF and the percentages of “significant” activities they scored as ODA varied from 20% to 100%.
Austria also took account of the fact that a single financing contract could be marked for both mitigation and adaptation. This required agreement on a specific quantification method for projects with more than one marker to avoid double-counting of the same finance. A detailed rule on this was adopted without any problem; nevertheless, it was recognised that applying it would only produce a fair estimate and not an accurate calculation of Austria’s climate finance. There was no way, it was found, to specify exact amounts targeted directly to different climate objectives within an individual project. It would be unfair to call this just an excuse, since most development projects were designed as integrated measures, based on the experience that projects addressing a single issue often did not work. It is indeed unfeasible to determine, at commitment stage, how much money will go to each specific activity in a financing contract that covers a range of integrated measures. Other countries may well have taken different approaches to the double-counting issue.
Results
I could go into more detail about Austria’s methodological decisions, but the above points already suffice to show the sort of things that happen in practice when countries have to start collecting and reporting data in the absence of any agreed international framework for doing so. Each country has to create its own system, resulting in quite different approaches to quantification of relevant finance. The resulting figures for each country are therefore inconsistent in nature, and cannot be added up. Yet international entities wanting to present figures on the achievement of collective quantitative targets do add them up, using their own varying methodologies. The totals they arrive at are essentially meaningless and cannot allow reliable judgements to be made about target achievement, burden sharing, funding gaps, programme effectiveness or other relevant issues. The debates that proceed on such topics can never be resolved given the absence of a solid and agreed evidence base.
Austria was aware of these problems and explicitly stated that it would adapt its national methodology to international standards as soon as such were available. Yet this has never happened, because even after more than a decade of data collection, there is still no firm international standard for statistics on climate finance to which national rules could try to conform. And no international body has yet been assigned the task of developing one.
Lessons for future target-setting
Forcing countries to create their own definitions and methodologies for recording and reporting climate finance data has led to quantitative information that in the end is worthless as a fact base and feedback into policy decisions. The consultation and collection processes engaged have also needlessly wasted millions in public funds across donor countries.
This should not be allowed to happen again. Future climate targets need to be properly specified, and made specific and accountable at country level. Eligible expenditures need to be clearly defined, reporting obligations specified, and responsibilities for international monitoring spelled out. The DAC Recommendation on Good Pledging Practice provides useful further guidance on necessary steps.
If this is not done, the international community will have every reason to consider that those future pledges are only for show, and that not even the parties that make them really take them seriously.
Additional references from the original PDFs
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