Report: International Climate Financing Failing to Meet Needs of Small Island Developing States

The world’s small island developing States (SIDS) are facing the compounding shocks of the intensifying effects of climate change, the COVID-19 pandemic and high levels of debt. Despite unprecedented exposure to multiple crises, a new report by the UN Office for the Most Vulnerable States (OHRLLS) and the Climate Finance Access Network (CFAN) finds that these vulnerable nations face an uphill battle in accessing climate financing.

While their needs are great, a fragmented international development and climate finance architecture that has proven slow, inefficient, siloed, is unequipped to grasp SIDS’ realities and needs. In 2017–2018, around half of the climate finance received by SIDS was non-concessional, with nearly 50% of public finance coming through loans or non-grant mechanisms, while only 3% was bilateral climate finance.

“Time is tight for the world to act on curbing emissions and supporting the most vulnerable nations in building resilience to climate change,” said Heidi Schroderus-Fox, Acting High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States. She added, “Those on the front lines shouldn’t have to fight this hard to access life-saving resources.”

SIDS are caught in a catch-22 as they are forced to redirect limited budgets earmarked for sustainable development, climate adaptation, and disaster risk reduction to service their rising debt. Climate change and disasters exacerbate SIDS’ debt struggles and lower their credit ratings, adding an average of 24% to debt to GDP ratios. Environmental shocks cause a spiraling debt trajectory, as SIDS borrow additional money to aid recovery, leading to higher debt servicing costs. 

While SIDS predominantly receive concessional Official Development Assistance (ODA) after disasters, due to ad-hoc exceptions to ODA requirements, the report argues that ad-hoc exceptions fail to address the compounding and systemic issues faced by SIDS.  

As climate-related risks rise, the level of climate finance received by SIDS decreased from US$2.1 billion to US$1.5 billion in 2019. The report also argues that the US$1.5 billion mobilized for SIDS in 2019 is not proportional to their needs, as their Nationally Determined Contributions (NDCs) are worth around $92 billion. 

The report recommends three key action areas to address the shortfall in climate financing for SIDS:  

• Establishing a dedicated funding envelope for SIDS. The envelope would expand the established mechanism of the Green Climate Fund’s Enhanced Direct Access (EDA) pilot. Direct access to funds will build strong regional and country systems that facilitate access to climate funds.  
• Creating a Global Data Hub for SIDS. The hub would increase data accessibility in SIDS, enhancing key decision-making processes, debates and negotiations relevant to the allocation of climate funds to SIDS.  
• Encouraging donors and implementation entities to shift away from project-based approaches and invest in programmatic approaches that build long-term capacity.  

The report, Accessing Climate Finance: Challenges and opportunities for Small Island Developing States was launched on 11 July, 2022 on the margins of the UN’s High Level Political Forum.