Strengthening Access to Climate Finance to Support Sub-National Action

The speed and scale at which a just transition is needed requires the mobilization of climate finance at all levels of government. National, regional, and local governments, development partners, and financiers need to work together to tackle barriers that hinder the fundamental structural changes required for climate-aligned resource mobilization.

The NDC Partnership is committed to assisting its members in promoting climate action, including through efforts at the subnational level. To understand the landscape of country needs, partner support offerings, and gaps between the two, the NDC Partnership hosted a Thematic Partner Discussion among its members in September 2023. Results from the discussion, coupled with trends across the NDC Partnership's support in nearly 90 developing countries, are summarized in the Insight Brief Subnational Climate Finance Trends in NDC Partnership Support.

What do current trends in sub-national climate finance look like through the NDC Partnership?

Through the NDC Partnership, as of May 2023, 36 countries have submitted a total of 161 requests for support on the topic of subnational finance (3% of all requests received by the Partnership). Only 44% of these requests have received offers of full support, highlighting a significant gap between member needs and partner support.

Subnational climate finance requests mostly relate to project support (55%). Data shows a large gap in support for project development, with 65% of requests remaining unsupported. In contrast, requests to integrate NDC into planning, budgets, and revenue streams, which capture NDC Investment Planning, receive overwhelming support (88%).

A strong emphasis on adaptation and cross-cutting support is evident in the focus area, highlighting the need subnational stakeholders have to structure and implement adaptation-related projects and investments at this scale.

Subnational climate finance requests include many topics that are core to climate action at the city level, including energy efficiency, mainstreaming, and disaster risk reduction. Circular economy is a key topic at the sub-national level but has received very little support from partners.

Subnational Finance requests are mostly sector-specific, as compared to overall Partnership requests that are more are more cross-cutting. Generally, subnational climate finance requests are related to energy, transport, waste, and water sectors, in line with the topic trend. Contrary to requests related to rural areas, such as agriculture, forestry, and land use (FOLU), these requests receive relatively good support.

Insights on the support available to strengthen access to subnational climate finance

A survey to understand the initiatives pursued by our partners in the subnational climate finance space found that almost 95% of the partners identified capacity development as their prevailing support service. Engagement with stakeholders emerged as the second most common service (80%). Furthermore, considerable attention was directed toward project preparation, with 70% of partners actively contributing to structuring projects and investments. Developing studies and analysis was also deemed crucial and was undertaken by 65% of partners.

In addition to these commonly reported services, partners disclosed various other forms of support, encompassing the integration of NDCs into planning, budgets, and revenue streams, financing projects and programs, mobilizing resources (over 45%), developing MRV/M&E systems, and enhancing whole-of-government coordination (both at over 35%).

Regarding the focus of partner support, results from the survey align with the Insight Brief, with partners mostly providing support to cross-cutting (85% of partners) and adaptation (73% of partners) requests. Mitigation remains third in partner support offer (53% of partners). The survey results reflect that partner support is crucial in addressing cross-cutting issues and adapting to changing circumstances. However, there is still room for improvement regarding partner support for mitigation efforts, which should be prioritized to tackle the challenges of climate change effectively.

Subnational governments (88%) remain the partner of choice, followed by national governments (39%) and non-governmental organizations (45%). This indicates local actors' potential to drive development and progress in many parts of the world. However, more must be done to provide them access to resources and opportunities. Local governments must be further supported and empowered to achieve vertical integration.

Collaboration across a range of actors proves pivotal in delivering these finance-related support activities. Partners reported primarily supporting subnational governments (94%), followed by national governments (88%), implementation/development partners (81%), the financial sector (69%), NGOs and civil society (62%), and enterprises (44%).

Concerning sectors, partners concentrate on transport and energy (both over 70%), followed by buildings (above 60%), and waste and water (50% each). Like the outcomes of the Insight Brief, support pertains to sectors associated with cities and urban areas.

Connecting the dots

Requests for support on subnational climate finance are expected to increase given the growing relevance of cities and urban spaces in climate action, including from COP28. Since climate finance is the fastest-growing support category overall within the Partnership, this trend is anticipated to extend to the subnational space.

Vertical integration remains a main challenge in mobilizing climate finance and overall support. Despite the increasing role of subnational entities in climate action, national governments remain the main recipients of development cooperation support and climate finance. Structuring climate-aligned projects and investments, especially for adaptation, requires more attention from development partners and financiers. As of now, even if support is available, it is outpaced by the number of requests coming in. These challenges in the support landscape are exacerbated by systemic barriers that hinder the ability of subnational stakeholders to access climate finance, namely, the incapacity to borrow, creditworthiness standards, and the unequal flow of resources.

In conclusion, addressing these challenges necessitates robust and effective cooperation. The NDC Partnership is committed to continuing its collaborative efforts with partners to mobilize capital and ensure climate-smart urban projects secure the funding required for successful implementation. Together, we aim to create a resilient and sustainable future at the subnational level, contributing significantly to the global fight against climate change.