Climate Finance is crucial for the sustenance of our planet. It is the critical lever enabling the capitalization of the resources that will support the development of our planet without hampering its ecological balance.
A report by Rockefeller Foundation and BCG makes it abundantly clear that there is insufficient climate finance available to keep our planet within the 1.5℃ to 2℃ temperature increase. Currently, only 16% of all climate finance needs are being met, with emerging tech and emerging markets experiencing the most significant shortfalls.
We need both new capital to come in, as well as better, more efficient ways to use existing climate capital to deliver climate Outcomes at speed and scale. Climate finance today is not just about new funding, but about adjusting existing investment behavior (Kennedy and Corfee-Morlot 2013). The more efficiently capital is deployed, the higher the return -- on the investment and the environment.
The Need for a New Approach
Typical climate finance approaches invest capital into unrestricted and program-related funding to drive outputs. Let’s take the example of funding for Water Security. Climate finance is typically directed towards specific programming or projects such as rainwater harvesting training camps or greywater recycling infrastructure. However, this funding approach rarely links to a tangible or measurable climate impact.
For instance, a water stewardship initiative rooted in a stakeholder-inclusive approach is audited for the number of households or community members impacted through the program, rather than the units of water saved or recycled. While engagement is a key metric to ensure inclusive, long-term impact, the primary goal of water conservation is often diluted, left untracked, and often not even published.
This is unfortunate because climate and environment Outcomes have the clear benefit of being tangible and numerically measurable through the use of scientific methods and technology. This includes measurements of temperature, rainfall, atmospheric carbon levels, ocean acidity among others. Water is measured through liters or cubic metres saved or harvested, salinity, pollutant level as ppm, water level, temperature and acidity levels. These measurements provide a quantitative understanding of changes in the environment and can be used to track progress toward environmental goals and inform policy decisions.
Integrating Results-Based Financing and Data-driven Outcomes
Results-based financing (RBF) is an umbrella term referring to programs rewarding individuals or institutions for achieving verified pre-determined results or Outcomes. RBF tackles spending inefficiencies and makes more effective use of resources. Results-based climate finance (RBCF) is a powerful tool to assign economic value to activities that deliver climate results. While RBCF models such as green bonds and carbon credits are proven, the price and complexity of registration exclude small producers from participation and its narrow focus excludes many important sectors such as water security, biodiversity, and resource efficiency. For RBCF to be effective, it needs to be simple, i.e. not so complicated that people cannot use it, this is one of the current challenges of some of the other financing platforms/ solutions. With a focus on Outcomes, RBCF can offer more flexible and streamlined approaches to measuring progress. For those wanting to use more traditional approaches like the Log Frame, it can be enhanced through the use of technology and data-driven metrics to assess the efficacy of climate financing towards the primary climate outcome.
This approach would measure the number of hectares or soil health of the projects led by participants of a reforestation program rather than the number of people who attended the training. For example, a reforestation program evaluated for Outcomes would look at number of hectacres, increased soil carbon, biodiversity, tree mortality and community engagement would be measured either by time or resources (land) included in the project along with increases over time or revenue increased/disbursed to participants.
For Climate Finance to be efficient and effective, we will need results to be:
Tangible: Perceptible and capable of assessment
Inclusive: Not excluding any of the parties or groups involved and
Comprehensive: Unified and replicable across sectors
Outcomes are specific results that can be quantified and measured such as soil health or groundwater levels. Defining Outcomes helps channel funding toward achievable and tangible results, thereby improving program consequences. By focusing on Outcomes rather than outputs or program structures, we can enable a flexible response to changing or unexpected circumstances.
The Outcomes approach proposes to assess and evaluate the end goal, in addition to the path toward that goal. Technology and observability can play a major role in evaluating climate and environment progress.
When M&E is used in addition to tracking climate-specific metrics, it is dramatically enhanced by the use of quantifiable data. It can also lower costs when used with traditional M&E measures like training counts and survey responses. Regression models can show how training, surveys, and other factors impacted or were impacted by physical changes.For example, how changes in water availability change people's responses to surveys with time, and did people actually change their behavior after the training.
This Outcomes-based approach ensures higher accountability of funds to deliver climate action.
Outcomes Driven by Climate Finance
Focusing on results creates incentives to take action -- from planting trees on degraded land to expanding access to clean energy to enabling energy efficiency in industries. Existing impact consortiums can drive transformational funding initiatives through a results-driven technology framework. This outcome-focus is complementary to traditional investment approaches and can provide holistic and data-driven value to make the impact more efficient, inclusive, and replicable across geographies.
From water to land Outcomes, from circularity to air and energy Outcomes, the Outcomes-approach aims to unify and extend the possibilities of climate capital. A standardized and actionable model rooted in an Outcomes approach will enable capital to be deployed efficiently and achieve a sustainable planet.