What We Heard on Canada’s Future Climate Finance Strategy for Developing Countries

Table of contents

• I. Introduction
• II. Global context and Canada’s 2015 contribution
• III. Main Highlights
• IV. How we reached out and how you responded
• V. Policy Issues
• VI. Moving forward

I. Introduction

In 2015, the Government of Canada pledged $2.65 billion over five years for international climate finance. With this funding now mostly allocated, the government sought public input over the summer of 2020 on its future international climate finance approach, starting in 2021. Given the COVID-19 pandemic, all meetings were held virtually.

In seeking out this input, Global Affairs Canada, in partnership with Environment and Climate Change Canada, hosted a series of virtual events with representatives from domestic and international civil society, academia and the private sector to help shape the future of Canada’s international climate finance for developing countries. The government also met with Indigenous Peoples to gain their unique perspectives. This report describes what the government heard through these consultations.

II. Global context and Canada’s 2015 contribution

Climate change is one of the greatest challenges facing humanity today. It affects every country, and is already having devastating impacts on people, ecosystems and economies. In 2015, Canada and 194 other countries adopted the Paris Agreement, with the objective to strengthen the global response to climate change. The Paris Agreement includes a commitment for developed countries to lead on mobilizing climate finance for developing countries. It also affirms the collective commitment of developed countries to jointly mobilize US$100 billion in climate finance per year by 2020 from various sources, including public and private.

In support of this commitment, Canada is delivering $2.65 billion over five years to help developing countries transition to low-carbon, climate-resilient economies. The objectives of this funding include significantly reducing greenhouse gas emissions, supporting adaptation actions, and mobilizing new private sector capital for global climate action. Canada’s climate finance supports solutions such as clean technology and renewable energy, climate smart agriculture, watershed management, and climate resilience activities^{Footnote 1}.

Canada’s climate finance commitment reflects the understanding that developing countries, and the most vulnerable people in those countries, are the most impacted by climate change and are least able to cope with the consequences. This is particularly the case for women and girls. Climate change has the potential to significantly reverse development gains, and stop the world from achieving the United Nations’ Sustainable Development Goals.

Canada’s international climate finance is part of the International Assistance Envelope and is consistent with its Feminist International Assistance Policy’s (the Policy) focus on gender equality and women’s empowerment. The Policy specifically identifies Environment and Climate Action as one of the key action areas that Canada will address. Through both the Policy, and its programming, Canada recognizes that women and girls are disproportionately affected by climate change. Through the Policy, Canada committed to:

• support women’s leadership and decision making in climate change mitigation and adaptation efforts, resilience-building and sustainable natural resource management;
• ensure that the government’s climate-related planning, policy-making, and financing acknowledge the particular challenges faced by women and girls; and
• support employment and business opportunities for women in the renewable energy sector.

The Official Development Assistance Accountability Act governs Canada’s international assistance. The Act ensures that all Canadian official development assistance is focused on reducing poverty and is consistent with aid effectiveness principles and Canadian values. This means that programming must contribute to poverty reduction, take into account the perspectives of the poor, and be consistent with international human rights standards.

III. Main Highlights

Through a combination of one-on-one discussions, roundtables, webinars, and written submissions, consultation participants focused on answering key questions related to investment areas, programming elements, partnerships and delivery mechanisms. Participants shared their views on how Canada can make the biggest impact, and the principles that should define Canada’s future climate finance commitment.

Overall, consultation participants had much to share, including messages of support for areas where the Government of Canada is already working but, even more so, advice on how to go even further. We welcomed all ideas and perspectives, and noted that these will help the Government of Canada to sharpen our choices and inform the trade-offs we will have to make, in order to ensure that our future climate finance commitment is focused and can deliver the greatest impact.

We repeatedly heard nine messages during consultation events and in written submissions:

Achieve Balance: Strengthen adaptation efforts while investing differently in mitigation. Canada should urgently increase its investments in adaptation^{Footnote 2}, recognizing that developing countries are experiencing severe negative impacts of climate change right now. Canada should continue to pursue mitigation^{Footnote 3} action to reduce the scope of climate change and explore new types of interventions that could make a significant positive impact and address gaps in energy access.

Pursue co-benefit outcomes. Canada should pursue climate action with adaptation and mitigation outcomes that support broader development and economic goals, including COVID recovery. This could include fostering inclusive growth in the blue and green economies^{Footnote 4}, as well as nature-based climate solutions to climate change^{Footnote 5}.

Build community resilience and enable locally-led solutions. Canada should support locally-led solutions to climate change, and build community resilience in the context of the broader localization agenda. This should be done by improving access to financing at the local level, supporting capacity-building, and investing in community disaster risk reduction, particularly in Small Island Developing States and Least Developed Countries.

Implement gender-responsive climate finance. Canada should support gender-responsive climate action across all sectors. This includes ensuring that funding reaches feminist organizations, particularly at the local and grassroots levels, and strengthens women’s capacity to participate in decision-making and to lead climate initiatives.

Work in partnership with Indigenous Peoples. Canada should ensure that its climate finance respects, promotes and advances the rights of Indigenous Peoples and integrates their perspectives, needs, and approaches throughout its international climate finance programming. Canada should also look to support Indigenous-led climate action.

Revisit Financing Mechanisms: Increase grants and change the approach to loans. Canada should provide grants, particularly through bilateral cooperation, to meet specific climate objectives and advance climate action while taking into account COVID realities. Canada should explore new financing mechanisms and increase the effectiveness of its loan portfolio by, for example, accepting higher levels of risk and crowding-in new partners.

Engage the Canadian private sector and the private sector of developing countries. Adaptation and mitigation outcomes in developing countries should be supported by the knowledge, expertise and experience of the Canadian private sector. Canada should also support the private sector of developing countries so that they can build sustainable climate change solutions in their own economies and, in turn, increase development impact.

Leverage Canada’s influence and convening power. Canada should strategically leverage its convening power in international climate finance fora to advance international assistance priorities, including gender-responsive climate action and reaching the world’s poorest and most vulnerable people. Canada should pursue aid effectiveness principles by following the lead of developing country partners and supporting initiatives to implement their National Adaptation Plans and Nationally Determined Contributions.

Integrate COVID-19 realities. Canada should take COVID realities into consideration when developing its international climate finance approach to help developing countries build back better.

IV. How we reached out and how you responded

Canada’s engagement was wide and diverse, reaching 530 people from over 20 countries, and over 300 organizations.

Our approach encompassed the following:

• 8 Ministerial bilateral calls with climate action experts, including 6 with experts on gender-responsive climate action
• 4 Ministerial virtual roundtables.
  • Two were chaired by the Minister of International Development:
    • Women’s Rights and Adaptation
    • Environment and Climate Action
  • Two were co-chaired by the Minister of International Development and the Minister of Environment and Climate Change:
    • Nature-based Solutions
    • Mitigation and Climate Action
• 10 virtual events supported by country missions
• A virtual dialogue with Canadian civil society organizations
• Engagement with Indigenous Peoples
• 159 written contributions received
• 6 webinars
• 3,386 visits to the website
• 856 potential impressions on Twitter

V. Policy Issues

1. Achieve Balance: Strengthen adaptation efforts while investing differently in mitigation

The 2015 Paris Agreement calls on donor countries to achieve a balance between adaptation and mitigation in the provision of financial resources to developing countries to fight climate change. Adaptation measures are essential for developing countries, in particular women and girls and the poorest and most vulnerable, to enable them to build resilience in the face of a changing climate. Also of critical importance, mitigation investments help reduce global greenhouse gas emissions, directly addressing the cause of climate change, and therefore reducing support needed for adaptation in the long run.

The key messages we heard from consultation participants was that Canada should keep investing in mitigation but should strengthen its efforts and urgently increase its investments with respect to adaptation, recognizing that developing countries are experiencing severe negative impacts of climate change right now. With respect to mitigation, Canada should explore new types of interventions that could make a significant impact and address gaps in energy access.

Details of what we heard

On the issue of balance, we heard that the Government of Canada should:

• Achieve an equal balance (50/50) between adaptation and mitigation, as per the Paris Agreement.
• Prioritize support for adaptation over mitigation in developing countries, particularly in Small Island Developing States and Least Developed Countries, in order to reach the poorest and most vulnerable and support those countries that are disproportionately impacted by climate change.
• Increase investment and action on adaptation in line with other donors and G7 members. Canada should contribute its fair share by expanding its overall aid budget and contribution to climate finance, in order to help achieve the collective goal of mobilizing US$100 billion per year by 2020.
• Diversify its partners and funding mechanisms in international climate finance in order to improve access to finance for women and local organizations, and to expand support for adaptation.
• Complement multilateral climate finance programming with an increase in bilateral cooperation, particularly for adaptation.

On the issue of adaptation, we heard that the Government of Canada should:

• Focus on helping people who are hardest hit by climate change: women and girls and the poorest and most vulnerable, Least Developed Countries, Small Island Developing States, and Indigenous Peoples. This is critical to delivering gender-responsive, resilient climate action.
• Take a long-term and holistic approach to climate-vulnerable Least Developed Countries (with special consideration for fragile states) to support them with adaptation, as this will simultaneously support other development goals.
• Do more to address the impacts of climate change on youth. The government should integrate youth-inclusive considerations throughout its adaptation programming and consider establishing a direct funding mechanism for youth-led climate initiatives.
• Support adaptation actions that will help communities deal with climate risks.
• Work in areas like coastal ecosystems, water, agriculture, housing, and infrastructure such as roads and ports.

On the issue of climate-smart agriculture and food systems, we heard that the Government of Canada should:

• Invest in climate-smart agriculture through grants to strengthen the adaptive capacity and food security of the poorest and most vulnerable.
• Provide assistance to small-holder and subsistence farmers, especially women in developing countries, who are being impacted by unpredictable weather patterns, severe weather events, pests and diseases, which affect their livelihoods and food security.
• Support initiatives that help farmers adopt practices that reduce fossil fuel dependence, promote short food supply chains, restore and integrate time-tested farmers’ knowledge and selection practices into the production system, improve dry land agriculture systems, maintain and increase biodiversity, defend and rebuild local and regional food webs, reduce food loss and food waste, and transition toward lower impact and sustainable agriculture.
• Help farmers build climate resilience throughout the farming life cycle by:
  • Helping them increase their income in order to purchase quality seeds, inputs, and food between harvests (through diversification of production, alternative livelihoods, savings and loans leading to income-generating activities, etc.);
  • Increasing their knowledge of alternative proven agricultural practices to increase production despite unpredictable or severe weather events (e.g. conservation agriculture);
  • Helping them to organize in order to market their produce, connect with suppliers, and more effectively advocate for access to government agricultural services;
  • Helping them build post-harvest storage for crops so they do not have to sell immediately after harvest when prices are the lowest.

On the issue of mitigation, including clean energy transition and coal phase-out, we heard that the Government of Canada should:

• Help developing countries move toward a low- or no-carbon economy, by equipping them to develop energy transition plans that will lead to inclusive and sustainable growth.
• Create opportunities for women to contribute to the design, use and dissemination of clean and sustainable energy solutions.
• Ensure that mitigation activities also help beneficiaries become energy self-sufficient, less indebted, and less involved in conflicts around energy supply. This will stimulate local and national economic development, and promote leadership and economic opportunities for women.
• Help ensure that green energy and clean technology reaches developing countries so that they can avoid reverting to existing resources, such as coal and gas, in order to address poverty.
• Scale-up support for off-grid and mini-grid services (which are often quicker and more affordable to deploy) in vulnerable and marginalized communities and explore the potential nexus between waste management and energy production in these communities.
• Consider support for research focused on the political economy of coal in developing countries and the costs of decommissioning or repurposing coal plants, and transitioning the work force.
• Help urban centres in developing countries to develop climate mitigation programs and projects to offset their greenhouse gas emissions for sectors such as transportation, infrastructure and energy efficient buildings.

2. Pursue Co-Benefit Outcomes

Pursuing climate action with co-benefit outcomes, such as through nature-based solutions, or by supporting blue and green economies, is one way to maximize the effect of Canada’s international climate finance resources by driving both adaptation and mitigation out comes, as well as supporting the achievement of other important development outcomes related to health, gender equality, and education. Nature-based solutions in particular act to protect, manage, and restore ecosystems and address societal challenges, simultaneously providing human well-being and biodiversity benefits. Strategies focused on the blue and green economy aim to address climate change mitigation and adaptation by focusing on important sectors such as fisheries, coastal resources, transport, agriculture, and forestry.

The key message shared by consultation participants was that Canada should pursue climate action with adaptation and mitigation outcomes that support broader development and economic goals, including COVID recovery. This could include fostering nature-based solutions for climate change as well as inclusive growth in the blue and green economies.

Details of what we heard

On the topic of nature-based solutions, we heard that the Government of Canada should:

• Make a bold investment in nature-based solutions, which is an area for international climate finance that requires increased funding and public support to reach its full potential.
• Promote nature-based solutions as long-term, multidimensional, and holistic interventions that generate a multitude of co-benefits with respect to mitigation, adaptation, economic development, social equality, health, biodiversity and others.
• Engage with Indigenous Peoples, including with women and girls, in the planning, implementation and scaling-up of new and innovative rights-based, nature-based solutions, and strengthen their capacity to participate in the governance of these solutions and stewardship of natural resources.
• Expand support for nature-based solutions in Canada’s international climate finance by:
  • Delivering more grants and innovative financing solutions like small and micro-loans, payments for ecosystem services, and risk-sharing mechanisms;
  • Improving implementation through local, inclusive and bilateral partnerships;
  • Adopting a whole-of-government approach to leverage existing networks and expertise;
  • Supporting research on nature-based solutions;
  • Creating a programmatic funding window for nature-based solutions in multilateral development banks or climate funds.
• Explore and invest in ecosystem-based adaptation and ecosystem-based approaches, particularly for climate vulnerable regions like Small Island Developing States.

On blue and green economies, we heard that the Government of Canada should support climate action interventions that have the potential for adaptation and mitigation co-benefits. For example:

• Ecosystem-based adaptation opportunities, particularly in watersheds and carbon-dense landscapes such as peatlands and mangroves, which improve the resilience of people who rely on natural resources while also serving to capture carbon and support biodiversity.
• Restored landscapes, which increase carbon removal from the atmosphere and storage on the land, while also creating livelihood opportunities that reduce dependence on deforestation.
• The provision of processed and unprocessed aquaculture products, such as seaweed or microalgae, whose cultivation also support carbon removal and sustainable livelihoods in coastal communities.
• Waste management solutions to prevent leaching of waste into the ocean; well-managed marine protected areas to increase biodiversity and the resilience of marine species, protect coastal communities and infrastructure, and create economic development opportunities.
• Restoration efforts that engage local communities and improve their livelihoods, and lead to reduced deforestation and increased carbon capture.

3. Build community-based resilience and enable locally-led solutions

The poorest and most vulnerable populations suffer disproportionately from the adverse impacts of climate change, which threaten livelihoods and destroy communities. Climate disasters, many of which are increasing in frequency and intensity, disproportionately affect developing countries, especially Small Island Developing States. Community-based solutions and climate disaster risk reduction are effective approaches for building sustained resilience. Climate disaster risk reduction helps minimize the damage caused by natural hazards by developing local practices and technologies to prepare for and respond to disasters, so that families, communities and businesses are able to effectively cope with, survive and recover from impacts. Locally-led solutions, driven by communities and organizations who understand the local context, can leverage community knowledge and networks to develop practical climate solutions.

The key message delivered by consultation participants is that Canada should support locally-led solutions to climate change and build community resilience. This should be done by improving access to financing at the local level, supporting capacity-building, and investing in community disaster risk reduction, particularly in Small Island Developing States and Least Developed Countries.

Details of what we heard

On the issue of locally-led solutions, participants encouraged the Government of Canada to:

• Recognize that solutions to address climate change identified by local communities improve impact and increase sustainability. Effective stakeholder mapping and engagement is key.
• Empower communities and local governments on the front lines of climate change with the tools to not only respond, but to be agents of climate solutions. Build their capacity and knowledge, including in specialized areas related to climate action—for example, on how to conduct evaluations and social impact assessments—to improve the quality and ensure sustainability of climate action projects.
• Address the need to scale-up and replicate successful, local climate interventions.  
• Make climate finance more accessible for community-based climate initiatives. Local organizations need improved capacity to navigate the funding process which can be long, burdensome and difficult.
• Launch calls for proposals that are more inclusive and encourage Canadian small and medium-sized civil society organizations to work with local actors to design projects that foster local ownership and can respond to the needs on the ground. These organizations bring unique experience based on long-term collaboration, trust and proximity to the most vulnerable populations impacted by climate change.

On the issue of building community-based resilience through climate disaster risk reduction, particularly in Small Island Developing States and Least Developed Countries, we heard that the Government of Canada should:

• Allocate specific funding and increase focus on climate disaster risk reduction, which generates multiplier effects across humanitarian, development and climate sectors.
• Support climate-resilient infrastructure and critical interventions such as community-based climate disaster risk management and social protection schemes. Such interventions reduce a community’s vulnerability to climate change by accounting for exposure risk and adaptive capacity.
• Consider scaling-up early warning systems across climate-vulnerable regions.
• Increase the capacity of local governments and organizations to influence climate disaster risk reduction and climate change adaptation policies and the way these risks are considered in budget allocations.
• Enhance technical and financial support for local civil society organizations and community groups working on adaptation and climate disaster risk reduction.

4. Gender-responsive climate finance

In developing countries, women and girls are disproportionately affected by the adverse impacts of climate change, and this is especially true for those who face various forms of discrimination due to multiple and intersecting identity factors associated with other socially disadvantaged groups. This worsens existing social inequalities, and threatens women’s and girls’ health, safety and economic well-being. Due to gender-specific barriers, women in developing countries tend to own fewer productive assets, have lower savings and less access to credit and insurance, and face a disproportionate burden of unpaid care responsibility, which reduces their ability to both withstand climate shocks and take advantage of climate-related opportunities. In addition to being among those most affected by environmental challenges, the role of women and girls as agents of change is often overlooked. Women and girls’ insights, expertise and leadership are all essential for more tailored and sustainable climate action solutions. Gender-responsive climate finance recognizes and addresses the particular challenges faced by women and girls and the critical roles they play with respect to climate change.

The key message we heard from consultation participants is that Canada should support gender-responsive climate action across all sectors. This includes ensuring that funding reaches women’s organizations, particularly at the local and grassroots levels, and strengthens women’s capacity to participate in decision-making and to lead climate initiatives.

Details of what we heard

On the issue of gender-responsive climate finance, we heard that the Government of Canada should:

• Do more to align Canada’s climate finance with the Feminist International Assistance Policy by integrating gender equality considerations and climate resilience across all of its international development assistance. To help achieve this, commit 15% of Canada’s international climate finance to gender equality as a “principal” objective and 80% as a “significant objective.”
• Adopt a gender-transformative approach to climate finance.
• Ensure that climate finance projects promote changes in attitude and practice, formal and informal communication, and education-based approaches to modify discriminatory social norms. Working with multiple stakeholders (including women, girls, men, boys, families, decision makers and community influencers) is often important in achieving norms change.
• Ensure that climate finance addresses intergenerational equity, given that climate change will have a greater impact on young and future generations. Donors need to amplify the voices of youth, particularly young women, on climate finance issues.
• Provide practical guidance on how to integrate gender equality and social equity into programming, including toolkits and capacity building techniques, as part of Canadian investments in climate finance.
• Support climate change programming that:
  • Increases women’s empowerment and improves their livelihoods by equipping them with skills and technologies to help them graduate from primary production to more lucrative and skilled stages of the value chain.
  • Aims to reduce and redistribute women’s disproportionate burden of unpaid care work in order to increase women’s adaptive capacity in the face of disasters and improve their livelihood outcomes.
  • Enables and empowers women farmers as principal agents of change in the food systems of developing countries to adopt climate-smart agricultural practices and methods. This should include supporting and strengthening women’s equal rights to land, productive resources, and access to markets as part of climate interventions.
  • Focuses on gender equality in mitigation efforts. For example, projects to scale up energy efficiency, including the use of clean cook-stoves and fuels, provide ample opportunity to improve livelihoods and health outcomes, advance gender equality, and contribute to the sustainable development goal of affordable and clean energy.

To help build women’s capacity to participate in decision-making and to lead climate initiatives, participants encouraged the Government of Canada to:

• Help increase opportunities for engagement and participation of women in the formulation of climate change policies and programming. This includes all stages of the project life cycle, from planning to evaluation.
• Value and recognize women’s knowledge of local needs. Help ensure that women and communities are consulted on how to build resilience and improve their adaptive capacity in the face of climate change.
• Consider the cooperative model in climate finance programming. Cooperatives are uniquely placed to strengthen women’s leadership and decision-making power, which directly correspond to the needs of their communities in terms of mitigation, adaptation and resilience. They also increase men’s awareness about the importance of including women in leadership and decision-making.
• Engage with feminist allies and networks that are already working on gender-responsive climate finance and climate action and building resilience in communities. These include feminist grant-makers, networks of women political leaders, and networks of grassroots women’s organizations.
• Ensure that funding reaches women’s organizations by:
  • Helping overcome the challenges that grassroots women’s organizations working on resilience face, including limited resources, limited technical capacity for traditional grant paperwork, and challenges fitting the traditional financing profile.
  • Working with established intermediaries, including civil society, with direct access to grassroots organizations. To do this, Canada should finance smaller funds that provide smaller grants directly to local women’s grassroots organizations.
  • Creating dedicated funding mechanisms with multilateral partners for women’s climate adaptation that would prioritize support for women-led organizations and women small-scale farmers and their associations.

5. Work in Partnership with Indigenous Peoples

Climate change poses threats and dangers to the traditional practices of Indigenous Peoples worldwide. In fact, Indigenous Peoples are vital to, and active in, the many ecosystems that are part of their lands and territories. In addition, Indigenous Peoples, particularly Indigenous women, possess valuable knowledge on how to preserve the environment and build resilience against climate change. Indigenous Peoples interpret and react to the impacts of climate change in creative ways, drawing on their traditional knowledge and other technologies to find solutions that may help society at large to cope with impending changes.^{Footnote 6}

The key message shared by consultation participants is that Canada should ensure that its climate finance respects, promotes and advances the rights of Indigenous Peoples and integrates their, perspectives, needs, and approaches throughout its international climate finance programming. We also heard that Canada should look to support Indigenous-led climate action.

Details of what we heard

On the issue of protecting Indigenous Peoples’ rights and integrating their perspectives, voices and approaches, we heard that the Government of Canada should:

• Ensure that Canada’s future climate finance investments uphold the principle of Free, Prior and Informed Consent and the United Nations Declaration on the Rights of Indigenous Peoples, more broadly. Better engage Indigenous Peoples in Canada’s international climate finance and apply an Indigenous lens through the: co-development of policy and programming; the representation and partnership of Indigenous Peoples in decision-making; the application of a distinctions-based approach^{Footnote 7}; and, an understanding that climate change (and climate action) are multifaceted and interlinked with ecosystem stewardship, biodiversity protection, conservation, land use and other topics.
• Adopt a rights-based approach to the implementation of nature-based solutions.
• Empower Indigenous Peoples to lead climate action. Indigenous Peoples, particularly Indigenous women, possess valuable knowledge on how to preserve the environment and build resilience against climate change.
• Consider opportunities for National Indigenous Organizations to collaborate with Indigenous Peoples in developing countries to share best practices relative to adaptation, mitigation, stewardship and other subjects.
• Explore embedded participatory approaches to design, measure and report on climate finance projects through the engagement of Indigenous Peoples that are directly impacted.
• Consider the use of different variables to measure adaptation outcomes, including those related to the well-being of people and ecosystems.
• Carve out specific climate finance funding to be co-designed with and for Indigenous Peoples.

6. Revisit Financing Mechanisms: Increase grants and change the approach to loans

International climate finance is needed to support mitigation and adaptation actions that will address climate change. Large-scale investments and significant financial resources are required to significantly reduce emissions and to adapt to the adverse effects and reduce the impacts of a changing climate. According to the Paris Agreement, developed countries should continue to take the lead in mobilizing climate finance from a wide variety of sources, instruments and channels^{Footnote 8}. A key role of donors is to increase the availability of blended finance to share risk with the private sector through the provision of grants (repayable) and concessional loans tailored to their needs. While mobilizing additional climate finance from the private sector is critical, there is still a need for traditional international assistance in the form of grants (non-repayable) to support civil society and developing country governments in their efforts to support climate action.

The key message we heard from consultation participants was that Canada should increase grants and change its approach to loans. Canada should provide grants, particularly through bilateral cooperation, to meet specific climate objectives and advance climate action while taking into account COVID realities. Canada should explore new financing mechanisms and increase the effectiveness of its loans by, for example, accepting higher levels of risk and crowding-in new partners.

Details of what we heard

On using grants, rather than loans, to meet specific climate objectives, we heard that the Government of Canada should:

• Provide a larger proportion of its climate finance in the form of grants if it wants to reach the poorest and most vulnerable affected by climate change, particularly in Least Developed Countries and Small Island Developing States.
• Apply grant financing to suitable investment areas which currently have limited financial returns, such as nature-based solutions, adaptation, and resilience. Loans are an effective instrument for traditionally lucrative sectors such as renewable energy.
• Consider whether grant funding is more suitable than loan funding for climate disaster risk insurance programs, which require governments to pay large premiums. Small Island Developing States have a particular need for support in the form of grants for climate disaster risk insurance products.
• Carefully examine the reach of loan financing through multilateral funds. Loans tend to reach lower- and upper-middle income countries, and are limited in their ability to reach the local level, including local women’s organizations, to help them adapt to and build resilience against climate change.
• Continue to provide grants to suitable recipients such as small and medium-sized enterprises in developing countries and civil society organizations in Canada and in developing countries, including local women’s organizations, to support community-based initiatives and achieve adaptation objectives.
• Consider a mixed approach, where appropriate, by providing grant financing for small-scale community-based climate initiatives and then providing loan financing to scale-up such initiatives.

On the effectiveness of loans, we heard that the Government of Canada should:

• Continue to use blended concessional finance, recognizing that it is one of the most effective instruments for leveraging capital from other development finance institutions and other private sector players.
• Use loans to engage with new partners. Canada should consider supporting established intermediaries who work with local partners, such as impact investors, regional development banks and national development finance institutes.
• Accept higher levels of financial risk in order to enter emerging markets and crowd-in new partners for climate action, including by adopting a portfolio risk approach rather than a project-specific risk approach.
• Increase the concessionality of its loans in vulnerable contexts and be willing to take higher losses on loans provided to Least Developed Countries.
• Support multilateral development banks to reassess their current financial risk models, which tend to perceive gender-equality-focused adaptation projects as risky investments. Canada should demonstrate that incorporating strong gender equality considerations helps to de-risk projects and increase their impacts.
• Exercise caution when subsidizing renewable energy in developing countries in order to avoid distorting the market and reducing the scope for a competitive landscape.

On exploring new financing mechanisms, we heard that the Government of Canada should:

• Engage more in the delivery of innovative financial mechanisms such as pay-for-results, new structures to debt, guarantees, equity, sovereign loan investments and gender-lens investing. Canada should learn more about these different financial mechanisms in order to know when to use each one for maximal impact and efficiency.
• Consider supporting the creation of blue and green bonds, fixed income instruments designed to raise money for environment, climate and ocean-related projects. In particular, explore using subordinated debt^{Footnote 9} to support green bonds in raising capital from the private sector. This type of loan encourages the private sector to invest by lowering their risk.
• Continue to support climate risk and disaster insurance. It is a promising financial tool that can incentivize adaptation and help address liquidity issues when disasters strike.
• Include an envelope for local currency solutions in future programs. The demand for local currency solutions continues to grow and far outpaces the supply of such concessional capital.
• Support carbon credit schemes designed to incentivize private investments into countries’ Nationally Determined Contributions targets and development objectives.

7. Engage the Canadian private sector and the private sector of developing countries

Public finance alone will not meet the level of investment needed to address climate change. The private sector plays an important role in reaching the investment levels required to create low-carbon and climate-resilient communities. To maximize the effectiveness of public finance, donors are collectively taking actions to mobilize private finance towards international climate action by helping to remove barriers to private investment. These actions are essential in reducing the technical and financial risks of climate-related investment; advancing innovative finance modalities to boost investment in sustainable infrastructure; demonstrating the commercial viability of projects and unlocking future private investments in similar initiatives; and scaling-up climate investments and accelerating innovative approaches for climate action.

The key message from consultation participants was that adaptation and mitigation outcomes in developing countries should be supported by the knowledge, expertise and experience of the Canadian private sector. We also heard that Canada should support the private sector of developing countries so that they can build sustainable climate change solutions in their own economies and, in turn, increase development impact.

Details of what we heard

On the issue of engaging the Canadian private sector and the private sector of developing countries, we heard that the Government of Canada should:

• Help the Canadian private sector build relationships with international climate finance partners.
• Recognize Canadian sectoral expertise in areas related to clean energy and micro-grids to reach unconnected communities and address subsidies on fossil fuels in Africa, Asia and the Americas.
• Benefit from the knowledge, expertise and experience of the Canadian private sector in areas where Canada has strong performance, and share Canadian practices and tools with developing countries.
• Recognize the barriers to private sector involvement in developing countries, including high upfront business development costs, the limited availability of local funds dedicated to climate action, lengthy application processes, high interest rates, and short investment timeframes.
• Help improve the enabling environment in developing countries for a green private sector, which includes helping countries develop regulatory frameworks that encourage greening the private sector and strengthening the financial services sector to support climate finance investments.
• Support the private sector of developing countries with:
  • Transitioning their operations to green. This includes helping them to secure much needed initial capital from commercial banks. For emissions-heavy companies in the extractive and fossil fuel industries, this could include supporting the use of climate-related financial disclosures to help them transform their practices.
  • Delivering green products and services in their own economies, which may include Canada taking greater risk in investments. This support could include helping to drive down innovation costs of emerging technologies, piloting new ideas to monitor what works and what does not work in developing countries, and building capacity to integrate gender-responsive climate considerations in product supply chains.
  • Producing climate smart products and services through small-scale accelerator programs and the provision of gender-sensitive green credit lines for entrepreneurs, including women.

8. Leverage Canada’s influence and convening power

Canada is an active player in international climate finance and collaborates with a range of bilateral and multilateral partners, including developing country governments, non-governmental organizations, and multilateral organizations. Canada has established climate funds aimed at mobilizing private sector investment for climate change with multilateral development banks, including the Asian Development Bank and the Inter-American Development Bank. Canada participates in the governance bodies and strategic planning processes of multilateral organizations and climate funds, and has used its influence to convene other donors. In 2018, as President of the Group of Seven (G7), Canada played a leadership role on climate change by placing it high on the G7 agenda and ensuring an inclusive approach to advance gender equality and the empowerment of women and girls. In 2020, Canada exercised its convening power by serving as Co-Chair to the Board of the Green Climate Fund, the world’s largest dedicated fund for helping developing countries reduce their greenhouse gas emissions and enhance their ability to respond to climate change.

The key message delivered by consultation participants is that Canada should strategically leverage its convening power in international climate finance fora to advance international assistance priorities, including gender-responsive climate action and reaching the world’s poorest and most vulnerable people. We also heard that Canada should pursue aid effectiveness principles by following the lead of developing country partners and supporting initiatives that help implement their National Adaptation Plans and Nationally Determined Contributions.

Details of what we heard

On the issue of leveraging Canada’s convening power, we heard that the Government of Canada should:

• Leverage our influence in multilateral development banks and international financial institutions to better align their work with international climate objectives and Canada’s Feminist International Assistance Policy.
• Incentivize multilateral organizations with which Canada collaborates on international climate finance to create avenues for meaningful engagement with Indigenous Peoples and civil society, including women’s organizations.
• Use its influence to help simplify the application and funding processes of large climate funds, in order to reduce barriers for the private and public sector in developing countries and smaller organizations, particularly women’s led grassroots organizations, trying to access funding for smaller-scale projects.
• Consider raising awareness about project proposals that successfully integrate gender-responsive financing mechanisms but may not meet the financing criteria of large funds, for Canadian or other donor funding.
• Help build and promote the evidence that gender-lens investing reduces risk, generates returns and creates impact. For example, support funds to conduct gender-lens impact assessments of successfully closed deals.
• Play a leadership role in promoting evidence-based decision-making and gender-lens data collection methods that will help donors and governments understand the needs of women and girls with respect to climate change interventions.

On the issue of ensuring aid effectiveness in international climate finance, participants encouraged the Government of Canada to:

• Uphold international principles of aid effectiveness, including ownership by developing countries of climate action initiatives; alignment with developing countries’ adaptation and mitigation plans, capabilities and commitments; harmonization of actions and procedures with other donors; management for results; and mutual accountability.
• Ensure financing is responsive and flexible to the needs of member countries. This will help ensure that countries have the resources needed to implement their National Adaptation Plans and Nationally Determined Contributions.
• Support country-led initiatives to implement countries’ National Adaptation Plans and Nationally Determined Contributions and in regional strategies to address climate change in climate-vulnerable regions. Align Canada’s climate finance more closely with priority areas of intervention that countries have identified.
• Enhance coordination among donors and other development partners with respect to climate action programming to minimize duplication of effort and maximize impact.
• Adopt a longer-term and programmatic (rather than project-specific) approach to achieve transformational change, including with respect to gender equality. Results of climate action can often only be achieved and measured in the long-run.
• Strengthen monitoring and evaluation of Canada’s climate finance in order to monitor results with respect to the poorest and most vulnerable, women’s empowerment, and other development goals.
• Ensure that evidence and lessons learned inform future climate finance programming.

9. Integrate COVID-19 realities

The COVID-19 pandemic has amplified inequalities, revealed vulnerabilities and exacerbated the impacts of climate change already felt by the poorest and most vulnerable as well as women and girls. It also threatens to continue to slow down progress with respect to international climate action. For example, some countries and private companies may delay or cancel investments in renewable energy or climate action policies, particularly if their finances have been severely impacted by the pandemic. At the same time, however, the global pandemic has created an opportunity to align recovery efforts with global climate change objectives and to build back better. Actions taken during the recovery period will set the foundation and long-term trajectory for developing countries’ green recovery and development toward resilient, low-carbon, and inclusive societies. Through effective partnerships, there is an opportunity to create an economy and a society that is stronger, more sustainable, and more resilient than before.

The key message delivered by consultation participants is that Canada should take COVID realities into consideration when developing its international climate finance approach to help developing countries build back better.

Details of what we heard

On the issue of how to integrate COVID realities into Canada’s climate finance, we heard that the Government of Canada should:

• Connect recovery efforts to climate action to ensure that the climate agenda is aligned with and complementary to the COVID-19 response. Both responses should be driven by science and evidence.
• Take into account the resulting economic downturn from COVID-19 and consider avoiding debt financing to climate-vulnerable countries where the pandemic has further aggravated debt sustainability. Where debt cannot be avoided, reconsider the level of concessionality required for loans to help the most vulnerable countries, in particular Small Island Developing States and Least Developed Countries.
• Support climate solutions that will generate needed employment and provide opportunities for women, Indigenous Peoples and racialized communities in order to ensure a recovery that is fair and equitable.
• Consider support for gender-responsive green recovery plans that take into account women’s and men’s differential vulnerability to the pandemic. There is widespread recognition that women are suffering disproportionate health, economic and social impacts as a result of COVID-19. These repercussions will have long-term impacts.
• Explore complementary investments (in health, urban planning and design, social protection, etc.) as part of climate change programming that will help build communities’ resilience to climate change and future pandemics.

VI. Moving forward

We thank all participants for taking part in our consultation, particularly during these challenging times and with the physical barriers posed by the COVID-19 pandemic. The rich discussions and plethora of ideas and perspectives will help inform the development of Canada’s future climate finance approach post 2020−21.