Transformation of Climate Perils into Financial Benefits in Emerging Nations

In Ethiopia, the national agricultural research system has developed rust-resistant wheat varieties that have delivered productivity gains of up to 40% in targeted areas. This innovation demonstrates the potential of governance-led climate actions, but such initiatives often encounter challenges when trying to fit into existing climate finance frameworks.

One such example is the Jharia Master Plan in India, a governance-led response to cumulative risk that operates horizontally across institutions and time. However, the climate impact of Jharia is not recognised in formal reporting, preventing it from accessing carbon markets and performance-linked finance.

Current climate finance frameworks, such as those under National Adaptation Plans (NAPs), Nationally Determined Contributions (NDCs), and climate funds managed by multilateral development banks (MDBs), are increasingly focused on mainstreaming climate risk across development planning and linking climate action to sustainable development goals at all levels.

However, the conventional financing instruments limit flexibility for complex governance-led actions that span multiple sectors and timeframes. Key challenges for integrating horizontal governance-led interventions into existing frameworks include fragmentation and siloed funding, short-termism and project cycles, and alignment with national priorities and decentralized ownership.

To better accommodate governance-led, horizontal climate actions, several changes are needed. These include strengthening country platforms and governance coordination mechanisms, shifting from project-based funding to programmatic, multi-sectoral approaches, innovating finance instruments that allow flexibility, embedding South-South cooperation and leadership, and reforming global financial governance to respect national sovereignty and systemic shocks.

In Kenya, over 326,000 farmers have adopted improved agricultural practices through public initiatives, leading to an average 41% increase in yields across key value chains. Meanwhile, in Rwanda, the national Green Fund has supported the development of local financial instruments aligned with climate goals, as demonstrated by a green bond issued by Prime Energy Plc in 2023.

Despite the potential of governance-led climate actions, less than 20% of total climate finance reaches low- and lower-middle-income countries, despite their acute exposure to climate risk. Countries such as South Africa, Colombia, and Mexico have introduced carbon pricing and environmental fiscal reforms that are now embedded within their national revenue systems.

Even relatively shallow capital markets can mobilise long-term finance for climate-aligned infrastructure, as demonstrated by the green bond issued by Prime Energy Plc in Rwanda. Across developing countries, resilience outcomes are being generated through domestic policy and public investment strategies that originate within development planning rather than environmental programming.

The World Bank's 2020 report on coal mine closure emphasised that successful transition strategies require more than compensation or site remediation, relying on coordinated land use, labour market strategies, and institutional capacity. The Jharia Master Plan, which received approval for approximately £511m (or $692m) in June 2023, includes measures for social infrastructure, resettlement, skills development, and land-use management.

However, the Jharia Master Plan, a hazard mitigation programme in a coal-dependent district in eastern India, is not formally designated as a climate finance project nor linked to carbon markets, despite its potential to reduce fugitive emissions and reshape spatial governance. Methane and carbon dioxide released from underground fires in Jharia are not accounted for in India's national emissions inventory.

Multilateral development banks advocate for more integrated approaches to just transition, but the operating logic of climate finance remains tilted towards siloed mitigation projects. The absence of recognition for governance-led climate actions in formal reporting prevents these initiatives from accessing carbon markets and performance-linked finance, hindering their potential to deliver significant climate benefits.

In conclusion, governance-led climate actions in developing countries fit imperfectly into existing finance frameworks that prioritise vertical, short-term investments. A transformation towards integrated, flexible, long-term finance platforms rooted in strong government coordination and innovative instruments is needed to support horizontally integrated, institution-spanning plans like the Jharia Master Plan.

The rust-resistant wheat varieties developed by Ethiopia's national agricultural research system show the potential of governance-led climate actions, yet often face challenges when fitting into existing climate finance frameworks.
The Jharia Master Plan in India, a governance-led initiative addressing cumulative risk across institutions and time, is not recognized in formal reporting, blocking its access to carbon markets and performance-linked finance due to its unacknowledged climate impact.
Current climate finance frameworks, such as those under NAPs, NDCs, and MDB-managed climate funds, focus on mainstreaming climate risk across development planning and linking climate action to sustainable development goals.
Conventional financing instruments limit flexibility for complex governance-led actions spanning multiple sectors and timeframes, presenting challenges for integrating these interventions into existing frameworks.
To accommodate governance-led, horizontal climate actions, changes are needed, including strengthening country platforms, shifting from project-based funding to programmatic, multi-sectoral approaches, innovating finance instruments, embedding South-South cooperation, and reforming global financial governance.
In Kenya, public initiatives have led over 326,000 farmers to adopt improved agricultural practices, resulting in an average 41% increase in yields across key value chains.
In Rwanda, the national Green Fund has supported local financial instruments aligned with climate goals, as shown by the green bond issued by Prime Energy Plc in 2023.
Despite the potential of governance-led climate actions, only about 20% of total climate finance reaches low- and lower-middle-income countries, despite their acute exposure to climate risk.
Countries like South Africa, Colombia, and Mexico have implemented carbon pricing and environmental fiscal reforms integrated into their national revenue systems.
Even shallow capital markets can mobilize long-term finance for climate-aligned infrastructure, demonstrated by the green bond issued by Prime Energy Plc in Rwanda.
The Jharia Master Plan, a hazard mitigation programme in a coal-dependent district, is not formally designated as a climate finance project, despite its potential to reduce fugitive emissions and reshape spatial governance, hindering its access to carbon markets and performance-linked finance.