Getting up-to-speed on Climate Finance Accounting

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Climate Finance Accounting (via OECD)

Summary Explanation:

Climate finance accounting focuses on tracking and reporting the financial flows dedicated to climate mitigation and adaptation from developed countries to developing countries. (narrow definition)
OECD accounting was initially developed in 2015 to post the first-ever figures of climate finance provided and mobilized by developed countries to developing countries in 2013-2014.
The OECD’s efforts enhance the transparency and comparability of climate finance, providing key data and analysis for assessing global climate finance flows.
It is important for sustainable finance students to understand how resources can be most effectively utilized and mobilized from developed countries to developing countries to address global climate challenges.

1. Introduction and Background

Key Takeaway:

Climate finance accounting (OECD) focuses on tracking international finance flow for mitigation and adaptation provided to developing countrie under the US 100 billion goal.

1.1 What is Climate finance accounting (via OECD)?

Key concepts

Climate finance accounting:

Through the Organisation for Economic Co-operation and Development (OECD) lens, it is a critical topic that intersects with global efforts to combat climate change. This area focuses on tracking and reporting the financial flows dedicated to climate change mitigation and adaptation from public and private sources.

Climate Finance (OECD-DCA):

The Organization for Economic Co-operation and Development (OECD) does not offer a succinct sentence definition of climate finance. However, its essence can be summarized from various documents and reports it has published. The OECD understands climate finance as financial flows aimed at supporting climate change mitigation (through reducing greenhouse gas emissions) and adapting to its impacts (by enhancing resilience and adaptive capacity to climate change effects). This encompasses funds from both public and private sources for domestic and international projects.

If you need clarification about the scope of climate finance, check the following graph to help you understand!

source: https://www.tandfonline.com/doi/full/10.1080/14693062.2022.2080634?needAccess=true

Climate finance accounting V.S. financial accounting:

Aspect	Climate Finance Accounting	Traditional Financial Accounting
Purpose	Tracking financial flows for climate change actions	Reporting financial performance and position
Scope	Scope Climate-related investments and expenditures	All financial transactions and positions
Measurement & Reporting	Climate-specific tracking and reporting methodologies (OECD)	Standardized accounting principles (GAAP, IFRS)
Stakeholders	Governments, environmental policymakers, international bodies	Investors, creditors, regulatory agencies
Objective	Ensure transparency in climate funding, assess progress towards climate goals	Provide accurate financial information for decision-making

Made by Author

Significance:

Ensuring accountability in climate change expenditures.
Guiding investment decisions toward more sustainable and effective climate solutions.
Enhancing transparency in financial flows, facilitating trust among stakeholders.

Key Policy Insights:

There is no commonly accepted definition of international climate finance today, making it difficult to track progress.
Climate finance accounting approaches differ depending on the interpretation of different dimensions of climate finance.
A commonly accepted definition of climate finance should consider the latest science on 1.5°C and net-zero scenarios.

1.2 Why should we know that?

As sustainable finance students, climate finance matters because understanding where, how, and how much is being invested towards fighting climate change can inform better policies, promote transparency, and ensure that financial resources are used effectively. As future leaders, policymakers, or ESG analysts, grasping the nuances of climate finance accounting will enable you to contribute more effectively to sustainability and environmental stewardship discussions.

2. Climate Finance accounting (via OECD)

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Key Takeaway：

OECD’s accounting framework is based on four components: Bilateral public climate finance, Multilateral public climate finance attributable to developed countries, Officially supported climate-related export credits and Mobilised private climate finance attributable to developed countries.
OECD‘s accounting report presents progress towards the goal and contribution of each component, Climate Themes and Sectors, Public finance instruments and private finance mobilization, Climate finance provided and mobilized across developing country regions and income groups.

2.1 Climate Finance Counting V.S. Accounting

It is important to distinguish the “count” method and the “account” framework. Governments and agencies “count” individual climate finance flows using systems like the Rio Marker and report them to the UNFCCC. In contrast, institutions like the OECD and civil society organizations “account for” the overall totality of these flows by processing and interpreting the reported data.

2.2 OECD’s Role in the institutional architecture of international climate finance accounting

Year	Activity/Role	Description
Since 1998	Publishing Rio Markers Data	Identifies aid related to the core themes of the UN environmental conventions, providing a significant and widely used method to count international public climate finance covering all OECD bilateral donors.
Historical Role	OECD Development Assistance Committee (DAC) Mandate	Among other duties, the DAC is tasked to ‘monitor, assess, report, and promote the provision of resources that support sustainable development.’ Under this mandate, DAC analyzes Official Development Assistance (ODA) and non-export credit ‘other official flows’ (OOF) of development finance, uniquely equipped to extend its analysis to also cover the reporting of climate finance flows.
Ongoing Activity	DAC Creditor Reporting System (CRS)	Through the CRS, a database compiling development finance data, including climate finance, from bilateral and multilateral donors and major philanthropies, the OECD maintains close connections with international donors and multilateral organizations.
Ongoing Activity	Maintaining a Database of Trade-related Finance Data	The OECD provides an essential forum for Export Credit Agencies (ECAs). It maintains a unique — albeit non-public — database of trade-related finance data, including climate-related officially-supported export credits.
Tracking Progress	Monitoring the USD 100 Billion Goal	The OECD acts as an accountant, keeping track of progress towards achieving the goal of annual climate finance from developed to developing countries of USD 100 billion.

2.3 The OECD USD 100 billion accounting data and methods

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At the 15th Conference of Parties (COP15) of the UNFCCC in Copenhagen in 2009, developed countries committed to a collective goal of mobilizing USD 100 billion per year by 2020 for climate action in developing countries in the context of meaningful mitigation actions and transparency on implementation.

Since 2015, at the request of donor countries, the OECD has produced analyses of progress towards this goal. These analyses are based on best-available data and a robust accounting framework, consistent with the outcome of COP24 decided by all Parties to the Paris Agreement as regards the funding sources and financial instruments related to reporting of information on financial resources provided and mobilized through public interventions.

The Aggregate Trends of Climate Finance Provided and Mobilised by Developed Countries in 2013-2020 presents the evolution of total annual levels of climate finance provided and mobilized by developed countries for developing countries over 2013-2020. For 2016-2020, it includes an overview by climate theme, sector, financial instrument, and regions.

Methodological Framework

The figures of total climate finance provided and mobilized by developed countries for climate action in developing countries are based on four distinct components:

Bilateral public climate finance: public climate finance commitments (excluding export credits) by developed countries for developing countries. (flow A.1) (flow A.2).
Multilateral public climate finance attributable to developed countries: climate finance provided by multilateral development banks (MDBs) and multilateral climate funds to developing countries, (flow B.1) (flow B.2).
Officially supported climate-related export credits: financial support extended by developed countries’ export credit agencies for climate-related projects in developing countries (flow C).
Mobilised private climate finance attributable to developed countries: proportion of finance from private sources mobilized by bilateral and multilateral public climate finance, which can be attributed to developed countries (flow D).

Source: OECD

Data Source

Table A.1 summarizes the climate finance data sources used.

Source: OECD

Attribution of multilateral finance to developed countries

A key methodological point behind the multilateral climate finance volumes is to consider only the share of multilateral climate commitments attributable to developed countries (with the remainder being attributable to developing countries). A dedicated methodology is needed to calculate such shares for each multilateral institution. Here is an example of a calculated share of multilateral climate finance attributed to developed countries OECD dose in a report.

Source: OECD

Country Groupings

For the purpose of this report’s analysis and figures, the following classifications are used:

“Developing countries”, which refer to countries and territories included on the DAC List of ODA Recipients for 2018 development finance and/or on the non-Annex I list of Parties to the UNFCCC.

“Developed countries”, which include Annex II Parties to the Convention, the Member States of the European Union, Lichtenstein, and Monaco.

Countries and territories that do not fall into these categories (most notably the Russian Federation (Russia) are not covered by the analysis.

Click here to check the country list