Climate finance for SIDS is shockingly low: Why this needs to change

24 May 2022

By Paul Akiwumi, Director for Africa and Least Developed Countries, UNCTAD

People in Haiti walk through a street in the aftermath of Hurricane Matthew
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© UN Photo/Logan Abassi | Les Cayes, Haiti after Hurricane Matthew hit the Caribbean nation in October 2016.

Small island developing states (SIDS) are the most economically vulnerable of all groups of developing countries, according to the Economic Vulnerability Index.

They are particularly vulnerable to natural, economic and health-related shocks beyond domestic control. The growing frequency and intensity of these climate shocks is a direct consequence of being in climate-sensitive areas or seismic zones, as well as the islands’ smallness.

From commodities to manufactured spare parts, these states also rely heavily on imports of food and fuel, leaving them at the mercy of price spikes and shortages of essential goods.

SIDS are increasingly vulnerable to natural hazards

SIDS’ geographical conditions make them highly vulnerable to natural disasters, particularly those caused by climate change. In the Caribbean alone, the damage caused by climate-related and earth-related hazards is estimated at $12.6 billion per year

Before the 2000s, SIDS endured fewer than ten major natural disasters per year. Over the past two decades, 20 major natural disasters have struck SIDS each year. These add to other climate-related phenomena most SIDS are prone to, such as coastal erosion, flooding and permanent land submersion resulting from rising sea levels. Indeed, most of SIDS’ territorial surface is a mere 3 to 4 metres above sea level.

Due to greenhouse gas (GHG) emissions altering the ocean and SIDS coastal habitats, communities in low-lying atoll countries such as Maldives, the Marshall Islands, Kiribati and Tuvalu, may be forced to move if sea levels rise above a metre.

SIDS leaders have called for a mix of dedicated solutions to help SIDS recover and reconstruct from recent shocks in the short run and achieve transformational progress in the long run through more diversified and resilient economies.

Climate finance for SIDS is shockingly small

For SIDS, enhancing resilience to more frequent and intense natural disasters means mobilizing more domestic and foreign resources for adaptation and mitigation.

However, the COVID-19 pandemic has deprived many SIDS of tourism revenues – a crucial source of income for disaster risk reduction. In this context, climate finance is of particular interest to SIDS policymakers because of its role in funnelling resources to building climate-related resilience.

However, at present, SIDS have little access to climate finance. Despite being hit hard by climate change while only contributing to 1% of global carbon dioxide emissions, they only had access to $1.5 billion out of $100 billion in climate finance pledged to developing countries in 2019.

At UNCTAD15 in October 2021, SIDS called for a change in the criteria for allocating concessionary support to their countries. They asked for more emphasis on the vulnerability criterion, instead of prosperity, as conventionally captured through per capita income.

Later, in November 2021, Prime Ministers Gaston Browne of Antigua and Barbuda and Kausea Natano of Tuvalu signed a historic accord establishing a SIDS commission, providing a mechanism for the largest climate change contributors to compensate SIDS for the climate hazards they face.

Building resilience is key to achieving economic progress

Financial solutions that blend public and private investment while expanding financial support on concessional terms are central to fostering SIDS’ resilience. SIDS have deplored the absence of a SIDS-specific window under the Green Climate Fund.

Furthermore, the Finance ministers from the V20 Group of climate vulnerable and developing economies, a third of which are SIDS, has recently pushed for partnerships with the G7 and G20 in order to ensure the inclusion of vulnerable economies in their decision-making processes.

In this context, a potentially interesting example of how the Green Climate Fund could work for SIDS is that of the financial support it provided to the Development Bank of Southern Africa. Thanks to the support, the bank was able to create a climate finance facility involving a capital of $171 million for the implementation of climate adaptation projects.

Debt-for-climate swaps are another interesting climate finance vehicle for SIDS. These swaps consist of the creditor forgiving debt in return for the debtor’s commitment to spend the foregone debt service payment on climate adaptation projects.

Belize, a small continental developing state, negotiated a $8.5 million debt forgiveness swap for a climate adaptation programme involving 300,000 acres of rainforest conservation and 48 grants for managing protected areas.

UNCTAD sees three crucial ways of supporting SIDS going forward: raising the visibility of island vulnerability issues; identifying mechanisms to boost island resilience-building efforts; and providing a range of advisory services, including supporting SIDS to graduate from the least developed country category.

First published by the Organisation for Economic Co-operation and Development.