Rich nations earning billions from a pledge to help fix climate

By Reuters
Published : 22 May 2024 09:43 PM | Updated : 22 May 2024 09:43 PM

Japan, France, Germany, the United States and other wealthy nations are reaping billions of dollars in economic rewards from a global programme meant to help the developing world grapple with the effects of climate change, a Reuters review of UN and Organisation for Economic Cooperation and Development data shows.

The financial gains happen as part of developed nations' pledge to send $100 billion a year to poorer countries to help them reduce emissions and cope with extreme weather. By channeling money from the programme back into their own economies, wealthy countries contradict the widely embraced concept that they should compensate poorer ones for their long-term pollution that fueled climate change, more than a dozen climate finance analysts, activists, and former climate officials and negotiators told Reuters.

Wealthy nations have loaned at least $18 billion at market-rate interest, including $10.2 billion in loans made by Japan, $3.6 billion by France, $1.9 billion by Germany and $1.5 billion by the United States, according to the review by Reuters and Big Local News, a journalism programme at Stanford University. That is not the norm for loans for climate-related and other aid projects, which usually carry low or no interest.

At least another $11 billion in loans – nearly all from Japan – required recipient nations to hire or purchase materials from companies in the lending countries.

And Reuters identified at least $10.6 billion in grants from 24 countries and the European Union that similarly required recipients to hire companies, nonprofits or public agencies from specific nations – usually the donor – to do the work or provide materials.

Offering climate loans at market rates or conditioning funding on hiring certain companies means that money meant for developing countries gets sent back to wealthy ones.

"From a justice perspective, that's just deeply reprehensible," said Liane Schalatek, associate director of the Washington branch of the Heinrich-Boll Foundation, a German think tank that promotes environmental policies.

Analysts said grants that require recipients to hire wealthy countries' suppliers are less harmful than loans with such conditions because they do not require repayment. Sometimes, they said, the arrangements are even necessary – when recipient countries lack the expertise to provide a service. But other times, they benefit donors' economies at the expense of developing nations. That undermines the goal of helping vulnerable nations develop resilience and technology to cope with climate change, the climate and finance sources said.

"Climate finance provision should not be a business opportunity," Schalatek said. It should "serve the needs and priorities of recipient developing countries."

Many of the conditional loans and grants Reuters reviewed were counted toward developed nations' pledge to send $100 billion a year by 2020 to poorer countries disproportionately harmed by climate change. First made in 2009, the commitment was reaffirmed in the 2015 Paris climate agreement. Roughly $353 billion was paid from 2015 through 2020. That sum included $189 billion in direct country-to-country payments, which were the focus of the Reuters analysis.

More than half of that direct funding – about 54% – came in the form of loans rather than grants, a fact that rankles some representatives from indebted developing nations such as Ecuador. They say they should not have to take on more debt to solve problems largely caused by the developed world.

Countries of "the global south are experiencing a new wave of debt caused by climate finance," said Andres Mogro, Ecuador's former national director for adaptation to climate change.

At the same time, several analysts said, rich countries are overstating their contributions to the $100 billion pledge, because a portion of their climate finance flows back home through loan repayments, interest and work contracts.

"The benefits to donor countries disproportionately overshadow the primary objective of supporting climate action in developing countries," said Ritu Bharadwaj, principal researcher on climate governance and finance at the International Institute for Environment and Development, a UK policy think tank.


Representatives of the main agencies that manage climate funding for Japan, Germany, France and the United States – the four countries reporting the most such funding to the UN – said they consider the amount of debt a country is already carrying when deciding whether to offer loans or grants. They said they prioritize grants to the poorest countries.

About 83% of climate funding to the lowest-income countries was in the form of grants, the Reuters review found. But those countries also received, on average, less than half as much climate funding as higher-income nations that mostly received loans.

"A mix of loans and grants ensures that public donor funding can be directed to countries that need it most, while economically stronger countries can benefit from better-than-market rate loan conditions," said Heike Henn, director for climate, energy and environment at Germany's Federal Ministry for Economic Cooperation and Development. Germany has contributed $45 billion in climate funding, 52% of it loaned.

The French Development Agency (AFD) offers developing nations low interest rates that would normally be available only to the richest countries on the open market, said Atika Ben Maid, deputy head of the AFD's Climate and Nature Division. About 90% of France's $28 billion contribution came in the form of loans – the highest share of any nation.