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Investing for Change: Measuring the Impact of Climate Finance

By

Patrick Yeung

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Co-author: Pramit Banerjee, Sakshi Bansal

5 minutes read

Climate change is an urgent global issue demanding immediate action. Businesses are grappling with its wide-ranging consequences from a risk perspective and also analysing opportunities that climate change will bring in the coming years. Simultaneously the conversation on transitioning to net-zero has intensified, requiring businesses to openly disclose their climate-related impacts with prescribed metrics.

Measuring climate impact is crucial for evaluating the effectiveness and success of capital deployed in addressing climate change. It involves gauging the outputs and outcomes of investments, promoting accountability and transparency, optimising resource distribution, iterating based on learning and feedback, demonstrating value to stakeholders, and ensuring the long-term sustainability of interventions and investments. By meticulously tracking and reporting on the achieved outcomes, stakeholders can make informed decisions, attract additional funding, and refine course of action to maximise positive outcomes.

Despite significant advances, the undeniable reality of climate injustice spurred discussion on shifting the focus of climate efforts towards its inherent uncertainty. While a general agreement exists, a universally accepted framework for quantifying climate-related financial impact along with key assumptions and uncertainties remains elusive. 

As part of an ongoing dialogue at different global impact events, a workshop on impact measurement and management of climate finance was held during the AVPN Global Conference 2024 – kicking off with FLII in Merida, Mexico, and Sankalp in Nairobi, Kenya followed by AVPN in Abu Dhabi, and will wrap up at SOCAP in San Francisco. The workshop commenced with sharing from DFC and Intellecap as well as our sister network, Latimpacto and delved into the heart of climate finance by exploring four key questions centred on measuring its impact: evaluating current metrics and addressing their limitations, engaging stakeholder to ensure inclusiveness, strengthening multi-stakeholder collaboration, and considering impact of external drivers such as regulatory changes and market trends. Below are the key outputs of the workshop discussions.

Evaluating current metrics and address their limitations

Whilst conceptually the measurement of the impact of climate finance seems straightforward, the lack of standardised common frameworks poses significant challenges. The discussion highlighted that standardised frameworks like IRIS+ or the Impact Management Project (IMP) might be insufficient for capturing the impact of climate initiatives, particularly regarding scope 2 and 3 emissions. These frameworks need to be reviewed and updated to integrate the dynamics of climate action and finance, or require the adoption of a completely new common framework.

Participants at the workshop emphasised the critical role of metrics in ensuring relevance and advocated for context-specific measurement methods using a theory of change lens. A systems thinking approach is crucial, which requires a shift in how the entire ecosystem measures success. Narrative-driven metrics were highlighted, cautioning against oversimplifying causality through standardisation. Other factors such as conservation, biodiversity, and nature based solutions were also considered, which are more challenging to quantify and require further research for their impact measurement. 

Engaging stakeholder to ensure inclusiveness

Considering social outcomes of climate adaptation, mitigation, and resilience efforts is crucial. While it’s important to track progress of climate actions, we must also ensure that these efforts do not come at the expense of equity, justice, and progress. Neglecting social outcomes can exacerbate inequalities and undermine climate action. 

Participants recognised the gap between how funding is currently allocated (often in a coordinated, top-down manner) and how it translates into real-world impact. There is often a mismatch between investor or donor expectations and the reality on the ground, requiring engagement with stakeholders, including local communities and environmental groups, to gather feedback on the impact of our climate investments.   The voice of the communities most impacted by the vagaries of climate change should be incorporated.

Solutions are needed to ensure that resources reach the community level and empower local populations including vulnerable communities to promote sustainable and inclusive social development. Future impact measurements should delve into the concept of community power and assets, considering both measurable (quantitative) and less easily quantifiable (qualitative) factors, and should focus on adoption of community-driven change models by NGOs and funders worldwide. 

Strengthening multi-stakeholder collaboration

Multi-stakeholder collaboration is vital. The participants stressed the necessity of breaking down silos to replicate and scale successful initiatives. Eliminating duplicate work and streamlining our efforts to make meaningful contributions will save time and resources. We need safe spaces for honest dialogue to facilitate knowledge sharing, including lessons from failures, for improving practices and avoiding pitfalls. Diverse narratives showcasing the impact of climate finance initiatives are also important, as highlighting these stories can encourage wider adoption of climate-conscious practices.   

Discussions also explored collaboration among funding bodies to share data and best practices, as well as broadening the understanding of impact measurement. The system change of climate finance impact measurement needs dedicated leadership and joint efforts of multiple stakeholders. We need to jointly build the capacity of all stakeholders including the providers of climate finance, sustainability professionals, industry representatives, policymakers, impact measurement professionals, and academic researchers. 

Considering external drivers 

There is a need for adaptation strategies to include external factors like regulatory changes and market trends for more effective impact assessment. Mandatory reporting requirements from governments or stock exchanges can drive broader adoption but must be built with stakeholder consultation. Outcome-based financial solutions can also incentivize reporting and lower capital costs for climate initiatives. Emerging trends and innovations in impact measurement methodologies throughout Asia encompass various technological applications as well.

Investor engagement is critical. Investors have the power to drive change by directing their investments towards sustainable and climate-resilient projects and businesses. Their engagement can influence the direction of capital flows and incentivize more sustainable practices across industries including focusing on biodiversity and nature-based solutions. Existing networks and technology should be utilised to foster these conversations. 

The way forward

In conclusion, the workshop highlighted the critical need for context-specific metrics, better data sharing, multi-stakeholder collaboration, and the inclusion of broader climate impacts beyond just carbon emissions. The above challenges can be addressed through standardised reporting, regulatory support, and innovative financial solutions. By quantifying and communicating the tangible impacts of investments, impact measurement can catalyse further investment, innovation, and collaboration, driving collective efforts towards achieving the climate goals. 

Sharing notes from each convening and documenting ongoing discussions in this workshop series  will foster a continuous dialogue, allowing insights from both local and global participants to accumulate and evolve. By making smart investments, sharing knowledge and collaborating to enhance the effectiveness and impact of climate finance investments, Asia can pave the way towards a future that is both sustainable and prosperous. 

References

A. Environmental Stewardship
To protect the environment, we organize programmes like mangrove nursery and Reforestation, Coastal and River Clean-Up, Community Based Environmental Solid Waste Management, Environmental IEC Campaign and Eco-Academy

B. Food Security and Sustainable Livelihood
To ensure a sustainable livelihood for the community, eco-tourism include Buhatan River Cruise Visitor Center Buhatan River Mangrove Boardwalk are run by the community. Others include Organic Vegetable and Root crops Farming, Vegetable and Root crops Chips and by-products Processing and establishing a Zero waste store.

C. Empowered Communities
To empower the community, we provide product and Agri-Enterprise Development Training, Immersion and Learnings Exchange Program, Earth Warrior Training and Community Based Social Entrepreneurship Training

Author

Patrick Yeung

Associate Director, Climate Action Platform at AVPN

Patrick Yeung obtained his PhD in Biology from the Chinese University of Hong Kong in 2017, with professional field in ecological conservation. He joined the marine conservation team of WWF Hong Kong in 2014, to study on marine litter problems as well as coastal biodiversity through citizen science activities. He also led on identifying marine ecological hotspots as the basis for conservation and research works by facilitating expert groups. In 2019, he started working in Mainland China on marine and wetland habitat conservation, sustainable fisheries and ocean plastic. Besides, he actively built partnerships with NGOs, government authorities, research institutes, industry associations, and managed funding programs, to provide more innovative and in-depth sustainability solutions. He also supported international cooperation and policy advocacy on nature conservation and sustainable blue economy development.

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