How to set up climate finance tracking procedures in order to develop clear financial flow diagrams?
To reach the ambitious climate and energy targets in Europe, financial flows need to be redirected to low-carbon and climate-resilience activities (i.e. climate finance). The ‘Clean Energy for All Europeans’ communication of the Commissions, depicts that for mitigation only, the total investment gap in Europe is estimated on 177 bn EUR to be additionally invested annually between 2021-2030. However, while higher investment levels are required, there is still a significant knowledge gap in this regard. It is therefore important to know how well the European countries are progressing in meeting their investment needs and closing the financing gap.
The European Environment Agency (EEA) commissioned Trinomics to develope guidance and a handbook for EEA member countries in 2017 following our prior study which assessed the current state-of-play of climate finance tracking in Europe. This study clearly showed that climate finance tracking is still in its initial stages, where there is currently not a commonly agreed methodology, and most EEA member countries are not yet able to demonstrate good data availability. The need for common tracking methods and harmonisation to generate more comparable climate finance data was also emphasised by the High-Level Expert Group (HLEG) on Sustainable Finance. The objective of this handbook was therefore to stimulate more governments in developing the necessary expertise that enables them to start developing domestic climate finance landscapes themselves. These landscapes are Sankey-type flow diagrams, which draw the picture of how the financial chain is linked between financing sources, investment instruments and the receiving climate action areas.
The resulting handbook served as an introduction for EEA member countries on how to set up climate finance tracking procedures and eventually develop domestic climate finance landscapes for their respective countries. To this end, the handbook was set up as a step-by-step approach offering a common, yet flexible framework discussing five steps in the development of landscapes (see figure below). As the handbook served as a scoping report directed to policy-makers/technical experts, the document provided a first overview of what is needed across all the methodological steps and which different types of considerations and issues need to be encountered along the way.