Transformation of Climate Perils into Economic Advantages in Emerging Nations

In a significant stride towards sustainable development, over 326,000 farmers in Kenya have seen an average 41% increase in yields due to improved agricultural practices, as part of the World Bank's Climate-Smart Agriculture Project. Meanwhile, in a different part of the world, a long-term hazard mitigation programme in a coal-dependent district in eastern India, the Jharia Master Plan, is demonstrating the potential of governance-based solutions in achieving emissions reduction and resilience.

The Jharia Master Plan, approved by India's cabinet in June 2023, aims to extinguish underground fires, stabilise land, and relocate at-risk communities, all while managing social infrastructure, resettlement, skills development, and land-use management. Despite its potential to reduce fugitive emissions and reshape spatial governance, the Jharia Master Plan is not formally designated as a climate finance project, and its emissions are not accounted for in India's national emissions inventory.

The prevailing climate finance discourse often overlooks the systems being built in response to local priorities. In contrast, Jharia's programme is funded through public expenditure and led by national and state institutions. This case highlights the need for a shift in how climate finance is designed and evaluated, particularly in recognising and scaling governance-based solutions.

Recognising and scaling such approaches will require a shift in how climate finance is designed and evaluated, including developing methodologies for quantifying avoided emissions in unconventional settings. For instance, in Ethiopia, the national agricultural research system has developed rust-resistant wheat varieties that have delivered productivity gains of up to 40% in targeted areas.

Integrating governance-based solutions and institutional innovation into mainstream climate finance frameworks can be enhanced through several strategies. One such strategy involves evolving climate finance frameworks to accommodate governance-led initiatives and institutional reforms. This includes recognising the value of non-traditional approaches, such as public administration and land governance reforms, in achieving emissions reductions and resilience.

Another strategy involves developing methodologies to quantify avoided emissions in unconventional settings, such as governance reforms. Implementing performance-based disbursement mechanisms can also incentivise effective governance reforms and institutional innovations.

In addition, consolidating fragmented investments into national frameworks can streamline governance and improve the coherence of climate finance efforts. Experimenting with devolved finance models can empower local institutions to manage funds more effectively, promoting contextualised solutions.

Mainstreaming governance-based solutions requires international recognition of their mitigation value. This involves acknowledging and promoting these approaches within global climate agreements and frameworks. Encouraging partnerships between governments, businesses, and financial institutions can help scale governance innovations by providing resources and expertise.

Across a number of developing countries, resilience outcomes are being generated through domestic policy and public investment strategies that originate within development planning rather than environmental programming. Examples include countries such as South Africa, Colombia, and Mexico, which have introduced carbon pricing and environmental fiscal reforms that are now embedded within their national revenue systems.

In Rwanda, the national Green Fund (FONERWA) has supported the development of local financial instruments aligned with climate goals. A green bond issued by Prime Energy Plc in 2023 raised £5.5m on the Rwanda Stock Exchange.

However, less than 20% of total climate finance reaches low- and lower-middle-income countries, despite their acute exposure to climate risk. Disbursement of climate finance is often constrained by fragmented donor governance and rigid project templates that fail to accommodate cross-sector strategies. Strengthening institutional quality, including regulatory frameworks, governance, and enforcement capabilities, is crucial for attracting investment in climate-resilient sectors. Development Finance Institutions (DFIs) can play a key role by providing risk-sharing mechanisms to overcome market barriers and attract private investment.

By implementing these strategies, mainstream climate finance frameworks can better acknowledge and fund governance-based solutions and institutional innovations, ultimately enhancing the effectiveness and efficiency of climate finance efforts. The case of Jharia serves as a powerful reminder that climate finance must evolve to accommodate and support the innovative solutions being developed at the local level.

The Jharia Master Plan, a governance-based solution, demonstrates potential in achieving emissions reduction and resilience yet remains excluded from climate finance projects.
In comparison to climate finance discourse, the Jharia programme is funded through public expenditure and led by national and state institutions.
Mainstream climate finance frameworks should evolve to accommodate governance-led initiatives and institutional reforms, as seen in the Jharia Master Plan.
Quantifying avoided emissions in unconventional settings like Jharia is essential in recognizing and scaling governance-based solutions.
In Ethiopia, rust-resistant wheat varieties developed by the national agricultural research system have yielded productivity gains of up to 40%.
Integrating governance-based solutions and institutional innovation into climate finance frameworks can be enhanced through strategies like recognizing the value of non-traditional approaches.
Developing methodologies to quantify avoided emissions in unconventional settings will incentivize effective governance reforms and institutional innovations.
Consolidating fragmented investments into national frameworks can streamline governance and improve the coherence of climate finance efforts, fostering contextualized solutions.
International recognition of governance-based solutions' mitigation value is necessary, involving acknowledging and promoting these approaches in global climate agreements and frameworks.
Partnerships between governments, businesses, and financial institutions can help scale governance innovations by providing resources and expertise, ultimately enhancing the effectiveness and efficiency of climate finance efforts.