(This article was originally written in Japanese (3 MB, PDF) for The International Development Journal, June 2012, Contribution “Adaptation Fund”, p. 74‐75)

“Direct access” is a way for developing countries and their implementing entities to access funds without going through international organizations. The Adaptation Fund, which supports climate change adaptation activities in developing countries, has expedited the introduction of this measure in the field of climate change financing. Mr. Yutaka Matsuzawa, Director, Research and Information Office, Global Environment Bureau of Japan’s Ministry of the Environment and a member of the Adaptation Fund Board, and Ms. Atsuko Nishikawa, International Cooperation Specialist (Finance), Global Environment Bureau of Japan’s Ministry of the Environment, explain the effectiveness and challenges of direct access.

Requests from developing countries

International organizations support the majority of environmental conservation efforts in developing countries through multilateral funds. For example, the Global Environment Facility (GEF), the largest funding mechanism for global environment conservation initiatives, is accessible by only 10 designated international organizations including the World Bank, UNEP and UNDP. Through the climate negotiations, developing countries have increasingly demanded “direct access” to funding, a practice that has been introduced gradually. Direct access is expected to effect stronger ownership, better selection of national priorities, swifter implementation of projects, and cost reduction. Outcomes of projects implemented through direct access should be of the same quality as those carried out by international organizations. In other words, national implementing entities seeking the direct access to financing enjoyed by the multilateral funds are required to meet international standards pertaining to resource management and environmental/social safeguards and prove their capacity to use those standards appropriately throughout project implementation. This process requires additional time and effort by developing countries, but could provide them the opportunities to improve their own governance and develop capacities beyond the environmental field.

Adaptation Fund

The Adaptation Fund is a pioneering multilateral fund that has expedited the introduction of direct access. The Fund was established under the Kyoto Protocol in 2008 to provide funding to projects addressing adaptation in vulnerable developing countries. Though the Fund only recently began supporting projects in 2010, it has provided funding to 51 projects already in fields including disaster prevention, coastal management, and food security. While most multilateral funds rely on donor contributions, the major source of financing for the Adaptation Fund comes from an “innovative fund mechanism” (2% of issued credits generated under the Clean Development Mechanism project). However, due to depreciation of the international carbon market since late 2011, the Adaptation Fund has been facing an emerging lack of funding and requires additional contributions from developed countries and the private sector. As a member of the Board since the Fund’s establishment, Japan’s Ministry for Environment has been proactively involved in its development of regulations and operations.

Capacity‐building in developing countries is imperative

In compliance with “thriving resource managemet” including the international fiduciary standards  agreed at the 2nd Conference of the Parties serving as the Meeting of the Parties of the Kyoto Protocol (CMP), the Adaptation Fund Board established standards in three realms: 1) finance, 2) organization, and 3) anticorruption measures. Only organizations that meet the standards can be accredited as national implementing entities and become eligible to apply for funding. The Accreditation Panel, established by the Board, examines the NIE (National Implementing Entity) applicants and makes recommendations to the Board regarding which national implementing entities should receive accreditation. The Panel consists of three accreditation experts and two Board members. Applicants seeking accreditation must demonstrate capacity in their applications and undergo examination by the Panel. So far, only one application from each country can be accepted. Based on the examination, national implementing entities approved by the Board take charge of all project implementation.

The Adaptation Fund promotes direct access, but not all developing countries have necessarily capable national entities. The Fund thus allows countries the choice to use either their own national entity or a multilateral entity. However, both national and multinational entities have to clear the same standards, which can pose a significant challenge for most NIEs. Based on specific stipulations by the CMP, the Fund is not to provide funding for capacity‐building of potential NIEs. Therefore, the complementary support of third‐party organizations has been essential for capacity‐building of national implementing entities.

20 national implementing entities accredited in Africa and elsewhere

As of March 2012, 35 national entities have applied for accreditation. No national entities have been accredited from Asia or the Pacific yet. Accredited entities vary between organizations, which are governmental agencies (ministries and government related agencies), non‐profit organizations (research institutes etc.) and trusts. After accreditation, each NIE needs to submit individual project proposals and receive approval from the Board separately. As of March 2012, 16 project proposals from multilateral entities have been approved, but only two project proposals from national entities have been approved. One reason would be that multilateral entities can coordinate their country offices through their pipelines and tailor their proposals for specific funds while national entities often need to develop proposals from scratch and therefore require more time.

An ongoing project by Centre de Suivi Ecologique in Senegal, entitled “Adaptation to Coastal Erosion in Vulnerable Areas,” presents a concrete example of direct access. In Senegal, the need to address costal erosion and salination are national priorities. The project approved in September 2010 (US$8.6 million) has supported the construction of protective infrastructure, installation of embankments to stave off salination, awareness‐raising activities for the local people, and legal arrangements in coastal management.

Accelerating implementing capacity of developing countries

Development of direct access projects by developing countries themselves is more time‐consuming than performing conventional projects by multilateral entities. Yet, direct access provides benefits and opportunities for developing counties to improve their resource management, capacity for governance, and project development, implementation and management. The Adaptation Fund has been setting up organizational arrangements promoting direct access. One example is a 50% funding cap for multilateral entities in order to reserve fund resources for national entities.

In the climate change negotiations, developed countries have committed to a target to mobilize public and private funding of US$100 billion annually by 2020. Effective use of such an enormous amount of funding for international development requires not only existing supports of multilateral entities but also the development and implementation of projects by developing countries themselves just as Japan has done in the past. Building “direct access capacity” is an immediate need and highlights the importance of learning from and applying the lessons of the Adaptation Fund in the future.