This report investigates the role of Swedish climate aid in achieving the objectives of the Paris Agreement. The focus is on catalytic climate-change mitigation finance and the initiatives of three key institutions: the Swedish International Development Cooperation Agency (Sida), Swedfund and the Nordic Development Fund (NDF). The aim has been to evaluate whether the funding for climate-change mitigation provided by these institutions can contribute significantly to the climate-change mitigation necessary to achieve the objectives of the Paris Agreement.
The report is based on three portfolio evaluations conducted by teams from Stockholm Environment Institute, IVL Swedish Environmental Research Institute, and Perspectives Climate Research. The teams have evaluated the potential of the climate investments to contribute to the significant change needed to achieve the necessary reduction in emissions by 2030 to keep global warming to no more than 1.5°C.
The evaluations are ex ante, i.e., based on expected results rather than actual outcomes. They discuss potential contributions towards overall climate-change mitigation objectives based on the five dimensions of transformative climate finance identified by the Transformational Change Learning Partnership (TCLP) of the Climate Investment Funds (CIF). The dimensions used in the evaluations are: speed, scale, systemic change and relevance. We also consider additionality.
The evaluated climate-change mitigation finance portfolios
The mitigation finance portfolios of Sida, Swedfund, and NDF are financially diverse, with each institution using a different mix of financial instruments. Sida primarily uses grants, Swedfund a blend of equity and debt, and NDF a mix that includes grants and equity as well as concessional loans. The portfolios have some overlap, with several projects having two or three of the institutions as investors or financiers.
All three portfolios focus strongly on sub-Saharan Africa, with sizable projects implemented in Mozambique, Kenya, Rwanda and Uganda. Asia is also an important region for Swedfund and, to a lesser extent, NDF.
The portfolios share a common theme in that their primary focus is on the energy sector, with renewable energy generation as the key subsector. In terms of direct mitigation, results should not be expected until the late 2030s and into the 2040s. Sida’s projects are generally more short term and primarily aimed at indirect mitigation, such as capacity- and institution-building, developing markets and influencing energy policy.
Mapping the portfolios provided an immediate answer to the question of whether they can provide mitigation results by 2030, insofar as they are not primarily intended to do so.
Transformational potential can be improved
In general, the chosen modalities in the three portfolios are in line with recommendations from the Intergovernmental Panel on Climate Change (IPCC) on how to mobilise mitigation resources in developing countries. Evaluation in the TCLP dimensions does however suggest that all three portfolios could increase their transformative potential. Out of 67 investments, 16 score high in the assessment, with five achieving a maximum score.
While the TCLP dimensions speed, scale, systemic change and relevance are one point of departure, this is not the only approach. All three institutions need to clearly articulate how their funds are intended to contribute to the necessary change, both on a project and portfolio level. The report also highlights how the evaluated portfolios overlap; unless the three institutions clearly articulate how they are adding value, there is obviously a risk for low additionality.
Most projects and investments funded by the three institutions have additional expected outcomes beyond climate-change mitigation. In line with the institutions’ mandates, projects are also intended to contribute to poverty reduction through, for example, economic development, job creation, gender empowerment and other social benefits.
The portfolios can support low-emissions development in the long term
The potential contribution of portfolios to climate-change mitigation in the short term also depends on the geographical location, mitigation objectives and the types of interventions in the projects the institutions finance.
The primary focus of the evaluated portfolios is on Africa, specifically countries in sub-Saharan Africa. While these countries are important from a development perspective, at present they are not significant emitters of greenhouse gases, clearly limiting the potential for mitigation in the short term; after all, when emissions are limited, so are the potential reductions.
Being primarily focused on sustainable development in less developed countries, the portfolios are not expected to significantly contribute to mitigation by 2030. They do, however, aim to support low-emissions development pathways and can therefore be expected to be relevant for long-term efforts to combat climate change while remaining within the development remit of all three evaluated institutions.
Greater transparency needed
The report emphasises the need for greater transparency in Swedish climate-change mitigation finance. Granular project-level data is crucial to assessing effectiveness, identifying successful approaches and ensuring that funds are used effectively. Transparency concerning finances and expected/achieved mitigation results is also essential for supporting market development.
Transparency is not only important for learning and coordination but also for maintaining credibility. A lack of transparency may undermine trust in climate finance efforts, both among Swedish taxpayers and people in partner countries. Transparency is essential to building trust in mitigation efforts and policies.