This year, the UK government faces a twin challenge on climate finance. It must fulfil its £11.6 billion commitment on international climate finance (ICF) for 2021-2025 which is significantly off-track, despite moving goalposts. In addition, following the outcome of the COP29 negotiations, it must also step up with a new pledge for the next phase of ICF (ICF4).
To date, the UK’s ICF has been funded entirely through its Official Development Assistance (ODA) budget, now set to shrink further from 0.5% to 0.3% by 2027. The government’s current direction of travel leaves millions at risk, breaking promises to the world's most marginalised communities and undermining the UK’s national interest. There is an urgent need for course correction.
At COP29, the UK Prime Minister committed to ensure “our children have the prosperity, the security and the stability that they deserve for generations to come” and to renew UK climate leadership. The ongoing comprehensive spending review is a critical moment to back up these promises with concrete policies and measures that best address the twin challenges and support ambitious and inclusive climate action for children and families on the frontlines of the climate crisis. It comes at a time when new research by Save the Children, in collaboration with Vrije Universiteit Brussel, shows that millions of children could be protected from unprecedented extreme weather events if urgent action is taken to limit the global temperature rise to 1.5°C above pre-industrial levels.
POLICY SHIFTS CAN INCREASE SUPPORT FOR INTERNATIONAL CLIMATE AND DEVELOPMENT ACTION
The UK’s ODA budget has now been slashed twice in five years—first from 0.7% to 0.5% of GNI in 2021, and now even further. No surprise then that delivering its £11.6 billion ICF pledge for 2021-2025 has been a struggle. With another round of cuts, the challenge has only grown.
At the same time, a significant portion of the ODA budget - over half of bilateral spend in 2023 - was spent on administrative costs and in-donor refugee support, reducing the impact and effectiveness of ODA. The spending review should be a reset moment to change it. This includes committing to departmental spending limits that chart significant reductions in domestic ODA spending, even if costs like refugee hosting increase.
Equally important is addressing the inconsistency in how capital contributions to British International Investment (BII) are counted in the ODA budget. Aligning this with the government’s agenda to focus on net financial debt could make room for increasing support to climate, development and humanitarian objectives where it's most needed.
LOOKING FORWARD TO ICF4: FAIRNESS AND QUALITY ARE KEY
Against this backdrop, the UK government is also expected to announce its pledge for the fourth round of ICF, covering 2026 to 2030. This pledge should reflect the UK’s fair share contribution and, crucially, provide predictable, high-quality funding to lower-income countries. It matters not just for climate justice, but also for the UK’s national interest.
Global trade, crucial for the government’s growth agenda, is susceptible to climate-induced supply chain disruptions, with climate change contributing to the highest food price inflation in 45 years in the UK in 2023. Considering half of the UK’s food imports come from climate-vulnerable, lower-income countries, investing in the climate resilience of these countries is more urgent than ever.
Historically, the UK’s ICF commitments have doubled with each cycle, with funding coming from the ODA budget in the form of public, grant-based finance. But with two rounds of cuts to the budget in in less than five years, uncertainty prevails over the ambition and quality of ICF4.
The signs of shifts from the previous rounds are starting to emerge. UK leaders have called for channelling public funds to mobilise private investment as the means to scale up climate finance for the Global South, given fiscal constraints. This approach and narrative have some serious limitations.
Firstly, the UK isn’t tapping into one of the most obvious sources of public finance – the biggest polluters. Right now, the system disproportionately benefits high-emitting corporations and individuals, who are also best shielded from the worst effects of climate change. The right approach would involve fairly and progressively taxing the biggest polluters, where estimates show billions could be generated each year in new and additional funding that could be reinvested into a just transition domestically and in communities on the frontlines of the climate crisis in the Global South. Polluter pays measures also enjoy widespread public support.
Secondly, adaptation, resilience and loss & damage programmes are not inherently profit-generating and therefore struggle to attract private sector investment. The UK government’s efforts to mobilise private finance have fallen short for adaptation. In 2021 and 2022, only one of 43 UK-supported climate programmes that mobilised private finance had adaptation as its core objective. The over-reliance on private sector therefore risks marginalising adaptation even further, at a time when the adaptation funding gap is growing and when the UK’s own track record in balancing adaptation and mitigation funding is not as impressive as it once used to be (see notes below).
Funding adaptation and loss and damage adequately and appropriately is key for achieving climate justice. Reversing the aid cuts and implementing reasonable polluter pays measures will boost UK’s funding for international climate and development action and support its own growth agenda in the process.
UK ICF MUST PRIORITISE CHILDREN
The UK could make the most of its ICF by maximising co-benefits for people and nature. Save the Children’s analysis reveals that 774 million children worldwide face the dual burden of high climate risk and poverty, making climate action that also reduces poverty and drives sustainable development more important than ever.
Recent research shows that the UK’s bilateral ICF for child-focused services have declined over the years. This trend needs to be reversed, with funding increased to ensure child-critical systems like health, education, social protection, and water and sanitation can withstand climate shocks and ensure continuity in services essential for children’s wellbeing and development.
At the same time, ICF4 should also prioritise transformational climate action that delivers lasting change for children and young people on the frontlines of the climate crisis. For example, in 2023, two of the biggest multilateral funders in climate and in education - the Green Climate Fund (GCF) and the Global Partnership on Education (GPE) - joined forces to protect children’s right to a quality, safe education, impacted increasingly by the worsening climate crisis. The UK is the largest contributor to the two funds, playing a crucial role in enabling this transformational partnership for millions of children who are witnessing severe disruption to their education from the climate crisis. As discussions on ICF4 spending priorities progress, honouring and boosting commitments to multilateral funds like the GCF - key to delivering such transformational action - should also continue to be at the forefront.
Notes:
1. Analysis of private finance mobilised by the UK for adaptation is based on the UK's First Biennial Transparency Report submitted to the UNFCCC.
2. The UK has had a track record of delivering almost 50% of its ICF for adaptation. In 2021 and 2022, this share was just 37% - analysis based on the UK's First Biennial Transparency Report.
