## IMF Staff Climate Note 2022/009 (clnea2022009) — Introduction and Key Findings

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### Climate risks and impacts on Sub-Saharan Africa (SSA)
- There is a probability of more than 50 percent that global warming will reach or exceed 1.5°C between 2021 and 2040 (IPCC 2022).
- Temperatures, sea levels, and intensity of droughts, floods, cyclones, and other severe weather events are rising.
- SSA has contributed the least to global emissions but faces the greatest impacts due to low resilience (IMF 2020, IMF INFORM Risk Index).
- Heavy reliance on rain-fed agriculture heightens humanitarian, social, and economic vulnerabilities, disproportionately affecting the poorest and fastest-growing segments of the population (IMF 2015, Acevedo and others 2020, IMF 2020).
- Immediate economic costs of extreme weather events in 2020 are estimated to be at least $7–$15 billion (AfDB 2022).

### Financing needs for adaptation and mitigation
- Upfront investment in adaptation is substantially less costly than repeated disaster relief: up to three times less costly for droughts and 12 times for storms (Cantelmo and others 2019, IMF 2020).
- Literature range for adaptation investment in developing countries: $50 to $500 billion annually in 2050 (Aligishiev, Bellon, and Massetti, 2022).
- Africa-specific estimates:
  - Adaptation costs of $50 billion per year by 2050 even if global warming is kept below 2°C (GCA 2021).
  - Clean energy transition investments of about $190 billion per year over 2026‐30 (IEA, 2022).
  - AU negotiators at COP26 called for mobilizing at least $1.3–$1.6 trillion over 2020–30 for SSA adaptation and mitigation, translating to an average of $118—$146 billion per year (AfDB 2022) or about 7 percent of SSA’s GDP in 2021.
- These needs compound challenges from COVID-19, the war in Ukraine, and long-standing development barriers.

### Current climate finance flows and composition
- Global climate finance estimated at about $630 billion annually (or about 0.7 percent of the world's GDP), largely comprised of green bonds (Prasad and others 2022).
- Investments to achieve a 2°C ceiling and adaptation goals estimated between $1–$6 trillion per year until 2050 (or 1 to 7 percent of the world’s GDP).
- SSA climate finance (2009–19):
  - Advanced countries committed $100 billion per year by 2020; advanced countries disbursed $80 billion per year during 2016−19.
  - SSA received less than $20 billion per year during 2016−19 (totaling $73 billion or about one-quarter of global flows) during that period.
  - Composition: Grants $43 billion (55 percent); Concessional debt $29 billion (36 percent); Nonconcessional debt $6 billion; Equity $0.4 billion; Philanthropies $0.04 billion.

### Immediate financing avenues under consideration
- Four major areas explored by SSA policymakers and stakeholders:
  - Concessional financing (climate funds).
  - Debt instruments somewhat linked to climate change.
  - International carbon credit schemes.
  - Climate-related insurance schemes.

_Italic: IMF | Staff Climate Notes — Introduction (clnea2022009)_

---

### Channels, Trends, and Constraints in Climate Funding by Financial Instrument

### Channels and architecture
- Two primary approaches:
  - Direct: bilateral donors or climate funds provide project financing directly to a recipient SSA government or subnational entity (included in the country’s budget).
  - Multilayered via intermediaries: donors provide funds to a climate fund, which channels funds to regional or international institutions (for example, UNEP or the IFC).
- About 90 percent of climate fund financing in SSA is channeled through regional or international institutions.

### Recent trends and geographic concentration (2009–19)
- Thematic growth since 2010:
  - Adaptation financing has grown more than sevenfold since 2010.
  - Mitigation financing grew fourfold.
  - Multiple-focus projects (adaptation and mitigation) doubled.
- Multilateral financing increased notably since 2017.
- Geographic concentration of concessional climate funding (2009–19):
  - One-third (32 percent) went to Ethiopia, Kenya, South Africa, and Tanzania, collectively slightly less than $26 billion.
  - Equatorial Guinea received $0.08 billion (0.1 percent); Seychelles received $0.07 billion (0.1 percent).
- Global climate fund pledges and disbursements:
  - At least $43 billion pledged to climate funds since the early 2000s; 80 percent deposited.
  - $28 billion of projects approved; $11 billion disbursed (CFU 2022).
  - About $7 billion of approved projects are in SSA with disbursements of less than $3 billion.

### Constraints to accessing concessional finance in SSA
- Cross-cutting access requirements emphasize quality of data, laws and regulations, governance, debt, and public financial management (PFM, including procurement).
- Only 12 SSA countries have direct access to financing from climate funds.
- Accreditation typically takes at least two years; project approval can take about a year.
- Barriers include:
  - Heterogeneous fund requirements that limit interaction with multiple funds.
  - Climate funds prioritizing larger projects, disadvantaging small SSA projects.
  - Insufficient risk appetite for local-currency projects; high transaction costs.
  - Limited pipelines of bankable projects due to weak climate-related data and project development capacity.

### Recommendations and capacity-building actions
- International organizations and bilateral agencies should support reforms to strengthen governance, debt, PFM, macroeconomic stability, and climate data/strategies.
- IMF roles: targeted policy advice and capacity building (for example, CMAP, C-PIMA, Green PFM) and lending that supports reforms (including the Resilience and Sustainability Trust (RST) once operational).
- Public-private synergies:
  - Use guarantees or equity tranches to underwrite risks and catalyze private financing while minimizing contingent fiscal risks.
- Climate fund reforms:
  - Align and streamline accreditation requirements; set internal targets to increase flows to climate-vulnerable emerging and developing economies.
  - Example: GCF pilot for Enhancing Direct Access (EDA) that streamlines approval and assigns decision-making and oversight to local organizations.
- Country-level actions:
  - Upgrade capacity to access climate finance (examples: County Climate Change Funds (CCCFs) in Kenya; Acuerdo Verde in Chile).
- High-level practical recommendations (Table 2):
  - Strengthen financial management & accounting, PFM, procurement, governance and administrative capacities, ESS, gender policy, and information disclosure.

---

### Climate-Related Debt Instruments, Green/Blue/Sustainability Bonds, and Debt Swaps

### Categories and definitions
- Climate-related debt instruments under consideration:
  - Green, blue, and sustainability/social (GBS) bonds.
  - Sustainability-linked bonds (outcome-based instruments).
  - Debt swaps (debt-for-climate or debt-for-nature).
  - Debt relief or cancellation tied to climate investments or actions.

### Advantages and constraints of GBS bonds in SSA
- Advantages:
  - Potential longer maturities, lower costs via a "greenium", broader investor base, signaling commitment to climate action.
- Constraints and market context:
  - Green bond market grew more than 1.5 times during 2021, surpassing $500 billion.
  - GBS issuance dominated by financial institutions (70 percent).
  - Emerging and developing countries’ GBS issuance was about 4 percent of their bond issuance in 2020 (excluding China).
  - SSA GBS issuance amounted to 0.3 percent of total SSA bond issuance and is dominated by South Africa, followed by Mauritius, Nigeria, Ghana, Kenya, Seychelles, and Namibia.
  - Greenium observed so far has been small relative to countries’ debt burdens.
- Notable SSA sovereign example:
  - In 2021, Benin issued SSA’s first sovereign sustainability bond, a €500 million SDG bond with environment among its four pillars.

### Enablers for GBS issuance
- National or supranational sustainability frameworks (for example, WAEMU sustainability framework used by Benin, Côte d’Ivoire, and Togo).
- Partnerships with international organizations (for example, South Africa’s Nedbank $75 million green bond with IFC).
- Certification routes (for example, Nigeria’s Access Bank green bond certified by the Climate Bonds Initiative).
- Market infrastructure: dedicated stock-exchange segments or green bond platforms in Ghana, Nigeria, and South Africa.

### Debt swaps and climate-related debt relief
- Comparative effectiveness:
  - Conditional grants or comprehensive debt restructuring generally more beneficial than swaps for unsustainable debt.
  - Swaps make sense when adaptation is efficient, fiscal risks are high (but not unsustainable), and swaps generate fiscal space beyond financing needs.
  - For unsustainable debt, swaps must be large enough to restore debt sustainability.
- Swap structures:
  - Bipartite: negotiated between debtor and creditor government(s).
  - Tripartite: creditor–debtor–third party (for example, NGO) where a third party buys debt at discount or loans to enable retirement and redirect payments locally.
- SSA experiences:
  - Seychelles tripartite swap (2015): TNC raised $28 million ($23 million from investors and $5 million from donors) to acquire $30 million of Seychelles’ debt at a discount; restructured to $15 million (50 percent nominal haircut); maturity extended from 8 to 20 years; part of debt service switched to local currency; savings invested into ocean conservation.
  - Belize tripartite swap: reduced external debt by 10 percentage points of GDP.
  - Cameroon–France (2006) and Democratic Republic of Congo–France (2019) as bilateral debt-for-development swaps with climate components.
- Climate-related debt relief:
  - Writes off the “swapped” part instead of exchanging it for cheaper instruments; no observed climate-related debt relief in SSA to date.

### Transactional and monitoring costs
- Transaction costs for commercial debt swaps can range from 1–6 percent of the debt’s face value (CBD 2001).
- High negotiation and administrative costs; substantial post-transaction monitoring costs.
- Seychelles’ experience showed small operation size with high administrative burden.

### Policy and institutional recommendations to reduce costs and risks
- Debtor actions:
  - Publish national climate strategies and pipelines of adaptation and mitigation projects.
  - Improve data availability, PFM, and procurement (including green budgeting).
  - Example: South Africa’s green taxonomy aids project identification and reduces greenwashing concerns.
- Creditor communication on preferred climate objectives can lower transaction costs.
- International organizations can support SSA reforms in debt management, PFM, and project readiness.

---

### International Carbon Credit Systems, REDD+, and SSA Participation

### Key concepts and market sizes
- Emissions reduction needs:
  - To contain warming within 1.5–2°C, global GHG emissions need to be reduced by 25 to 50 percent by 2030.
  - About 90 percent of global emissions from governments and companies will be subject to net-zero targets by 2050 or later (Boehm and others 2021).
- Carbon credit definitions:
  - One carbon credit represents one ton of CO2-equivalent emission reduced, avoided, or sequestered.
- Market segments and 2021 metrics:
  - ETS permit prices in 2021 ranged between $10 to $110 per ton across the EU, the UK, and the US compliance markets.
  - Cumulative carbon emissions trading in ETS markets reached $161 billion at end-2021, growing by more than 50 percent relative to end-2020.
  - Voluntary carbon credit prices range from $2 to $10 per ton.
  - Cumulative voluntary market trading was $7 billion as of August 2021.
  - Suppliers issued nearly 300 million tons (Mt) of carbon offsets in 2021; companies purchased 161 Mt.
  - Total global GHG emissions are roughly 50 billion tons (Gt) of CO2 equivalent per year.
  - Voluntary net-zero commitments tripled since 2019—more than 1,500 companies representing $42 trillion in annual revenue committed to net-zero by 2050 or sooner.
  - Supply of carbon credits grew 230 percent over the past five years, driven by nature-based credits.

### SSA participation and REDD+ potential
- SSA-issued credits averaged 21 percent of traded credits in the voluntary carbon market (average 2016–21).
- Kenya issued 39 million credits during 2010–21.
- Forestry accounted for 61 percent of SSA issuance; almost one-third of that was issued by Kenya.
- Congo Basin is largest net carbon-absorbing forest; countries there are carbon negative and can issue large amounts of REDD+ credits.
- REDD+ implementation phases: readiness, implementation, and results; combined completion can take more than 10 years.
- COP26 Congo Basin Pledge: $1.5 billion in financing between 2022–25 to protect and maintain the basin through REDD+.
- Twenty-four SSA countries are adopting the REDD+ framework (including Democratic Republic of Congo and Gabon; list includes Benin, Burkina Faso, Chad, Central African Republic, Congo, Equatorial Guinea, Ethiopia, Ghana, Guinea-Bissau, Ivory Coast, Kenya, Liberia, Madagascar, Malawi, Mali, Mozambique, Nigeria, Sudan, Tanzania, Togo, Uganda, Zambia).

### Challenges and risks for carbon credit markets and SSA
- Voluntary markets risk enabling net-zero claims without actual emissions reductions.
- Demand-side impediments:
  - Companies lack incentives to invest in improving ESG or purchasing credits due to weak corporate environmental reporting requirements.
  - Regulatory inconsistencies and lack of clarity deter corporate purchasers.
- Supply-side impediments in SSA:
  - Low prices relative to high production costs; weak capacity in data, institutions, and verification.
  - Leakage risks (logging, droughts, wildfires) and verification difficulties make REDD+ credits potentially unreliable and weakly priced.
  - Poor emissions data and lack of national registries increase double-counting risk.
  - Accounting under Article 6 can create challenges translating multiyear emission budgets to annual NDCs.
- Global implication:
  - Low-price–high-cost trade-offs can reduce incentives to preserve carbon sinks; this is critical for Congo Basin countries with oil and gas reserves under carbon sinks.

### Reforms to support market development
- Demand-side reforms:
  - More consistent ESG disclosure frameworks (for example, SEC and international boards).
  - Greater global coordination on carbon-credit rules and registries.
  - Expanding progressive demand-side policies (example: CORSIA for airlines).
  - Creating futures markets for near-term carbon price discovery.
- Supply-side capacity building:
  - Integrate emissions statistics into national statistical offices.
  - Governments prepare project pipelines, improve transparency and governance, and build issuance capacity.
  - Development partners (for example, CAFI and the Forest Carbon Partnership Facility Readiness Fund) can support readiness and capacity.

---

### Climate Insurance: Purpose, Gaps, and Options for SSA

### Benefits and purpose
- Climate insurance cited in Article 8 of the Paris Agreement as a mechanism to cushion adverse consequences of climate disasters.
- Long-term advantages:
  - Strengthens preparedness of households and businesses.
  - Farmers with climate insurance may invest more in productivity-enhancing equipment and infrastructure.
  - Can complement targeted social assistance and positively affect macroeconomic outcomes.

### Structural features
- Providers: commercial banks, NGOs, cooperatives, or partnerships.
- Financing sources: bilateral donors, multilateral donors, or financial markets; beneficiaries pay premiums and receive claims when disasters occur.
- Services can include subsidies, reinsurance, and capacity building.
- Most contracts cover damages to infrastructure, property, crops, health, or loss of life.

### Stylized facts and regional gaps
- Global insured natural catastrophe losses have grown at a long-term trend of 5-7 percent per year (10-year moving averages).
- In 2021, more than half of global economic losses due to natural disasters were not insured (Swiss Re).
- SSA has the least developed insurance market and very low resilience to natural catastrophes.

### Challenges to expanding SSA climate insurance markets
- Data and modeling capacity:
  - Lack of weather and meteorological data and modeling capacity.
  - International technical expertise is expensive and often unaffordable.
- Financial inclusion, literacy, and infrastructure:
  - SSA is the least banked region, with 80 percent of the population lacking access to formal banking services (World Bank 2021b).
  - Absence of telecommunications infrastructure (for example GSM devices and weather stations) impedes access.
- Demand constraints from low incomes and informality:
  - Low incomes and subsistence farming limit ability to pay premiums; timing of premium payments (for example, before sowing) is problematic.
  - Informal sector predominance prevents many businesses from accessing insurance due to lack of administrative documents.

### Options to expand usage in SSA
- Public actions:
  - Invest in telecommunications infrastructure via public-private partnerships.
  - Expand capacity and availability of information (for example, credit registries).
  - Subsidize premium costs or provide full premium relief when justified, weighing alternatives like targeted cash transfers.
  - Expand government climate insurance with donor support for ARC and the World Bank Disaster Risk Finance Program.
- Development partner role:
  - Provide capacity development and concessional financing for data, modeling, and premium affordability.

---

### Concluding Policy Recommendations

### Overarching message
- Scaling up financing for adaptation and mitigation hinges on reforms in data, governance, regulation, PFM (including procurement and public investment), and realistic and action-based national climate strategies.
- A variety of financial instruments will be needed given the magnitude of SSA financing needs.

### National authorities — priority actions
- Climate strategy and action:
  - Develop well-defined climate strategies and publish climate strategies and project pipelines to attract development partners.
  - Pursue partnerships and accreditation of national institutions with international institutions and climate funds.
  - Enhance communication and public education on climate-related issues.
- Data:
  - Ensure high-quality data from debt statistics to weather conditions.
- Governance:
  - Upgrade governance frameworks to enhance control, monitoring, and transparency; adopt benefit-sharing frameworks.
- Laws and regulations:
  - Strengthen legal and regulatory systems; clarify property rights where relevant.
- Financial systems:
  - Strengthen financial sector frameworks and deepen domestic and regional capital markets.
- PFM:
  - Develop pipelines of adaptation and mitigation projects aligned with national climate strategies; incorporate and label climate issues throughout budgeting, procurement, and risk management.
- Capacity building:
  - Improve information quality, infrastructure, and labor force skills.

### Development partners — priority actions
- Financial support:
  - Provide stepped up grant financing to SSA that is additional to existing development finance commitments; prioritize grants given growing SSA debt levels.
- Tailoring to SSA:
  - Promote targets on volumes disbursed to SSA, number of small-sized or local currency projects financed, or proportion of adaptation projects financed.
- International coordination:
  - Support adoption of a common taxonomy for adaptation and mitigation projects; support internationally agreed climate disclosure and carbon-credit rules; align and streamline climate fund requirements and project selection criteria.
- Capacity building:
  - Provide technical assistance on project design, accreditation, financial structuring, governance, debt management, PFM, and climate-related statistics.

### IMF — priority actions
- Analysis:
  - Provide SSA-focused analysis of macroeconomic and policy implications related to climate change, supported by in-house data sets such as the IMF Climate Change Dashboard.
- Financing:
  - Offer lending arrangements to support SSA countries in building resilient economies; RST (once operational) will add to existing arrangements such as the Extended Credit Facility (ECF).
- Capacity development:
  - Support capacity development in governance, debt, PFM, statistics, banking, monetary, and financial sector issues; integrate climate considerations with programs like CMAP, C-PIMA, and green PFM.

_Italic: IMF | Staff Climate Notes (clnea2022009)_

### Introduction

### Introduction

### Climate risks and impacts on Sub-Saharan Africa (SSA)
- Even if the world’s 20 largest emitters rein in GHG emissions, there is a probability of more than 50 percent that global warming will reach or exceed 1.5°C between 2021 and 2040 (IPCC 2022).
- Temperatures, sea levels, and intensity of droughts, floods, cyclones, and other severe weather events are rising, with devastating geographic, social, and economic consequences expected to continue and intensify.
- SSA has contributed the least to global emissions but faces the greatest impacts due to low resilience (IMF 2020, IMF INFORM Risk Index).
- Heavy reliance on rain-fed agriculture heightens humanitarian, social, and economic vulnerabilities, disproportionately affecting the poorest and fastest-growing segments of the population (IMF 2015, Acevedo and others 2020, IMF 2020).
- Immediate economic costs of extreme weather events in 2020 are estimated to be at least $7–$15 billion (AfDB 2022).

### Financing needs for adaptation and mitigation
- Upfront investment in adaptation is substantially less costly than repeated disaster relief: up to three times less costly for droughts and 12 times for storms (including severe ones such as hurricanes or cyclones, Cantelmo and others 2019, IMF 2020).
- Literature estimates of adaptation investment for developing countries vary widely; an example range is $50 to $500 billion annually in 2050 (Aligishiev, Bellon, and Massetti, 2022).
- For Africa specifically:
  - Adaptation costs of $50 billion per year by 2050 even if global warming is kept below 2°C (GCA 2021).
  - Clean energy transition investments of about $190 billion per year over 2026‐30 (IEA, 2022).
  - AU negotiators at COP26 called for mobilizing at least $1.3–$1.6 trillion over 2020–30 for SSA adaptation and mitigation, translating to an average of $118—$146 billion per year (AfDB 2022) or about 7 percent of SSA’s GDP in 2021.
- These climate-related spending needs compound challenges from COVID-19, the war in Ukraine, and long-standing barriers to development that predated the pandemic.

### Current climate finance flows and composition
- Global climate finance is estimated at about $630 billion annually (or about 0.7 percent of the world's GDP), largely comprised of green bonds, which represent less than three percent of global bond markets (Prasad and others 2022).
- Estimates for investments to achieve the 2°C ceiling and adaptation goals range between $1–$6 trillion (or 1 to 7 percent of the world’s GDP) per year until 2050.
- SSA climate finance has been extremely limited:
  - Since COP15 in 2009, advanced countries committed to provide $100 billion per year by 2020 to emerging and developing countries.
  - Advanced countries actually disbursed $80 billion per year during 2016−19; SSA received less than $20 billion per year (totaling $73 billion or about one-quarter of global flows) during that period.
  - Significant portions of climate finance replaced other previously committed development financing; overall development financing to low-income countries has declined since 2009.
- Composition of SSA climate finance (2009–19):
  - Grants: $43 billion (55 percent of SSA climate finance).
  - Concessional debt: $29 billion (36 percent).
  - Nonconcessional debt: $6 billion.
  - Equity: $0.4 billion (leveraged in only 15 out of 48 SSA recipient countries).
  - Philanthropies: $0.04 billion.

### Constraints and the role of concessional finance
- Concessional climate finance (grants and below-market debt) dominates SSA climate finance and is typically sourced from bilateral donors, MDBs, and climate funds.
- Climate funds aim to increase resilience and reduce emissions and enhance greenhouse gas sinks (UNFCCC 2022).
- Numerous access requirements, heterogeneous project selection criteria, and complex stakeholder arrangements present serious hurdles for SSA countries to access concessional climate funds.
- Concessional financing remains important given:
  - Limitations on domestic revenue mobilization.
  - Elevated debt levels.
  - Tight global financial conditions and high borrowing costs.
  - Capital flight and mounting risks of currency crises.
- First-loss guarantees are a concessional instrument that requires less public finance compared to funded instruments like grants but have been used only modestly in SSA and are not quantified in this Note due to data limitations.

### Immediate financing avenues under consideration
SSA policymakers and stakeholders are exploring four major areas as potential sources of financing for climate action (for government use and, in some cases, private sector adaptation and mitigation):
- Concessional financing, particularly through climate funds.
- Debt instruments that are somewhat linked to climate change.
- International carbon credit schemes.
- Climate-related insurance schemes.

_Italic: IMF | Staff Climate Notes — Introduction (clnea2022009)_

### 2. Climate Funding by Financial Instrument

### 2. Climate Funding by Financial Instrument

### Channels and architecture of climate financing
- Two primary channeling approaches:
  - Direct: bilateral donors or climate funds (for example, the Green Climate Fund (GCF)) provide project financing directly to a recipient SSA government or subnational entity (both financing and project are included in the country’s budget). Direct access requires the fund or agency to evaluate the recipient’s capacity to implement the project.
  - Multilayered via intermediaries: bilateral donors provide funds to a climate fund, which channels funds to a regional or international institution (for example, UNEP or the IFC). The intermediary oversees implementation, sometimes supporting private-sector adaptation projects. Climate funds can be standalone (for example, GCF) or operate under umbrellas (for example, LDCF and SCCF within the GEF).
- Climate funds have existed since the 1990s; substantial financing accelerated from the early 2000s and gained momentum from 2009, when advanced economies committed to providing $100 billion per year in climate finance to emerging and developing countries by 2020.
- Climate finance flows to SSA are often channeled through regional or international institutions (about 90 percent of climate fund financing in SSA).

### Recent trends, themes, and distribution (2009–19)
- Timeframe and measures: Received by SSA, by country, 2009–19 (Current USD billion, cumulative).
- Thematic growth since 2010 (when adaptation financing began being recorded in the OECD database):
  - Adaptation financing has grown more than sevenfold since 2010.
  - Mitigation financing grew fourfold.
  - Multiple-focus projects (adaptation and mitigation) doubled.
- Multilateral financing (climate components including climate funds and MDBs) markedly increased financing for both adaptation and mitigation since 2017.
- Financing from other donors has also risen; across adaptation and mitigation, 60 percent of this financing went to projects where climate was a secondary (“significant”) objective.
- Geographic concentration of concessional climate funding (2009–19):
  - One-third (32 percent) of concessional climate funding went to Ethiopia, Kenya, South Africa, and Tanzania, collectively accounting for slightly less than $26 billion.
  - Equatorial Guinea and Seychelles each received 0.1 percent: $0.08 and $0.07 billion, respectively.
- Global climate fund pledges and disbursements:
  - At least $43 billion pledged to climate funds since the early 2000s; 80 percent of that has actually been deposited in the funds.
  - $28 billion of projects have been approved; $11 billion disbursed (CFU 2022).
  - About $7 billion (one-quarter of approved projects) are in SSA with disbursements of less than $3 billion.

### Challenges to accessing concessional climate finance in SSA
- Key cross-cutting access requirements focus on: quality of data, laws and regulations, governance, debt, and public financial management (PFM, including procurement). Providers also look for links between projects and national climate/development strategy.
- Familiarity advantage: SSA authorities are often familiar with MDBs, bilateral agencies, and international institutions due to prior economic development engagements; this can ease tailored capacity-building. Direct access is newer and less common—only 12 SSA countries have direct access to financing from climate funds.
- Accreditation and project approval constraints:
  - Accreditation requires a specific entity to meet fiduciary standards, prior experience and legal capacity, and to employ environmental and social safeguards (ESS).
  - Weak governance, risk management, and capacity prevent many SSA countries from meeting fiduciary and institutional requirements.
  - Accreditation typically takes at least two years; project approval can take about a year.
  - Heterogeneous requirements across funds limit a country’s ability to interact directly with more than one fund at a time.
- Supply-side and institutional barriers:
  - Climate funds, intermediaries, and implementing entities may prioritize funding volume targets and larger projects, disadvantaging SSA projects that are small on a global scale.
  - Insufficient risk appetite for small projects or local-currency projects; high transaction costs.
  - Limited pipelines of bankable projects due to weak climate-related data, limited project development capacity, and insufficient climate-risk assessments.
- Practical access impediments highlighted in Table 1 and narrative:
  - Accreditation: Countries' fiduciary and institutional capabilities often insufficient for fund standards.
  - Project development: Low capacity to develop proposals meeting approval criteria.
  - Capacity: Limited technical and human capacity to design climate goals and execute projects.
  - Macroeconomic environment: Examples include lack of fiscal space to borrow and difficulty mobilizing private capital.
  - Climate data & knowledge: Insufficient climate-related risk and opportunity information.

### Recommendations and capacity-building actions
- International organizations and bilateral agencies can support SSA countries to strengthen reforms that increase access to concessional climate finance across providers (MDBs, climate funds, bilateral agencies). Areas include governance, debt, PFM (public investment management and procurement), macroeconomic stability, and climate data/strategies.
- IMF roles: targeted policy advice and capacity building (for example, Climate Macro Assessment Program (CMAP), Climate Public Investment Management Assessment (C-PIMA), and Green PFM) and, in some cases, lending that supports policy and institutional reforms (including the Resilience and Sustainability Trust (RST) once operational).
- Public-private synergies:
  - Public sector can underwrite risks with instruments such as guarantees or equity tranches to catalyze private financing.
  - Minimize moral hazard, contingent liability, and long-term fiscal risks while leaving sufficient project risk and control with the private sector, given limited fiscal space in many SSA countries.
- Climate fund reforms to ease direct access:
  - Align and streamline accreditation requirements; prioritize requirements that most strengthen financial safeguards.
  - Create internal targets focused on increasing funding flows to climate-vulnerable emerging and developing economies.
  - Example: GCF pilot for Enhancing Direct Access (EDA) that streamlines funding approval and assigns decision-making and oversight to local organizations, including a dedicated facility for small-scale community projects.
- Country-level actions:
  - Upgrade capacity to access climate finance by adopting lessons from other countries (examples cited: County Climate Change Funds (CCCFs) in Kenya; Acuerdo Verde in Chile).
  - Learn from Madagascar and Tanzania on execution and disbursement challenges with climate funds.
- Table 2 practical recommendations (high-level):
  - Financial management & accounting: develop technical and fiduciary capacity; processes for disbursement and reporting; monitor non-grant instruments (reflows, defaults).
  - Strengthen PFM functions; align audits with International Financial Reporting Standards (IFRS).
  - Procurement: establish transparent control frameworks.
  - Management & administrative capacities: build governance structures, integrity mechanisms, and due diligence capabilities.
  - Environmental and social safeguards (ESS): develop systems meeting international standards (for example, IFC Performance Standards).
  - Gender policy: implement institutional gender and inclusion policies; assess gender during project development.
  - Information disclosure: use platforms and online tools for transparent climate-related information.

### Climate-related debt instruments and GBS bonds
- Categories of climate-related debt instruments receiving attention in SSA:
  - Green, blue, and sustainability/social (GBS) bonds (broadly climate-related bonds), issued by sovereigns, local governments, development banks, and corporations. Definitions:
    - Green bonds: finance environmental and climate projects.
    - Blue bonds: finance investments in ocean health and sustainable blue economy projects.
    - Sustainability/social bonds: can include green, blue, or social/development objectives (for example, SDG bonds).
    - Sustainability-linked bonds: outcome-based instruments incentivizing issuer achievement of environmental, social, or governance targets (for example, through lower coupon payments).
  - Debt swaps: restructurings that apply resulting savings toward climate spending (for example, debt-for-climate swaps) or combine conversion to local currency, lower interest rates, extended maturities, partial write-offs, bond issuance, or combinations thereof.
  - Debt relief or cancellation: debt write-off tied to specific climate investments or actions.
- Advantages and constraints of GBS bonds:
  - Advantages: potential longer maturities, lower costs from a "greenium", ability to tap a broader investor base, signal commitment to climate action, and may unlock other financing types. Extensive climate-specific knowledge not always required upfront to place bonds.
  - Constraints in SSA:
    - Global market: green bond market (half of total climate-related issuance) grew more than 1.5 times during 2021, surpassing $500 billion.
    - GBS issuance is dominated by financial institutions (70 percent of issuances).
    - Emerging and developing countries’ GBS issuance was about 4 percent of their bond issuance in 2020 (excluding China, OECD 2021b).
    - SSA GBS issuance amounted to 0.3 percent of total SSA bond issuance and is dominated by South Africa, followed by Mauritius, Nigeria, Ghana, Kenya, Seychelles, and Namibia.
    - Greenium observed so far has been small relative to countries’ debt burdens.
  - Notable SSA issuance example: In 2021, Benin issued SSA’s first sovereign sustainability bond, a €500 million SDG bond with environment among its four pillars.
- Enablers used by SSA issuers to kickstart GBS issuance:
  - Developing national or supranational sustainability frameworks (for example, WAEMU sustainability framework used by Benin, Côte d’Ivoire, and Togo).
  - Partnerships with international organizations (for example, South Africa’s Nedbank $75 million green bond with IFC).
  - Certification routes (for example, Nigeria’s Access Bank green bond certified by the Climate Bonds Initiative).
  - Market infrastructure (Ghana, Nigeria, and South Africa created dedicated stock-exchange segments or green bond platforms).
- Risks to future issuance: global shocks (for example, the war in Ukraine) and tighter global financial conditions may create headwinds for green and sustainability bond issuance.

*IMF | Staff Climate Notes — clnea2022009: "2. Climate Funding by Financial Instrument" (excerpts and synthesis).*

### 1. Global Green Bond Issuance

### 1. Global Green Bond Issuance

### Global green bond context and reporting
- Source: Climate Bonds Initiative (CBI).
- Note: The CBI reporting is based on self-labeled green bonds, where blue and sustainability/social bonds are sometimes reported as green bonds.

### Climate-related debt swaps — purpose and structure
- Climate-related debt swaps can simultaneously improve debt sustainability and boost critical climate spending.
- Comparative effectiveness:
  - Conditional grants, or in the case of unsustainable debt, comprehensive debt restructuring (with climate-related conditionality), are generally more beneficial than climate-related debt swaps.
  - Swaps make sense when: climate adaptation is efficient; fiscal risks are high (but not necessarily unsustainable); and the swap generates fiscal space beyond what is needed to finance the climate investment.
  - For unsustainable debt, a swap would need to involve sufficiently large amounts to restore debt sustainability to be a viable alternative to debt restructuring.
- Design and scale crucially influence impact on debt sustainability; risk of subsidizing non-participating creditors exists.
- Swap structures:
  - Bipartite swaps: negotiated between debtor and creditor government or a group of creditors (e.g., Paris Club).
  - Tripartite swaps: creditor-debtor-third party (for example, NGO) where the third party raises funds to buy debt at a discount or loans money to the government to do so; government retires debt and redirects payments in local currency into a special trust fund.

### SSA experience and examples
- Historical SSA experience concentrated in debt-for-development or debt-for-health swaps (late 1980s onward); interest in debt-for-climate swaps is growing.
- Examples:
  - Cameroon–France debt swap (2006) and Democratic Republic of Congo–France (2019) as bilateral debt-for-development swaps with climate components.
  - Seychelles tripartite swap (2015) facilitated by The Nature Conservancy (TNC):
    - TNC raised $28 million ($23 million from investors and $5 million from donors) to acquire $30 million of Seychelles’ debt at a discount.
    - Debt restructured to $15 million (implying a 50 percent nominal haircut).
    - Maturity extended from 8 to 20 years and part of debt service switched to local currency.
    - Savings invested into ocean conservation.
  - Belize tripartite debt-for-climate swap: reduced the country’s external debt by 10 percentage points of GDP.

### Climate-related debt relief
- Climate-related debt relief writes off the “swapped” part instead of exchanging it for cheaper instruments.
- Relies on good faith that freed fiscal space will finance climate-related projects.
- Modalities remain unclear; likely exceptional even where conceivable.
- No observed climate-related debt relief in SSA to date.

### Transactional, monitoring, and compliance costs
- Debt-for-climate swaps and other climate-related instruments face:
  - High transaction costs and long negotiation periods.
  - Need for accurate and detailed information about debt composition and creditors.
  - Transaction costs for commercial debt swaps can range from 1–6 percent of the debt’s face value (CBD 2001).
  - Substantial post-transaction monitoring costs to ensure climate objectives advance.
  - Seychelles’ experience highlighted relatively small operation size paired with high administrative burden and costs.

### Policy and institutional recommendations to reduce costs and risks
- Debtor-country actions to reduce monitoring costs and compliance concerns:
  - Publication of national climate strategies accompanied by a pipeline of adaptation and mitigation projects aligned with strategies.
  - Improved data availability and sharing.
  - Improved PFM and procurement practices—such as green budgeting and integrating climate considerations into public investment management.
  - Example: South Africa’s green taxonomy (South African National Treasury 2021) helps determine appropriate climate-related projects and reduces greenwashing concerns.
- Creditor communication on preferred climate objectives can reduce transaction costs.
- Enhanced debt management institutions, data, and practices, complemented by improved PFM, can increase creditor confidence and reduce transaction, information, and coordination costs.
- International organizations and bilateral agencies can support SSA reforms in the areas above.

### International carbon credit systems — concepts and markets
- Key concepts:
  - To contain global warming within 1.5–2°C, global greenhouse gas (GHG) emissions need to be reduced by 25 to 50 percent by 2030, and about 90 percent of global emissions from governments and companies will be subject to net-zero targets by 2050 or later (Boehm and others 2021).
  - A carbon credit represents one ton of CO2-equivalent emission reduced, avoided, or sequestered through technology and nature-based solutions.
  - Carbon credit transactions occur in compliance (mandatory) or voluntary markets.
- Compliance markets (ETS):
  - Serve regulated entities; allocation of allowed emissions is capped and permits are traded.
  - Permit prices in 2021 ranged between $10 to $110 per ton across the EU, the UK, and the US compliance markets.
  - Cumulative carbon emissions trading in ETS markets reached $161 billion at end-2021, growing by more than 50 percent relative to end-2020.
  - ETS schemes cover slightly less than one-fifth of global carbon emissions and have limited presence in SSA.
  - Global market value for the oil and gas industry in 2021 is estimated at $6.1 trillion (context on sector size).
- Voluntary carbon markets:
  - Serve companies not legally required to reduce GHG emissions; markets have no cap on emissions.
  - Carbon credit prices in voluntary markets range from $2 to $10 per ton.
  - Cumulative carbon emission trading on voluntary markets was $7 billion as of August 2021.
  - Supply/demand dynamics in 2021: suppliers issued nearly 300 million tons (Mt) of carbon offsets; companies purchased 161 Mt.
  - Total global GHG emissions are roughly 50 billion tons (Gt) of CO2 equivalent per year.
  - Voluntary net-zero and climate neutrality commitments tripled since 2019—with more than 1,500 companies worldwide, representing a total of $42 trillion in annual revenue, committing to net-zero by 2050 or sooner.
  - Supply of carbon credits grew 230 percent over the past five years, driven by nature-based credits.

### SSA participation in carbon credit markets and REDD+
- SSA-issued credits in voluntary carbon markets averaged 21 percent (average 2016–21) of traded credits in the voluntary carbon market.
- Kenya issued 39 million credits during 2010–21.
- Sectoral concentration: forestry accounted for 61 percent of SSA issuance, almost one-third of which was issued by Kenya.
- SSA potential:
  - Congo Basin is the largest net carbon emissions absorbing forest; SSA countries in the basin are carbon negative and can potentially issue large amounts of REDD+ credits.
- REDD+ framework:
  - Implementation involves three interdependent phases: readiness, implementation, and results; combined completion can take more than 10 years depending on capacity and willingness.
  - Readiness phase has often been prolonged due to issues such as clarifying land ownership and implementing safeguards; lack of financing for readiness has added delays.
  - Large REDD+ programs include multilateral and bilateral agreements such as the Central African Forest Initiative (CAFI) and the Forest Carbon Partnership Facility.
  - COP26 included a new Congo Basin Pledge of $1.5 billion in financing between 2022–25 to protect and maintain the basin through the REDD+ framework.
  - As of the source, 24 SSA countries (including Democratic Republic of Congo and Gabon) are adopting the REDD+ framework (list includes Benin, Burkina Faso, Chad, Central African Republic, Congo, Equatorial Guinea, Ethiopia, Ghana, Guinea-Bissau, Ivory Coast, Kenya, Liberia, Madagascar, Malawi, Mali, Mozambique, Nigeria, Sudan, Tanzania, Togo, Uganda, Zambia).

### Challenges and risks for carbon credit markets and SSA
- Voluntary carbon markets risk enabling companies to claim net-zero without reducing actual emissions, potentially hindering global decarbonization.
- Operational impediments to demand for carbon credits:
  - Companies lack incentives to invest in activities that improve their Environment Sociability and Governance (ESG), such as purchasing carbon credits—partly reflecting weak corporate environmental reporting requirements globally.

*Source: IMF Staff Climate Notes (extract).*

### 1. Market Size by Value of Transacted Carbon Credits

### 1. Market Size by Value of Transacted Carbon Credits

### Key findings on carbon credit markets and SSA constraints
- Market transparency and credibility problems:
  - ESG scores from different rating agencies and lack of strong correlation with environmental outcomes reduces companies’ incentives to improve their ESG performance.
  - Corporate purchasers are deterred by lack of clarity on requirements a purchased credit must fulfill to be counted toward reducing the buyer’s net emissions; rules and regulations are complex and not consistent across countries (or often within a country).
  - At a national level, countries that choose to voluntarily use internationally transferred mitigation outcomes (ITMOs) toward their NDCs must apply robust accounting standards to avoid double counting (IMF 2022b, World Bank 2022b).
  - Legal compliance issues could arise regarding international trade of carbon credits under World Trade Organization rules.
- Supply-side disincentives in SSA:
  - Suppliers lack incentives to produce credits when prices are low relative to high production costs.
  - Attracting financing is challenging for SSA countries lacking capacity in data, institutions, and human capital; investor requirements include stringent transparency and verification prerequisites, a pipeline of viable projects, and sufficient data to evaluate impact.
  - Concerns over capacity to deliver long-lasting emissions reductions due to leakage (for example, logging, droughts, and wildfires).
  - Verification difficulties make REDD+ and deforestation avoidance credits potentially unreliable and weakly priced (Stapczynski, Rathi, and Marawanyika 2021, Song 2019).
  - Host countries transferring growing numbers of ITMOs may average out corresponding adjustments, undercounting emissions for single-year NDCs; reflects difficulty translating between multiyear emission budgets and annual targets (Schneider and Siemons 2021).
  - Tracking projects and credit issuance at the national level can be expensive in the absence of national registries; issuance favors projects measured against a base year, advantaging reforestation over forest preservation.
  - Poor emissions data (for example, CO2 emissions at the industry level not available in many SSA countries) undermines ability to quantify GHG emissions and absorption and raises double-counting and NDC concerns.
  - SSA countries risk selling least-cost carbon reduction solutions while facing higher costs to meet future NDC commitments because accounting under Article 6 of the Paris Agreement is unclear.
- Global implication:
  - Addressing the low-price–high-cost trade-off for SSA suppliers could help preserve the region’s carbon sinks (critical to slowing global warming). For supplier countries with oil and gas reserves under carbon sinks (for example, Congo Basin countries), low carbon credit prices can reduce incentives for forest preservation—at least over near and medium terms until global oil and gas demand is substantially reduced.

### Demand-side reforms and market infrastructure
- Regulatory and disclosure improvements to reduce demand-side constraints:
  - International financial reporting boards and agencies including the US Securities and Exchange Commission (SEC) are developing frameworks for more consistent and reliable disclosure of ESG efforts by companies.
  - Greater global coordination on consistency of carbon-credit related rules and regulations across registries and relevant authorities would help reduce arbitrage and market inefficiencies.
  - Expanding progressive demand-side policies (example: regulatory requirements for international airlines under CORSIA) could increase demand for carbon credits.
  - Creating futures markets for near-term carbon price discovery could provide high-quality information critical to carbon market development and transparency.
- Supply-side capacity building:
  - Higher carbon credit prices from increased demand would help address supply-side concerns, but overcoming capacity constraints is paramount to attracting investors.
  - Data availability can be improved by integrating energy, transport, manufacturing, and forestry carbon emissions statistics in national statistical offices.
  - Governments can improve transparency, governance, prepare a pipeline of robust investment projects, and build capacity to steer projects from ideation to issuance.
  - Development partners (for example, CAFI and the Forest Carbon Partnership Facility Readiness Fund) can support capacity building and readiness in SSA countries.

### Institutional and international process notes
- Glasgow Climate Pact (Article 6) established rules governing trading of carbon credits and international cooperation:
  - Article 6.2 specifies an accounting framework for ITMOs.
  - Article 6.4 established the Sustainable Development Mechanism (SDM) for creation, regulation, and trading of credits from developing countries; SDM will be operated under the UNFCCC and administered by a new governing body, which has yet to be established.
  - At COP26 Parties decided on broad rules (tracking and reporting on country-level emission reduction trades) to implement carbon markets under Article 6; much remains to be done and SBSTA has been mandated to operationalize provisions of Article 6 with further discussion expected during COP27.

---

### Climate Insurance

### Benefits and purpose
- Climate insurance is an important component of risk management—Article 8 of the Paris Agreement references “risk insurance facilities, climate risk pooling and other insurance solutions” as mechanisms to cushion adverse consequences of climate disasters.
- Long-term advantages:
  - Strengthens preparedness of households and businesses against climate-induced natural disasters.
  - Farmers with climate insurance may invest more in equipment and small-scale infrastructure, raising productivity and output.
  - Beneficiaries may invest to reduce exposure to climate risk to lower premiums.
  - Climate insurance can complement targeted social assistance and positively affect beneficiaries’ investment levels and macroeconomic outcomes (Surminski, Bouwer, and Linnerooth-Bayer 2016).

### Structure and operation
- Climate insurance schemes operate like standard insurance systems:
  - Providers: commercial banks, NGOs, cooperatives, or partnerships with other financial institutions.
  - Financing sources: bilateral donors, multilateral donors, or the financial market; beneficiaries pay premiums and receive claims when disasters occur.
  - Services may include subsidies, reinsurance, capacity building for preparedness and response.
  - Most weather insurance contracts cover damages on private/public infrastructure, property, crops, health, or loss of life.

### Stylized facts and regional gaps
- Global insured natural catastrophe losses continued to grow at long-term trend of 5-7 percent per year (based on 10-year moving averages).
- In 2021, more than half of global economic losses due to natural disasters were not insured (Swiss Re).
- SSA has the least developed insurance market and very low resilience to natural catastrophes.

### Challenges to expanding SSA climate insurance markets
- Data and modeling capacity:
  - Lack of weather and meteorological services data and capacity to translate them into risk assessments is a key obstacle for government and private sector insurance.
  - Climate data series are necessary to define premiums; when data exist, governments often lack capacity to process, model, and make analyses usable for insurers.
  - International technical expertise exists but is expensive and often unaffordable for the most vulnerable.
- Financial inclusion, literacy, and infrastructure:
  - SSA is the least banked region in the world, with 80 percent of the population lacking access to formal banking services (World Bank 2021b).
  - Low familiarity with insurance schemes and absence of telecommunications infrastructure (for example GSM devices and weather stations) impede access and consideration for insurance.
  - Insurers face dearth of information on potential beneficiaries’ financial histories and track records.
- Demand constraints from low incomes and informality:
  - Low incomes and subsistence farming limit households’ ability to pay premiums, even when subsidized; timing of premium payments (for example, before sowing) is problematic for farmers.
  - Predominance of the informal sector prevents many businesses from accessing insurance due to lack of administrative documents (tax returns, balance sheets, beneficial ownership information).

### Options to expand climate insurance usage in SSA
- Public actions:
  - Invest in telecommunications infrastructure (public-private partnerships) to improve access to weather information, insurance, and financial products.
  - Expand capacity and availability of information (for example, credit registries) to reduce informational asymmetries faced by insurers.
  - Subsidize application of international technical expertise for risk modelling while improving domestic capacity.
  - Subsidize premiums or offer full premium relief programs for the uninsured, weighing cost-benefit against alternatives such as targeted cash transfers.
  - Expand climate insurance for governments with increased development partner support for ARC and the World Bank Disaster Risk Finance Program.
- Development partner role:
  - Capacity development and concessional financing to support data, modeling, and premium affordability.

---

### Concluding Policy Recommendations

- Overarching message:
  - Scaling up financing for adaptation and mitigation hinges on reforms in data, governance, regulation, PFM (including procurement and public investment), and realistic and action-based national climate strategies.
  - National authorities, development partners, and the IMF each have critical roles to play. A variety of financial instruments will be needed given the magnitude of SSA financing needs.

- National authorities — priority actions:
  - Climate strategy and climate action:
    - Develop well-defined climate strategies and publish climate strategies and project pipelines to attract development partners.
    - Pursue partnerships and accreditation of national institutions with international institutions and climate funds.
    - Enhance communication and public education on climate-related issues.
  - Data:
    - Ensure high-quality data spanning debt statistics to weather conditions; climate-related debt swaps require detailed debt data; climate insurance requires accurate weather data; carbon credits require emissions absorption data.
  - Governance:
    - Upgrade governance frameworks to enhance control, monitoring, and transparency on climate-related policies; adopt benefit-sharing frameworks to ensure equitable distribution to local communities.
  - Laws and regulations:
    - Strengthen legal and regulatory systems to protect financing providers and recipients; clarify property rights where relevant.
  - Financial systems:
    - Strengthen financial sector frameworks and deepen domestic and regional capital markets to facilitate private sector participation and co-financing.
  - PFM:
    - Develop pipelines of adaptation and mitigation projects aligned with national climate strategies; incorporate and label climate issues throughout budgeting, transparent procurement, and risk management.
  - Capacity building:
    - Improve information quality, infrastructure, and labor force skills and knowledge.

- Development partners — priority actions:
  - Financial support:
    - Provide stepped up grant financing to SSA that is additional to existing development finance commitments; prioritize grants given growing SSA debt levels.
  - Tailoring to SSA:
    - Promote targets on volumes disbursed to SSA, number of small-sized or local currency projects financed, or proportion of adaptation projects financed; modify incentives to increase efforts on forest preservation.
  - Enhance international coordination and harmonization:
    - Spearhead adoption of a common taxonomy for adaptation and mitigation projects; support internationally agreed climate disclosure and reporting standards and carbon-credit related rules across registries; align and streamline climate fund requirements and project selection criteria.
  - Capacity building:
    - Provide technical assistance on project design, accreditation, financial structuring, governance, debt management, PFM, and climate-related statistics.

- IMF — priority actions:
  - Analysis:
    - Provide SSA-focused analysis of macroeconomic and policy implications related to climate change, supported by in-house data sets such as the IMF Climate Change Dashboard.
  - Financing:
    - Offer lending arrangements to support SSA countries in building resilient economies; RST (once operational) will add to existing arrangements such as the Extended Credit Facility (ECF).
  - Capacity development:
    - Support capacity development in governance, debt, PFM, statistics (including identification of data gaps), banking, monetary, and financial sector issues; integrate climate considerations with programs like CMAP, C-PIMA, and green PFM.

*Source: IMF | Staff Climate Notes (clnea2022009 - 1. Market Size by Value of Transacted Carbon Credits).*

### Annex 1. Key Terms of Climate Objective Classification

### Annex 1. Key Terms of Climate Objective Classification

### Overview
- Bilateral donors use Rio Markers to indicate either the “principal” or “significant” intent of the funding, such as mitigation, adaptation, or biodiversity.
- Multilateral flows with a climate-related intent are tagged with a marker called “climate components.”
- The tracking methodology for multilateral flows is based on an agreement on the Common Principles for Climate Finance Tracking, developed jointly by MDBs and the International Development Finance Club (IDFC) in 2015.
- Historical data for 2011 onward have been reclassified applying the “climate components” marker.

### Rio Markers: “Principal” versus “Significant”
- “Principal”
  - Applied when the activity was funded specifically to meet that objective.
- “Significant”
  - Applied when the objective is explicitly stated but it is not the fundamental driver or motivation for undertaking the activity.
  - The activity has other prime objectives, but it has been formulated or adjusted to help meet relevant climate concerns.

### Multilateral “Climate Components” Marker
- Purpose: Tag multilateral flows that have a climate-related intent.
- Basis: Agreement on the Common Principles for Climate Finance Tracking (MDBs and IDFC, 2015).
- Implementation: Historical data from 2011 onward have been reclassified applying this marker.

### Entities Applying Both Rio Markers and Climate Components
- The following climate funds and MDBs apply both Rio Markers and climate components:
  - Adaptation Fund (AF)
  - Climate Investment Fund (CIF)
  - Food and Agriculture Organization of the United Nations (FAO)
  - GCF
  - GEF
  - Global Green Growth Institute (GGGI)
  - IFAD
  - Nordic Development Fund (NDF)

_Italic: Source: Annex 1. Key Terms of Climate Objective Classification, IMF Staff Climate Notes._

### Annex Figure 5.2.  Examples of Climate Insurance

### Annex Figure 5.2.  Examples of Climate Insurance

### Sources
- African Risk Capacity; Pula Advisors; UNDP; World Bank; and IMF staff.

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*IMF STAFF CLIMATE NOTE 2022/009*

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_Source: https://www.imf.org/-/media/files/publications/staff-climate-notes/2022/english/clnea2022009.pdf_