Leadership Required: Ensuring Local Communities Benefit from Climate Finance

A vicious cycle exists in the financing of climate change activities. So said Myrna Cunningham, president of the UN Permanent Forum on Indigenous Issues, during the opening session of the 2012 Climate Investment Fund Partnership Forum in Istanbul, Turkey (November 6-7, 2012). Financiers of climate compatible development activities, particularly the private sector, require deliverables to be met and view the limited capacity typical of rural communities as reasons to circumvent them and engage with ‘higher capacity’ actors. The opening session of the Forum underscored the need for climate financing investments, by banks and by the private sector, to be profitable.

Investments tend to be made in, and channeled through, those with education and skills, fundamentally speaking the same ‘language’ as the financiers. This tendency results in the exclusion of rural communities – including indigenous people and women – from the benefits of training, capacity building, and job creation that accompany climate financing. The omission of rural communities from information sharing, training, and engagement bars their full engagement and reinforces their exclusion on the sidelines.  

However, this scenario is neither inevitable nor necessary. In the days immediately preceding the Forum, a landmark deal was signed between the South African Government and independent power producers for the country’s first renewable energy procurement contract, worth some US$ 6.5 billion. Public-private partnership contracts of this scale are rare and the South African green energy deal lays out an innovative model for such engagements and significantly, the involvement of local communities.

The procurement process gave preference to bidders involving local communities, women, and youth and explicitly sought to localize implementation and benefits. Localization requirements were non-negotiable and despite initial resistance by the private sector bidders, in the end all complied.  The 28 renewable power production projects are spread across some of South Africa's most rural and least developed provinces. In addition, bidders have committed to including community development initiatives within a 50-kilometre radius of each project and some R3 billion have been collectively earmarked for socio-economic development and the empowerment of women in the energy sector. The renewable energy deal in South Africa serves as a ‘path finding’ model of private sector engagement with progressive policies potentially leading to transformative impacts.

The take away message is that while private sector involvement in climate resilient development initiatives such as REDD+ need to be profitable, they needn’t be so at the cost of local communities.  This, however, involves tradeoffs as outsourcing internationally or to those with well established skills and capacities, is often the most efficient path. Companies and financiers are held accountable to clear deliverables and they will understandably seek to achieve those in the most cost and resource effective fashion.

In order for it to make sense for companies to work together with local communities despite the risks and costs this entails, it becomes the role of policy makers to level the playing field. They must establish clearly as minimum standards, not as fanciful ideals, that project developers and implementers hire locally, specify their strategies for local engagement, and most importantly, invest in the capacity building of local communities and otherwise marginal groups.

COP 17 in Durban brought about a reluctant consensus by all stakeholders that in the interest of long-term sustainability, market-based REDD+ financing is no longer up for debate. We must learn from stories of success such as the leadership and innovation displayed by South Africa in addressing the difficult issue of engaging the private sector without compromising national and international obligations to rights holders.