Australia's climate finance supports countries in our region adapt to the increasing impacts of climate change, including relevant disasters, and to reduce their emissions by investing in renewables and clean technologies to meet their net-zero transition goals.

Australia has strengthened its  $2 billion climate finance commitment and is on track to deliver $3 billion towards the global goal over the period 2020-2025.

Climate finance refers to local, national or transnational financing drawn from public, private and alternative sources of financing to support mitigation and adaptation actions addressing climate change (source: UNFCCC). Under the Paris Agreement, developed countries committed to provide climate finance to developing countries. Climate finance includes public finance provided by governments, including that which helps attract finance from private actors, such as companies, financial institutions and philanthropists, as well as amounts mobilised.

Where does Australia report its climate finance?

Australia reports its climate finance in the following ways:

• To the OECD, for publication on the OECD DAC climate change website
• To the UNFCCC, for publication on the UNFCCC website
• In DFAT's annual ODA statistical report
• On the DFAT website climate pages (from mid-February 2023).

The OECD aggregates all countries' UNFCCC climate finance data to track and report on donor progress towards the collective goal of mobilising US$100 billion per year for climate finance in developing countries: OECD Climate Finance provided and mobilised by developed countries 2021-2025.

The UNFCCC Standing Committee on Finance produces an aggregated Biennial Assessment and Overview of Climate Finance Flows from the UNFCCC member reports received. Australia also submits a Biennial Communication report to the UNFCCC every 2 years, outlining forward looking climate finance plans.

How does Australia determine what 'counts' as climate finance?

Australia's climate finance is calculated by determining whether Australian Government support in developing partner countries has a climate change objective, and, if so, the proportion that may be counted as climate finance.

The assessment utilises the DAC Rio Markers to guide how much expenditure should be considered climate finance, as follows:

• For bilateral and regional activities with a primary climate objective, Australia counts 100 per cent of the expenditure as climate finance.
• For bilateral and regional activities with a secondary climate objective (i.e. the activity has other primary objectives, but is also designed in some measure to address climate concerns), the actual amount spent on climate change activities is counted. If this cannot be calculated, a default portion of the activity expenditure – 30 per cent – is counted. This reflects a conservative average across the portfolio.
• Disaster risk reduction and preparedness, where climate-related disasters are considered along with other hazards, is counted at 70 per cent.
• For multilateral finance, Australia uses the OECD's imputed multilateral share to calculate the climate-specific percentage of our core contributions to organisations like the World Bank and the Asian Development Bank, and reports this on a disbursement basis.
• If climate change is not identified as a primary or secondary objective, then none of the expenditure is counted as climate finance, even if there are some incidental climate change adaptation or mitigation benefits.

Climate finance activities are identified as supporting either adaptation, mitigation or both, and apportioned accordingly. Where a split between adaptation and mitigation cannot be determined, it is reported as “cross-cutting”.

Counting Climate Finance from Australia's Non-Grant Finance Mechanisms

Loans provided directly by the Australian Government for climate activities in developing countries

Australia provides climate-related loans directly from the Commonwealth to developing countries (either to other governments, or to private sector projects). Examples include the Australian Infrastructure Finance Facility for the Pacific and Export Finance Australia.

For these mechanisms, Australia calculates the amount of climate finance attributable to any Commonwealth-funded climate related loan using relevant broader OECD methodology.

Where this involves loans to sovereign entities (i.e. to governments or state-owned entities), the climate-related component of the Australian Government loan is converted to an “ODA grant-equivalent” value. This is derived using a formula developed by the OECD that incorporates an assessment of various characteristics of the loan (including the interest rate, tenor, and the recipient) to arrive at a figure representing the 'concessional' nature of the loan. Only the grant-equivalent amount is counted towards Australia's climate finance target.

Where this involves loans to private sector or non-sovereign entities, the full value of the Australian Government loan is counted, given its economic additionality.

To ensure maximum transparency, Australia will report both the grant equivalent amount and the full face-value of all loans to the UNFCCC, as part of our periodic reporting requirements.

Other non-grant finance mechanisms

In some cases, Australia also provides non-grant finance through intermediaries. Examples include the Australian Climate Finance Partnership, Australian Development Investments, and Private Infrastructure Development Group.

Australia adopts an “institutional approach” to count climate finance to these investment entities, counting the climate-relevant portion of funds transferred from the Australian Government.

Mobilised Private Climate Finance

For private sector climate finance mobilised using public finance, Australia uses the agreed OECD methodologies for counting and attributing mobilised private finance. This methodology takes into account: the amount of money invested; the position taken (e.g. the most risky tranche, or a senior position); the timing of the investment vis a vis other investors in the transaction.

It then allocates the private finance co-invested in the transaction among the various public investors in that transaction to ensure there is no double counting between public investors.

For further information, contact: climatefinancereporting@dfat.gov.au.