How to fix funding bottlenecks and pave the way for locally led adaptation

A new survey explores the operational bottlenecks preventing local organisations from accessing climate adaptation funding. As the UN General Assembly approaches, IIED's May Thazin Aung and BRAC's Sousan Suha share the survey's findings and explains how funders can smooth the way for locally led adaptation.

Mid-September marks the start of the annual UN General Assembly (UNGA), where world leaders, civil society representatives and others will meet in New York to discuss challenges to peace, security and sustainable development, including the climate crisis.

During the summit, members of a donor community of practice on locally led adaptation (LLA) will convene. Ahead of this, IIED is taking the opportunity to highlight the obstacles holding back communities from delivering locally-led climate initiatives.

Our experience shows that local organisations in the global South working hard to implement LLA face significant challenges, due to complex climate finance access rules. Adopted by climate funders and intermediaries, these rules are burdensome and often hinder LLA by restricting the flow of funds to local organisations.

For many funding recipients, the rules involve confusing eligibility criteria, rigid due diligence procedures, strict procurement criteria and unrealistic success indicators. They require them to invest significant amounts of time and personnel in reporting, proposal writing, translating and evaluating ­­- all of which detracts from investment in climate adaptation action.

Principles for locally led adaptation

The eight principles for locally led adaptation aim to guide climate change adaptation actors toward transformative approaches in adaptation financing, programming and policy. These principles help to ensure that local communities take the lead in sustainable and effective climate change adaptation efforts at the local level.

Survey findings

IIED, BRAC and the International Center for Climate Change and Development (ICCCAD) have been championing a shift towards an inclusive 'business unusual' approach to climate action, alongside Southern leaders of federated grassroots and regional organisations.

We are committed to working with others across the finance delivery chain to identify ways to increase efficiencies and help resources reach the local level.

In line with this, IIED, BRAC and ICCCAD recently designed a survey, launched at Gobeshona 4 and the 18th International Conference on Community-Based Adaptation, to understand the biggest operational and regulatory bottlenecks for climate funders, intermediaries and recipients alike.

Participants from various countries included executives, programme managers, researchers and technical experts within local NGOs, local governments and international development organisations.

Here are the top five barriers they identified as 'challenging' or 'highly challenging', which we encourage funders and intermediaries to prioritise when initiating institutional reform to promote LLA:

1. Eligibility criteria

With 81% of respondents ranking it as the biggest challenge, eligibility criteria within calls for proposals - including those based on geography, accreditation data and the lead applicant's nationality - represented a major concern.

One respondent said: "Eligibility criteria reduce the ability of informal sectors such as smallholders to access financing, as these sectors do not traditionally utilise formal business practices and may not have all the technical documentation necessary to fit submission requirements."

2. Application processes

Lengthy or multi-stage application processes requiring technical evidence and background was considered the second biggest challenge, by 75% of respondents.

One respondent said these processes "impose burdensome administrative requirements on local organisations, consuming valuable time and resources that could otherwise be directed towards on-the-ground activities."

3. Due diligence criteria

Proof of audit and financial statements ranked as the third biggest bottleneck, highlighted by 58% of respondents. Low levels of risk tolerance from donors was considered the root of due diligence criteria.

In one respondent's words: "Financial due diligence… needs to be more risk-tolerant and inclusive of organisations with low financial capacities. Communities need to be assured that they won't be punished by fund removal if interventions don't pan out."

4. Finance rules

Limitations on overheads and lack of flexibility in moving budget line items were considered blockers by 56% of respondents. One said such rules "constrain the ability of local actors to cover essential operational costs and adapt project activities to changing needs".

5. Monitoring, evaluation and learning and success indicators

The inclusion of 'inflexible indicators' for determining success was seen as a bottleneck by 53% of those polled, who felt success indicators were built on donors' ideals rather than local visions of success.

"We need to rethink our definition of success based on impacts perceived at the local level, not on indicators fabricated by donors with no understanding of the local context," said one respondent.

A radical overhaul

Other areas that fewer respondents ranked as 'highly challenging' included reporting and procurement (43%) and language requirements (28%). It was noted that procurement criteria favour established vendors, restrict economic benefits for local communities and undermine efforts to build local capacity.

These results provide a snapshot of the challenges operational rules impose on actors in climate finance. One respondent argued for systemwide reform, saying "a radical overhaul is required". Another commented that "all the categories limit access to finance, because they are currently all donor-driven and don't reflect the realities and needs of communities".

Institutions and the rules they create are constructs of historical and current values. As one respondent explained: "The entire global climate finance system is designed by business-as-usual actors who hold the majority of the wealth and power. The requirements and processes serve their interests and need to manage perceived fiduciary and compliance risks."

Practical next steps for donors

Based on these results, IIED, BRAC and ICCCAD recommend practical next steps for donor and intermediary organisations. Numbers 1-3 are 'easy wins', while 4-6 will take longer to implement:

1. Accept applications in multiple languages or at least in major languages relevant to the context, to expand and diversify the applicant pool. Translation software could be helpful for quick translations at the initial screening stage.
2. Simplify application processes: this offers a win-win solution for applicants and reviewers alike, saving time and effort associated with submitting and reviewing applications. Reduce the focus on written submissions in English by including different formats such as short interviews and videos.
3. Focus on accessible communications: spread the word about calls for proposals in multiple languages and channels; use locally and contextually appropriate communication channels.
4. Widen eligibility criteria: evaluate the risks associated with broadening eligibility criteria. Speak to other donors/intermediaries who have on-granted to unlicensed NGOs, grassroots and new organisations, especially in fragile states. Begin funding with small amounts to trial working with new grantees and scale up based on learnings.
5. Prioritise local organisations: to enable LLA, it is crucial to work with local organisations with networks and expertise within the local context. Use intermediaries who truly work with local actors in their region and have longstanding local networks and established relationships.
6. Restructure due diligence: review due diligence protocols and critically assess where they have successfully mitigated risk. Work with other donors and intermediaries to share lessons on risk mitigation and develop more efficient, effective risk-assessment protocols. Run dialogues and trialogues with trusted grantees to gather feedback.

Ahead of UNGA, COP29 and beyond, IIED, BRAC and ICCCAD will continue engaging with leading bilateral donors and other climate financiers who are champions of LLA, to begin the process of implementing LLA-aligned institutional change.

Promisingly, this reform is already under way at major climate funders. Pioneering LLA approaches within least developed countries - developed by the LIFE-AR ­initiative supported by governments of the UK, Ireland, US, Canada and Norway.

The Netherlands Ministry of Foreign Affairs has developed a working group to enable more localisation in practice. The US, through USAID, has committed to channelling 25% of funds directly to local partners by 2025. In the coming months, we hope to see more funders paving the way for LLA.