LPSA Thematic Working Group on Subnational Finance – Open Meeting – September 2025

The 7th open meeting of LPSA’s Thematic Working Group on Subnational Finance took place on September 10, 2025. The session, moderated by Gundula Löffler, ODI Research Fellow and Co-Chair of the Working Group, focused on how climate finance is allocated to subnational governments and the role they play in climate adaptation investments. It also addressed the challenges of measuring the effectiveness of climate-related spending. The meeting began with a welcome to all participants and an introduction of the topic and the panel of speakers. Presentations highlighted climate adaptation finance in East Africa and subnational climate action in Asia, followed by reflections on the links between decentralization and climate change.

Per Tidemand, Senior Partner at Dege Consult presented compelling findings from a multi-country research initiative examining the extent to which climate adaptation finance is devolved to local governments in East Africa. His central question—how much externally mobilized climate adaptation funding actually reaches local governments—was explored through the analysis of OECD climate finance data before the backdrop of country-level intergovernmental fiscal structures in Uganda, Kenya, and Tanzania.

Per emphasized the importance of locally-led adaptation, a principle endorsed by many development partners and recipient countries alike. He noted that while local governments in East Africa have broad mandates covering key climate-relevant sectors (e.g., agriculture, water, natural resource management), their fiscal autonomy varies significantly. Kenya’s counties benefit from largely unconditional transfers (about 90%), enabling local prioritization, whereas Uganda and Tanzania rely heavily on conditional transfers, with only 5% of Tanzania’s transfers being discretionary, which gives those local governments a lot less discretion in taking the lead on adaptation investments.

His findings revealed that approximately 25% of climate adaptation finance is clearly centralized, directed toward national infrastructure projects such as roads, ports, and transmission lines. The remaining funds are often implemented locally, but with limited control by local governments. In Uganda, for instance, most adaptation funds are channeled through central ministries under the guise of “other government transfers,” effectively bypassing local discretion. Only a small fraction, around 5% in Kenya via the Financing Locally-Led Climate Action (FFLOCA) program, represents truly devolved, discretionary adaptation finance.

Per concluded that while local governments have the institutional potential to lead climate adaptation, current financing mechanisms fall short of enabling meaningful local prioritization. He called for more transparent, performance-based fiscal transfer systems and highlighted the need to scale emerging models that empower local governments to manage climate finance effectively.

Jamie Boex, Executive Director of the Local Public Sector Alliance (LPSA), presented early findings from an ongoing study on subnational climate finance in Asia, conducted in collaboration with the Asia Foundation. His presentation explored the intersection of climate action and multi-level governance, challenging widely held assumptions about the role of local governments in climate mitigation and adaptation.

Jamie began by interrogating the oft-cited claim that over 60% of climate adaptation investments are managed by local governments. While this may hold true in OECD countries, he argued that the reality in Asia was far more complex. Functional authority, fiscal autonomy, and governance capacity vary widely across countries, influencing the effectiveness of subnational climate action.

He outlined three global approaches to measuring climate spending: the IMF’s focus on environmental protection using COFOG classifications, the OECD’s weighted subcategory method, and the EU’s climate coefficient tagging system. However, Jamie emphasized that none of these approaches measure actual climate impact, such as reductions in greenhouse gas emissions or avoided economic losses, raising concerns about the validity of self-reported climate finance data. Using examples from Korea, Japan, and India, Jamie illustrated the diversity of subnational involvement. While Korea and Japan show strong local engagement in climate-relevant spending, India’s local governments play only a limited role. He cautioned against overemphasizing “green” local spending without evidence of climate effectiveness, citing risks of misallocation and greenwashing.

Jamie concluded that subnational governments play significantly varied roles in climate action across different countries, shaped by their institutional structures and fiscal capacities. While climate needs are immense, public resources remain limited, making strategic allocation essential. He emphasized that both measurement frameworks and policy practices are still underdeveloped, which hampers effective decision-making. Central governments continue to hold many of the critical levers of climate policy, influencing how and where climate finance is deployed. Importantly, Jamie noted that there is no universal model for decentralization that fits all contexts—each country must tailor its approach to its governance realities. Finally, he cautioned that an overemphasis on local climate spending, without evidence of impact, risked diverting resources away from their most effective use.

His take away was: “If we want climate finance to deliver results, we must move beyond spending metrics and start measuring impact”.

Paul Smoke, Professor of Public Finance and Planning at New York University, offered a comprehensive commentary on the presentations, drawing from his broader research on decentralised governance and climate change. He emphasised the importance of balancing central and subnational roles in climate policy, noting that effective climate action requires both local responsiveness and national coordination. Paul highlighted that the role of operational and regulatory aspects such as zoning, building codes, procurement standards, and data systems that directly influence climate-related costs and outcomes, were often overlooked in climate finance discussions. He also discussed the role of subnational financial intermediaries (e.g., municipal development banks), noting their potential of channeling climate finance to subnational governments in certain contexts but cautioning against overreliance in low-capacity environments. He advocated for mixed grant-loan models and performance-based transfers to incentivise responsible borrowing and climate-responsive governance.

Importantly, he stressed the need for context-specific strategies, recognising that political cycles, institutional incentives, and local governance structures shape the feasibility and impact of climate finance. He called for a better integration of planning, financing, and accountability mechanisms to ensure that climate investments deliver measurable outcomes.

During the Q&A session, several critical issues were raised around the effectiveness and accessibility of subnational climate finance. One key concern was how climate adaptation investments should be measured, whether by avoided losses or induced economic benefits. It was noted that current metrics may unintentionally favor post-disaster reconstruction over preventive measures, potentially distorting the true value of adaptation efforts. The discussion also explored the role of subnational financial intermediaries in enabling local governments’access to climate finance. Another important theme was how newly federalized countries, like Nepal, can structure climate finance effectively. Suggestions included integrating climate funding into intergovernmental fiscal transfer systems and using performance-based indicators to reward local governments for climate-responsive planning and implementation.

In conclusion, the conversation addressed the political and institutional barriers that prevent local governments from exercising their agency. It was emphasized that long-term planning and responsiveness to constituents must be incentivized, and that climate finance systems should be designed to support measurable outcomes and accountability.

Gundula closed the meeting and announced the next open meeting of the Thematic Working Group on Subnational Finance for November 5^th, 2025. 

A video of the meeting is available on YouTube. The links below provide access to the video segments of the different agenda items.

The next Subnational Finance webinar is scheduled for November 5, 2025 – Register Here.

We need your help to make this meeting a success: If you have any updates about fiscal decentralization or subnational financial management in your country; updates about new research; or information about multilevel government finance and intergovernmental fiscal relations that you would like to mention during the open meeting, please email the Working Group co-chairs at finance@decentralization.net. so that a brief announcement can be made at the beginning of the meeting.

Reminder: You can join any LPSA Expert Working Group free of cost and receive reminders and updates by opting-in to one or more working groups as part of your LPSA Membership registration.