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What is the Nordic Development Fund (NDF)?
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The Nordic Development Fund (NDF) is a collective effort by the Nordic countries - Denmark, Finland, Iceland, Norway, and Sweden - to pool their resources to address climate change globally. With a focus on supporting both economic development and climate change adaptation and mitigation, the NDF works in partnership with international financial institutions to help some of the world’s most vulnerable communities and countries become more climate resilient. In this article, we’ll explore what the NDF is, how it works, and what sort of projects it supports.
👉 What is the NDF? What are its aims and how does it operate? What sorts of projects does it finance?
What is the Nordic Development Fund (NDF)?
The Nordic Development Fund (NDF) is what’s known as a multilateral development finance institution. This means that the fund pools resources from several government donors to finance and support development projects in underdeveloped regions. The aim of the NDF is to stimulate economic growth while addressing global challenges such as poverty and climate change.
What countries are in the Nordic Development Fund (NDF)?
The NDF was established and funded by the five Nordic countries: Denmark, Finland, Iceland, Norway, and Sweden. These countries are known for their commitment to environmental sustainability and their proactive measures in the fight against climate change.
👉 Learn more about these efforts in our article detailing the collective climate efforts of the Nordic countries.
The Nordic region has been at the forefront of implementing progressive environmental policies, investing in renewable energy, and promoting sustainable development both domestically and internationally. This leadership is evident in recent commitments made by the countries, such as the Helsinki Declaration from January 2019, where they committed to intensifying climate action in development cooperation and mobilizing climate financing. Additionally, the August 2019 joint statement of the Nordic Prime Ministers and Nordic CEOs reaffirmed the importance of private sector leadership in achieving the Paris Agreement and SDGs. The creation of the NDF reflects this vision of a sustainable future and their commitment to mitigating global warming around the world.
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Aims of NDF funding
NDF operates by providing financial and technical support, in the form of grants, loans, and expert advice, to lower-income countries and fragile states. This support is designed to help these countries implement projects and strategies that contribute to environmental sustainability and climate resilience. What sets the NDF apart from other climate funds is its emphasis on initiatives that not only contribute to reducing carbon emissions and climate change adaptation but also result in measurable developmental benefits.
The NDF is known for its close collaboration with local governments, international agencies, and other development finance institutions. This collaborative approach is designed to ensure that the NDF's initiatives are integrated into the national development plans of recipient countries, leading to more effective and sustainable outcomes.
The NDF also emphasizes innovation and flexibility in the initiatives it supports. It seeks to fund and promote new solutions to environmental and developmental challenges, which can include anything from green technology and financial mechanisms to community-led initiatives.
A final key aspect of the NDF's operations that is worth mentioning is its commitment to gender equality and social inclusion. The NDF recognizes that climate change disproportionately affects the most vulnerable groups in society, including women. This is why it has integrated gender considerations and social inclusivity into all its projects. This ensures that the benefits of its projects are fairly distributed and that they contribute to more inclusive development processes.
👉 Learn about the challenges of international climate finance in our article.
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How does the NDF function?
The Nordic Development Fund operates with a well-structured framework that incorporates financial contributions, governance, administrative processes, and project selection criteria. Key aspects include:
Financial contributions and management
The NDF is mainly funded through contributions from its five member countries. These funds come from their development budgets and are based on a scheme of allocation, reflecting each country’s share of the total gross domestic income of the Nordic region over the last two calendar years. These funds are then managed by the NDF to support various development projects.
A key aspect of the functioning of the NDF is that its financing always forms part of a larger initiative that is carried out in partnership with other financial institutions, for example, the African Development Bank, the World Bank, and even private sector partners and governments.
Governance
The governance of the NDF is overseen by a Board of Directors, which is made up of representatives from each of the five Nordic countries. This Board is responsible for setting the strategic direction of the Fund, approving budgets and projects, and ensuring that the NDF's activities align with its objectives. The board usually meets several times a year to review progress and make key decisions.
Other important governing bodies include the Control Committee which acts as the NDF’s supervisory body, ensuring that the Fund is operated in accordance with its founding treaty. And the Nordic Council of Ministers which is responsible for amendments to the NDF’s statues and capital.
Administrative setup
The NDF is headquartered in Helsinki, Finland, which serves as the central hub for its operations. The staff are responsible for the day-to-day running of the Fund. This administrative body works under the guidance of the Board and in close collaboration with various international partners.
Project selection and funding allocation
The process of selecting projects for funding is thorough and competitive. It draws on principles and criteria laid out in the NDF’s Mandate and Strategy. A key point to note is that funding from the NDF is not based on applications. The vast majority of initiatives are selected and funded through collaboration with other multinational financing institutions.
Funding amounts vary and may reach up to EURO 500,000. The NDF does provide funding over this amount but such projects must receive special approval by the NDF Board of Directors.
NDF principles of engagement
The NDF operates on three core principles of engagement: co-create, convene, and complement. Co-create involves building high-potential projects and taking calculated risks. Convene leverages the NDF's ability to unite funding partners for a larger impact. Complement ensures their contributions enhance projects' scale and financial feasibility, often bridging critical funding gaps.
Additionally, the NDF tends to prefer projects with a focus on adaptation, recognizing that the “vast majority of climate finance is targeted at mitigation, resulting in a significant lack of financing focus on adaptation.”
Countries eligible for funding
The NDF focuses on supporting projects in lower-income countries and regions facing fragile situations, including Small Island Developing States (SIDS). The eligibility criteria for NDF support are:
Lower-income countries, as defined by the OECD-DAC list:
- Least Developed Countries (LDC)
- Other Low-Income Countries (OLIC)
- Lower Middle-Income Countries (LMIC)
Countries in fragile situations:
- As per the World Bank List of Fragile and Conflict-affected Situations
- Those included in the OECD States of Fragility Framework
These criteria ensure that the NDF's funding is concentrated in areas where the need for climate-related development assistance is most needed, supporting countries that are most vulnerable to the impacts of climate change and have limited resources to address these challenges.
Criteria for project selection
In addition to the country focus criteria outlined above, additional considerations for project selection include the project's relevance to the NDF's objectives, feasibility, sustainability, and potential for significant impact. The NDF also assesses the ability of the implementing agency to deliver the project successfully. There is a strong emphasis on projects that adopt an innovative approach to addressing climate change and development challenges.
Additionally, all projects need to comply with the NDF’s policies. This includes the Environmental and Social Policy and guidelines and the Gender Equality Policy.
The NDF also has a list of excluded activities that it cannot fund, for example, NDF funding cannot support any project involving the production and distribution of weapons or ammunition, nor can it fund projects deemed to have “significant ethically controversial components”.
Monitoring and evaluation
Once a project is approved and underway, a monitoring and evaluation system comes into effect. This system is designed to track the progress of the project, assess its impact, and ensure that it is meeting its intended goals. Regular reports are required from the project implementers, and in some cases, independent evaluations are conducted to assess outcomes.
What projects does the NDF fund?
The NDF has financed a wide range of impactful projects across the world, each one designed to address specific environmental and developmental challenges. Here are some notable examples that showcase the broad scope and effectiveness of the NDF's work:
Ocean Resilience and Coastal Adaptation Trust Fund (ORCA TF)
Location: Asia and the Pacific
Objective: The ORCA TF addresses the financing gap through investments targeted at strengthening the resilience of coastal communities to climate change and promoting sustainable blue economies in the region. Its primary goals involve enhancing understanding to encourage greater investment in climate adaptation and sustainable blue economy, facilitating funding for climate adaptation initiatives, and developing capacity for implementing and expanding investments in these areas.
Outcomes: The ORCA TF outcomes include strengthening climate and disaster resilience, enhancing natural capital and water-energy-food security, reducing vulnerability to climate-related shocks, and decreasing vulnerability to resource depletion in coastal areas.
Energy Entrepreneurs Growth Fund (EEGF)
Location: Sub-Saharan Africa
Objective: EEGF provides tailored finance solutions and business management support to early-stage growth companies, increasing access to clean, safe, reliable, and affordable energy. With a focus on contributing to Sustainable Development Goal 7 (Affordable and Clean Energy), EEGF aims to address the funding gap whereby early-stage companies lack suitable finance to grow, by providing them with affordable, risk-tolerant, long-term funding.
Outcomes: The fund seeks to sustain growth and mitigate the impacts of crises in early-stage companies, increase operational efficiency, and facilitate the involvement of commercial scale-up investors. By providing suitable funding, EEGF contributes to sustainable long-term business growth.
Senegal Stormwater Management and Climate Change Adaptation Project (PROGEP2)
Location: Senegal
Objective: The project aims to reduce flood risks in urban-adjacent areas of Dakar and enhance capacity for integrated urban flood risk management in selected cities. Specific objectives include enhancing capacity for climate-resilient urban planning, implementing good practices for climate resilience management, promoting climate-resilient sanitation methods, and reducing the gender gap in climate change adaptation.
Outcomes: PROGEP2 is helping to promote innovative flood control measures, implementing climate-resilient sanitation solutions, and increasing the awareness and capacity of key stakeholders involved in climate change adaptation.
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