Climate changeis one of the most pressing issues facing our world today. Rising global temperatures, melting ice caps, extreme weather events – the impacts are being felt across the globe and pose significant challenges to economic growth. Urgent action is needed to mitigate climate change and adapt to its effects.
Reversing the climate crisis requires massive global investments. The annual financial needs for mitigation and adaption measures are set to increase steadily to an average estimate of USD 9 trillion in 2030, eventually soaring to a staggering USD 10 trillion a year by 2050.* Currently available levels of climate finance are multiple times below the needed amounts. Developing countries, where the effects of climate change are most severely felt, find it particularly challenging to finance the necessary measures.
Climate finance has been a central element of global climate change negotiations since 1992. The Cancun Climate Change Agreements of 2010 called on developed countries to jointly “mobilize” USD 100 billion annually by 2020 to address the needs of developing countries. While this might seem a commendable goal, the world’s first-ever global stocktake at the UN Climate Change Conference (COP28) in December 2023 showed that both financial contributions and mitigation efforts are far from meeting commitments.
The more we wait, the higher the costs, both in terms of mitigating global temperature rise and coping with its impacts. So let’s examine what climate finance truly entails and explore financing solutions that can help address the climate crisis.
What is climate finance?
Defining climate finance continues to be a topic of intense debate. According to the United Nations Framework Convention on Climate Change (UNFCCC), “Climate finance refers to local, national or transnational financing – drawn from public, private and alternative sources – that seeks to support mitigation and adaptation actions that will address climate change”.
How this plays out in real terms is slightly more complex. Climate finance is just one of many terms employed to describe the movement of funds in the context of climate-related matters. In general, though, a distinction can be made
between “sustainable finance” that takes a broad environmental, social, economic and governance approach, and the narrower concept of “green finance”, concerned only with environmental issues. Even more narrowly focused are those actions targeting exclusively climate change mitigation and/or adaptation, which we call climate finance.
In all cases, though, total climate finance includes all financial flows whose expected effect is to reduce net greenhouse gas emissions and/or enhance resilience to the impacts of current and projected climate change.
What are climate finance flows?
Climate finance flows encompass the allocation and distribution of financial resources with a specific focus on supporting projects, programmes and activities related to climate change. These funds are directed toward initiatives that address both mitigation (reducing greenhouse gas emissions) and adaptation (building resilience to climate impacts).
How does capital “flow” from one country to another? Flow diagrams shed some light on how countries are giving and receiving climate finance, but also on the types of finance offered by different donor countries. They reveal, for example, the proportion of funding allocated to adaptation versus mitigation projects, and whether financial support primarily comes in the form of grants or loans.
What types of investment are needed?
Broadly speaking, there are three key categories that receive climate financing, each supported by specialized climate finance solutions designed to mobilize and channel funds towards climate action.
Mitigation investments are directed to reducing greenhouse gas emissions and include funding projects related to renewable energy sources.
Adaptation investments focus on enhancing resilience to climate change impacts, for example by supporting infrastructure improvements that can withstand extreme weather events.
Dual-benefit investments serve both mitigation and adaptation objectives, such as sustainable agriculture initiatives that contribute to carbon sequestration while improving food security.
International Standards also play a significant role in attracting and managing climate finance. Not only do they ensure transparency, reliability and accountability in financial flows, but they help to measure, report and verify the environmental impact of investments related to climate change. · ISO 14097 Greenhouse gas management and related activities ISO 14100 Guidance on environmental criteria to support the development of green finance ISO 14001 Environmental management systems
ISO 14097 Greenhouse gas management and related activities
ISO 14100 Guidance on environmental criteria to support the development of green finance
ISO 14001 Environmental management systems
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