Every day, climate change continues to have devastating consequences on the planet and people’s livelihoods.
Vulnerable communities, women, and Indigenous people in the world’s poorest countries shoulder the bulk of the costs and consequences of the climate crisis, even though their share of responsibility is minuscule. In contrast, rich countries, which have historically benefited from the exploitation of the environment, are left relatively unscathed.
Solutions to this problem exist, but they need more careful attention. Climate finance is one of them.
Over the past decade, some financial commitments have been made to help developing countries cope with climate change. In 2009, at the COP15 climate conference in Copenhagen, high-income economies pledged to mobilize a total of $100 billion annually to fund adaptation and mitigation projects by 2020.
This seemingly straightforward deal included financial and technical support to enable developing countries to combat climate change, but in reality, rich countries have failed to hold up their end of the bargain.
Questionable and unclear commitments have made it even more challenging to evaluate success: What counts as climate finance — and what doesn’t? Should grants be considered a form of climate finance? What about loans and other forms of commitments?
Here’s everything you need to know about the thorny issue of international climate finance — and why it should be a priority as the world seeks to bounce back from the COVID-19 pandemic.
What Is Climate Finance?
Defining and evaluating climate finance is difficult, as there is no agreed definition nor consistent accounting principles in place to support it.
According to the United Nations Framework Convention on Climate Change (UNFFC), climate finance refers to “local, national, or transnational financing — drawn from public, private, and alternative sources of financing — that seeks to support mitigation and adaptation actions that will address climate change.”
In 2015, when rich countries signed the Paris agreement, they committed to striking a balance between mitigation and adaptation while prioritizing poor nations in conjunction with the idea of “common but differentiated responsibility and respective capabilities.”
On the one hand, funding mobilized toward adaptation would help impoverished and vulnerable communities cope with the already existing effects of climate change and adjust their livelihoods in the face of an ever-changing environment. On the other, mitigation initiatives would limit the damage brought about by the crisis in developing countries.
Climate funding as outlined by the Paris agreement can come from a variety of sources — but governments have a “moral responsibility” to help these projects come to life through official development assistance (also known as ODA or development aid), according to Eddy Pérez, international climate diplomacy manager at Climate Action Network Canada.
Similarly, while funds can be granted in the form of loans, guarantees, or donations, loans typically need to be reimbursed, which places a strain on the world’s poorest countries. This is why public finance should come in the form of grants to help countries most affected by climate change regardless of their ability to pay, Pérez said.
"Granting a loan defeats the purpose of equity," Pérez told Global Citizen. “Adaptation should not take the form of loans. It should be based on resilience.”
The 3 Biggest Things You Should Know About Climate Finance
Low- and middle-income countries bear the brunt of the climate crisis despite being the least responsible for it.
In 2009, rich nations pledged a total of $100 billion annually to fund climate adaptation and mitigation projects in low-income countries. But according to new estimates, $6.9 trillion a year is required up to 2030 to meet climate and development objectives.
To make this happen, world leaders can support critical initiatives such as the Green Climate Fund, one of the world's largest multilateral climate funds.
How Can Climate Finance Help Fight Extreme Poverty?
Climate change exacerbates existing problems such as poverty, discrimination, and inequality.
While the world's wealthiest countries are responsible for 80% of carbon emissions, marginalized communities bear the brunt of the environmental crisis. In other words, those least responsible for the situation are the most affected by it, and wealthy countries owe their less well-endowed counterparts a historical debt of climate destruction.
What’s more, nearly 50% of the world's population living in extreme poverty has to grapple with acute climate stress and its consequences.
The linkages between climate change and poverty are slowly being factored into funding allocation decisions, but much more remains to be done to ensure that these funds truly reach those who need them the most.
How Much Money Will Successful International Climate Finance Cost?
According to estimates from the Organization for Economic Co-operation and Development (OECD), $6.9 trillion a year is required up to 2030 to meet climate and development objectives. The longer we wait, the more costly action becomes, as financing needs increase in the face of a worsening crisis.
But a fair, equitable approach to climate finance isn’t just about setting an amount and asking governments to stick to it. It’s also about ensuring that funds go to quality projects that give marginalized groups a voice and do not lead to unintended or harmful consequences.
Initiatives like large hydroelectric dams, for instance, can force people out of their homes, while growing crops for biofuel can increase food insecurity.
To be successful, funded projects must be supported both qualitatively and quantitatively.
Who Are the Key Players in Tackling Climate Finance?
There are multiple organizations and efforts involved in the allocation and distribution of international climate finance.
Under the United Nations Framework on Climate Change, the international community has agreed that industrialized countries, which were the biggest beneficiaries of greenhouse gas pollution, should support climate projects in developing countries.
These financial transfers are often made through multilateral climate funds, the largest of which is the Green Climate Fund (GCF), founded in 2015.
The GCF aims at reducing carbon emissions and addressing the impact of climate change by funding projects that take social and economic development into account. This holistic approach to combating climate change implies that initiatives have to be gender-sensitive and rooted in human rights.
Contrary to most development banks, the GCF Board comprises an equal number of members from developed and developing countries, allowing recipients to play equal roles in the decision-making process. Recipient countries can suggest ideas, identify priorities, and directly access funds without going through the United Nations or other financial institutions.
To date, the GCF has funded more than 170 projects that help vulnerable communities adapt to the effects of climate change and transition to renewable energy production.
Other institutions, such as national funds, multilateral banks, bilateral donors, foundations, and private sector partners, also play an important role in allocating climate funds.
But governments are an especially integral part of this process.
The US and the UK, for example, have increased their contribution, with President Joe Biden recently pledging to double US climate finance to developing countries by 2024. Yet President Biden’s budget for next year does not even fulfill the Obama administration’s commitment, and it is a far cry from the $8 to 800 billion pledge through 2030 that activists have been calling for.
Meanwhile, Canada’s most recent commitment to climate finance dates back to 2015, when $2.65 billion was mobilized over five years.
At a time when progress toward development and the achievement of the United Nations’ Global Goals is in jeopardy due to the pandemic, advocates say that bolder and more targeted pledges are desperately needed to spur a green recovery and ensure no one gets left behind.
“Donors need to urgently step up their efforts to support developing countries to respond to the immediate effects of the pandemic and to integrate climate actions into each country’s recovery from the COVID-19 crisis to drive sustainable, resilient and inclusive economic growth,” OECD Secretary-General Angel Gurría said, according to Bloomberg.
What Action Can We All Take to Help?
You can join us by taking action here right now to support the campaign, protect the planet, and demand that world leaders kickstart a green global COVID-19 recovery.