Climate finance: a guide to financial planning against climate change

Sushree Behera

The global temperature is rising at an alarming rate, with the oceans becoming warmer and glaciers, ice sheets, and snow cover melting drastically. All these signs indicate the severity of climate change in today’s world. 

Climate change is a global issue, and it requires collective and collaborative global efforts from all nations. But what are nations doing to ensure their individual effort towards fighting against climate change? How will these efforts and actions against climate change be funded? 

Climate finance: what is it?

In simple terms, climate finance refers to the financing or funding of funds to support the mitigating and adapting actions taken globally against climate change. This fund includes all sources of financing to fight against climate change. 

The term “climate change” has often been used interchangeably with other terms such as sustainable finance and green finance. However, according to the United Nations Framework Convention on Climate Change (UNFCCC), it only refers to the financing for actions and activities aimed towards fighting against climate change.

This concept came into existence with the Paris Agreement and Kyoto Protocol. The UNFCCC appealed to developed countries to come forward to take their step and help the developing and underdeveloped nations maximizing their efforts against climate change.

Why is climate finance necessary? It’s an obvious fact that climate change is a continuous and persistent issue faced by every corner of the world. It’s hard to undo the damage that has led to climate change. The only solution lies in adapting to the change and trying to prevent further worsening of the situation. This requires continuous and consistent efforts from all the nations. 

Read more: Green Finance on the rise: what is it and what are its benefits

The $100 billions goal: what is it?

The “$100 billion goal” is a funding goal set in 2009 by the developed countries to raise $100 billion collectively every year by 2020 to support actions and activities against climate change in developing countries. The main intention behind setting this goal was to bring forward developed nations to contribute to the efforts made by the developing nations to fight against climate change together.

However, reports from the OECD state that the nations have failed in achieving this goal. Moreover, there have been criticisms regarding the transparency of raising and spending of the fund. 

Thus, climate finance is now being tracked and scrutinized not just by the OECD but also by the United Nations Framework Convention on Climate Change (UNFCCC). Besides monitoring the achievements, it assesses how each nation is progressing towards the goal. It also guides the countries with a realistic pathway to achieve the goal

The sources of climate finance

How will the participating nations raise the funds? The sources of climate finance can be classified into 4 types, namely, public sources, private sources, bilateral and multilateral sources. 

Public sources of climate finance include the funds received from national and international governments. Governments in every nation have a specific budget every financial year set aside to focus on climate-related projects and initiatives. Similarly, international organizations such as development funds also contribute to support climate finance at the global level. 

Private sources of climate finance include funds from private companies, impact investors, and philanthropic organizations. They contribute a huge share to the sources of climate finance. Impact investors include those investors or organizations who willingly contribute to climate finance to bring about a positive environmental impact. 

Bilateral and multilateral sources refer to the financial support received from international agreements and frameworks. These funds may also include grants and donations from multiple countries to developing nations in their efforts to fight against climate change.

Climate finance funds you should know about 

Here’s an overview of the chief climate finance funds you must be aware of:

  1. Green Climate Fund (GCF): The Green Climate Fund (GCF) is the world’s largest climate finance fund established by the UNFCCC in 2010. Based in Incheon and South Korea, its main goal is to help developing countries maximize their efforts toward reducing emissions;
  1. Least Developed Countries Fund (LDCF): The Least Developed Countries Fund (LDCF) was created with the purpose of supporting at least 50 underdeveloped countries in taking a step towards climate change. It was set up in 2001 under the UNFCCC. It owns the largest portfolio of adaptation projects;
  1. Special Climate Change Fund (SCCF): The Special Climate Change Fund (SCCF) was set up in 2001 to cater to four main financial services. Namely, adaptation to climate change, energy, technology transfer, agriculture, forestry, industry and waste management. Its main goal is to help nations adapt to the devastating effects of climate change.

The world leaders and peacemakers have taken their leap in formulating the guidelines and preparing a pathway to resist and become resilient against climate change.

Now, it’s the duty of every nation to step forward. It’s because climate finance requires every nation to contribute its best.

Read more: The Global Green Finance Index (GGFI): how it is calculated and why it is useful

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