Climate Finance

What Is Climate Finance?

Climate finance refers to all the local, national, or transnational financial activity funded by public, private, and alternative financing sources that aim to facilitate mitigation and adaptation actions addressing climate change.

This finance is a new sector where financial experts aim to apply their skills to bring new climate projects to fruition financially. 

Climate change is, without a doubt, the most urgent issue of this decade. We require global collaboration across all professional sectors to address this serious issue, and finance is no exception. 

Large-scale investment is necessary to considerably cut GHG emissions, and climate finance is crucial for mitigation and adaptation. Moreover, considerable financial resources are required to minimize the adverse effects of climate change and mitigate its consequences.

The Kyoto Protocol and the Paris Agreement initiative

The Kyoto Protocol and the Paris Agreement – both under the United Nations Framework Convention on Climate Change (UNFCCC) – aim to call on industrialized countries to limit their greenhouse gas (GHG) emissions and ask for developed countries to financially assist the developing countries.

Both practices acknowledge that countries' contributions to climate change and their ability to prevent and manage climate differ significantly.

1. The principle: "common but differentiated responsibility and respective capabilities."

Developed country parties are required to provide financial resources to assist developing country parties in achieving the UNFCCC's objectives under the principle of "common but differentiated responsibility and respective capabilities" outlined in the convention.

2. Developed countries should take the lead

Developed parties should also continue to lead in mobilizing this finance from a wide range of sources, instruments, and channels, noting the vital role of public funds through various actions, such as supporting country-driven strategies and considering the needs and priorities of developing country Parties. 

3. Considering the needs of developing countries

Understanding and assessing the financial needs of developing countries and how these financial resources might be mobilized is critical for all governments and stakeholders. Achieving a balance between adaptation and mitigation should also be a priority in allocating funds.

financial mechanism of climate finance

The convention introduced a financial system to provide financial resources to developing nation parties to facilitate the provision of climate finance in accordance with the Kyoto Protocol and the Paris Agreement. 

At the 2015 Paris Climate Change Conference, the Parties decided that the financial mechanism's operating institutions – GCD and GEF – the SCCF and LDCF – would fulfill the Paris Agreement. 

1. The Global Environment Facility (GEF)

Since the Convention in 1994, the Global Environment Facility (GEF) has acted as the financial mechanism's operating institution.

2. The Green Climate Fund (GCF)

The Parties established the Green Climate Fund (GCF) at the 16th Conference of the Parties (COP16), which is responsible for the financial mechanism's policies, program priorities, and requisites for funding, in 2010, and it was designated as an operating entity of the financial instrument in 2011.

3. The Special Climate Change Fund (SCCF) and the Least Developed Countries Fund (LDCF)

The GEF administers the Special Climate Change Fund (SCCF) and the Least Developed Countries Fund (LDCF).

4. The Adaptation Fund (AF)

Aside from the funds described above, another fund is dedicated to climate change adaptation –The Adaptation Fund (AF). 

The Fund was founded under the Kyoto Protocol in 2001 and provided direction to the GEF and the GCF. The Adaptation Fund for the Paris Agreement is now being discussed by an Ad hoc Working Group on the Paris Agreement (APA).

What is the Standing Committee on Finance?

The Standing Committee on Finance (SCF) was established at COP 16 in 2010 to assist the COP in carrying out its tasks concerning the Convention's financial framework.

The SCF currently serves four purposes for the COP: 

1. Enhancing the consistency and collaboration of climate change financing
2. Rationalizing the UNFCCC's financial mechanism
3. Mobilizing financial resources for climate financing
4. Measuring, reporting, and verifying support provided to developing country parties

The Committee is also responsible for organizing an annual conference, providing draft guidance for the operating units to the COP, offering professional advice on conducting the financial mechanism's periodic reviews, and preparing a biennial assessment and overview of the financial flows. 

In addition, the SCF intends to strengthen ties and increase collaboration with climate finance-related actors and activities inside and outside the convention. 

Parties resolved during the Paris Conference in 2015 that the SCF would also serve the Paris Agreement.

Understanding the long-term Climate finance process

The long-term finance process seeks to advance the mobilization and expansion of climate funding from various sources, including public and private, bilateral and multilateral, and unconventional sources. 

The COP agreed to the following from now until 2020: 

• Annual in-session workshops organized by the secretariat
• Developed countries offering advice on strategies and tactics for expanding the sector on a biennial basis
• Organizing conferences of a semiannual high-level ministerial discussion on climate finance

In 2010, the Cancun Agreements committed developed country members to raise USD 100 billion annually by 2020 to fulfill the needs of developing countries under the framework of advancing mitigation and transparency on implementation. 

When they adopted the Paris Agreement in 2015, the Parties confirmed this goal and called for a specific blueprint to achieve it by 2020.

They agreed that before 2025, the Conference of the Parties that will serve as the Parties meeting the Paris Agreement (CMA) would establish a new shared measurable target beginning at USD 100 billion per year.

Furthermore, the Finance Portal offers information about the Adaptation Fund's initiatives and programs. The Kyoto Protocol authorized this fund to finance concrete adaptation projects and programs in developing countries that are Kyoto Protocol Parties.

Climate Finance Portal

The Climate Finance Data Portal on the UNFCCC website provides proper descriptions, images, and statistics to help better explain the climate finance process and a link to information on activities sponsored in developing countries to undertake climate action. 

The finance portal is divided into three parts, each containing information provided by parties and the financial mechanism's functioning entities.

1. The National Communications Module: The National Communication Module includes data on financial resources from participating countries in regular reporting to the Convention. 
2. The Fast-start Finance Module: The Fast-start Finance Module includes data on resources contributed by developed countries as part of their commitment to providing about USD 30 billion from 2010 to 2012. 
3. Funds Managed by the GEF: Funds Managed by the GEF is a collaboration between the UNFCCC Secretariat and the GEF. It includes data on GEF climate finance flows in its function as one of the financial mechanism's functioning organizations.

Why is Climate finance necessary?

Climate finance is critical for amplifying efforts to address climate change. It aids in reducing GHG emissions and the adaptation of various parties to the changes by providing funding to facilitate new projects.

Climate change, without a doubt, is the most pressing issue that needs to be addressed due to the following reasons:

1. The high economic loss due to climate change. 

It will not be cost-effective to resolve the climate issue and achieve net-zero emissions by 2050, but all governments will require funds to deal with the mounting effects of climate change on people's lives. 

According to the Organization for Economic Co-operation and Development (OECD), the cost of meeting the United Nations' Sustainable Development Goals (SDGs) in a way that is compatible with Paris by 2030 is $6.9 trillion annually. A 2019 World Bank estimate suggests that global infrastructure investment will require $90 trillion by 2030.

By the end of the century, the U.S. will suffer an economic loss of the federal budget of about $2 trillion each year from the degrading environment, estimated at a 7.1% loss in annual revenue. 

2. Irreversible environmental damage

Climate change causes irreversible environmental damage, which poses a significant threat to human survival. 

Due to climate change, a drop in food production leading to a large-scale famine, a loss of nature resulting in the absence of natural resources, and a loss of human habitat causing intensive conflicts are not unimaginable. 

3. This finance can leverage the efforts of fighting climate change

It helps facilitate large-scale investments that significantly reduce emissions. It is also essential for adaptation, as vast sums of money are required to adapt to the harmful effects of climate change and mitigate their repercussions.

What is Greenhouse gasses management?

GHG management involves measuring emissions and identifying their sources, establishing an emission reduction goal, developing a plan to accomplish that objective, and bringing the project to fruition to reduce emissions.

A  step-by-step guidebook, "Corporate Climate Action" by Global Impact, introduces GHG management to corporations. It gives businesses specific instructions on evaluating and reducing GHG emissions strategically and holistically. 

It combines existing publications with the contents of this one to provide corporations with the particular knowledge, techniques, and resources for implementing effective corporate climate action.

It includes five fundamental steps as well as a chapter on critical pre-implementation considerations for implementing GHG management:

1. Preparing a greenhouse gas (GHG) inventory
2. Introducing data and process management
3. Developing a climate strategy
4. Controlling based on key performance indicators (KPIs)
5. Communication

Understanding Climate strategy

A climate strategy, a part of GHGs management, is developed based on a comprehensive understanding of crucial GHGs emission sources as well as an evaluation of the corresponding opportunities and challenges to the company's future. 

A climate strategy lays out a framework for action and provides advice for the company's future growth. The following aspects should be taken into account in forming a climate strategy:

• Being aware of the challenges that arise in the future
• Describing the significance of the challenges to the business
• Defining the level of commitment to climate strategy
• Defining goals and objectives
• Forming a clear plan of action to complete the goals and objectives

How do you develop a climate strategy?

To create a plan for climate change:

1. To set standards, start by examining the climate plans of businesses in your sector.
2. Establish precise climate targets that are in line with limits that have been agreed upon globally, such as the 2°C objective for reducing greenhouse gas emissions.
3. To successfully monitor your progress towards your climate targets, use Key Performance Indicators (KPIs).
4. Find ways to reduce carbon emissions and create internal strategies to mitigate climate change.
5. Think about offsetting techniques and carbon neutrality to ensure transparency and real contributions to climate preservation.
6. Measure your company's carbon footprint, look into ways to reduce emissions, and use carbon credits or voluntary GHG certifications to implement carbon offsetting projects.

By taking these actions, you can help the global effort to battle climate change and develop a complete climate strategy that fits the interests of your business.

Conclusion

The global effort to address climate change requires climate funding. Governments, corporations, financial institutions, and other stakeholders must work together to mobilize funds and invest in climate-friendly projects and activities.

The allocation of funding is guided by the principles specified in international agreements like the Paris Agreement and the Kyoto Protocol, which emphasize the duty of wealthier countries to support underdeveloped countries.

While programmes like the long-term finance process seek to scale up funding to fulfil ambitious climate targets, financial structures like the GEF and GCF allow the flow of cash to climate projects.

Climate financing is a vital part of global climate action efforts since it is necessary for lowering emissions, encouraging sustainable development, and responding to climate effects.

Free Resources

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