Item talk:Q1343

Rationale

Climate finance is crucial given the urgent need to address the climate crisis. Despite annual climate finance having more than doubled between 2018 and 2022, a further fivefold increase is required to reach the USD 7.4 trillion needed on average each year through 2030 under the 1.5°C scenario. Failing to meet this need will result in avoidable economic losses estimated to be five times greater than the climate finance required. Directing finance towards climate action, especially in emerging markets and developing economies (EMDEs), is essential for decoupling economic growth from emissions and building climate resilience. Although investment in climate mitigation remains slow outside of the energy, buildings and transport sectors, Agriculture, Forestry and Other Land Use (AFOLU), industry, and water and wastewater sectors have a large mitigation potential. International public flows are particularly important for supporting adaptation efforts, reducing the cost of capital, and mitigating investment risks in vulnerable regions. The persistent finance gap and growing incidence of devastating climate impacts highlights the immediate need to accelerate and significantly scale flows from all actors: public and private, domestic and international.

Concept methodology

Climate Policy Initiative's (CPI's) Global Landscape of Climate Finance 2023 [1] and its methodology document [2] provided an analytical structure with which to disaggregate the concept of climate finance into the following elements:

• Sources and intermediaries
• Instruments
• Uses
• Sectors

CPI's sources and intermediaries are partially represented by this concept's climate fund subconcept and a separate concept of public finance actor. The latter is separated from this concept due to the diverse purposes of those actors, whereas a climate fund is exclusively concerned with climate finance. The scope of this element is largely narrowed to focus on international flows of public finance. Climate Funds Update's (CFU's) Global Climate Finance Architecture [3] was used to populate the climate fund subconcepts, and the multilateral climate fund subconcept was further refined on the basis of internal expertise.

After preliminary research, instruments was omitted from this first version of this concept due to complexity and overlap with the policy instrument concept that was developed in parallel.

Uses in CPI's structure are represented here as subconcepts of climate finance but with multiple objectives being replaced by loss and damage finance – a relatively small but increasingly important category, particularly from the perspective of climate justice.

Having already articulated the concept of economic sector, this element is omitted here.

References & acknowledgements

We are grateful for the expertise and contributions of Baysa Naran and Nikita Marini at CPI. We also acknowledge the building blocks of our taxonomy, namely the extensive research and work of CPI and CFU in enhancing our understanding of climate finance.

[1] Climate Policy Initiative. (2023). Global Landscape of Climate Finance 2023. Retrieved from https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2023/

[2] Climate Policy Initiative. (2023). Global Landscape of Climate Finance 2023 Methodology. Retrieved from https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2023/

[3] Climate Funds Update. (2023). Global climate finance architecture. Retrieved from https://climatefundsupdate.org/about-climate-finance/global-climate-finance-architecture/

Comments

1. We do not have an item for carbon-market activities.

2. Although carbon market could be consider in sectors (e.g. as a sub-concept of the trade sector Q765), that item might require a deep dive into the financial instruments, particular after the discussion of COP29.

3. There are different approaches and concepts associated to carbon markets, according to the discipline taken (e.g. law-regulatory approach vs. economic approach). This potential new sub-concept might require further study.