International climate finance: Status quo, challenges and policy perspectives

Briefing 28-11-2023

To limit global temperature rise to well below 2°C above pre-industrial levels, as agreed in the Paris Agreement, all countries must cut their emissions, requiring substantial investment. Developed countries committed collectively to supporting developing countries in their climate mitigation and adaptation measures, with US$100 billion annually by 2020. However, the figure was not reached by 2020, nor is it deemed sufficient to cover the needs of developing countries. Beyond the level of financing, there are claims of an unjust distribution of funds. Moreover, most of the money is given as loans, exacerbating debt problems in many developing countries. In response to these issues, numerous actors have proposed policy changes for financial institutions, governments and other stakeholders. To allow all developing countries to access climate finance, climate funds are called on to become more accommodating to resource constraints, which hinder successful funding applications. Additionally, they are urged to address the needs of small island states, some of which are excluded from official development assistance but require concessional finance to cover costs linked to climate change. Proposals for raising climate finance contributions include tapping into the potential of carbon market mechanisms, scaling and reforming climate action by multilateral development banks and mobilising more private finance. The latter may be achieved through better information provision and risk-sharing mechanisms by public finance institutions to encourage private investors. Finally, the institutions and initiatives for debt relief and restructuring are deemed to be too slow and limited to allow developing countries to deal with climate change. Various stakeholders are demanding reforms for debt relief and increased liquidity support.