Climate finance refers to financial resources given as grants, loans and investments to support efforts to deal with a rapidly changing climate. Contributors include governments, corporations, multilateral development banks and other financial institutions. Climate finance includes both domestic and international funds related to climate change mitigation, adaptation and losses. Investment in energy transition, including renewable energy projects, constitutes the majority of mitigation-oriented climate finance, reaching trillions of dollars globally—both domestically and in investment relationships with developing countries.
In recent COP negotiations, adaptation-oriented climate finance has been a major focus. This is in part due to political difficulties around frank discussions of fossil fuels and energy transition in the international arena—and in part due to strong advocacy from climate-vulnerable countries for funding for adaptation to the impacts of climate change.
In COP negotiations going back to 2009, wealthy, developed nations and multilateral financial institutions have made large commitments to fund climate adaptation and mitigation in developing and climate-vulnerable countries. These commitments reflect the growing recognition that the countries who have contributed least to climate change are most vulnerable to climate impacts. Island nations, coastal and low-lying nations, and other nations struggling with the impacts of climate change need large investments in order to update energy infrastructure to reduce emissions, update civic and agricultural infrastructure, and address real losses that take place—material, ecological and cultural.
More than half of the world population is incredibly vulnerable to climate risks like drought and its impact on agriculture, natural disasters like hurricanes and typhoons, strain on public infrastructure, and civil conflict spurred by these pressures. Without adequate governmental resources to adapt, all of these risks are exacerbated. Between 2030 and 2050, climate change is expected to cause approximately 250,000 additional deaths per year from undernutrition, malaria, diarrhea and heat stress alone. This year, the planet crossed 1.5°C of warming since 1850—and is on track to pass 2.7°C by the end of this century. In addition to massive investment in energy transition and other mitigation projects, funding for adaptation is tremendously important to stabilize climate-vulnerable countries and prevent the displacement of hundreds of millions of people as climate refugees.