Why climate finance needs overhaul for a sustainable future
Maize plantation destroyed by heavy floods in Mwina, Tana Delta. Just this year, parts of Eastern Africa swung from the grips of a historic multi-year drought to devastating floods.
What you need to know:
- Climate finance refers to the local, national and international funds dedicated to supporting actions that address climate change.
- Mitigation efforts aim to reduce greenhouse gas emissions, the primary driver of climate change.
Just this year, parts of Eastern Africa swung from the grips of a historic multi-year drought to devastating floods. Millions of people faced food insecurity as crops withered and were later destroyed by heavy rains.
This experience, echoing the plight of Pakistan's floods last summer, underscores the urgency of climate action. However, tackling this global challenge requires political will and significant financial resources. This is where climate financing comes in.
Climate finance refers to the local, national and international funds dedicated to supporting actions that address climate change. These actions are broadly categorised into two main areas: mitigation and adaptation. Mitigation efforts aim to reduce greenhouse gas emissions, the primary driver of climate change. This includes investments in renewable energy sources like solar and wind power and energy efficiency upgrades for buildings and industries.
On the other hand, adaptation focuses on helping communities and ecosystems adjust to the inevitable impacts of climate change such as rising sea levels, more frequent and intense storms and changing weather patterns.
There are several sources of climate finance. Public funds play a crucial role, with governments of developed countries committing to provide financial support to developing nations that are often more vulnerable to climate change impacts. The Green Climate Fund, established under the Paris Agreement, is a crucial example of this international cooperation. Additionally, multilateral development banks, like the World Bank and the Asian Development Bank, allocate significant resources to climate-related projects.
Beyond public sources, private sector investments are also becoming increasingly important. Banks, pension funds and insurance companies recognise the financial risks of climate change and are starting to direct their investments toward sustainable and climate-friendly projects.
This trend is further bolstered by the growing market for green bonds, which are debt instruments specifically designed to raise capital for environmentally beneficial projects.
However, the current level of climate financing remains insufficient. Conversely, developed nations often propose loans, private investments and market-based solutions, criticised as exploitative and perpetuating a cycle of resource extraction. They have pledged to mobilise $100 billion annually by 2020 to support climate action in developing countries. This target is yet to be met. This funding gap hinders developing nations' ability to invest in clean energy.
