Climate Finance Gap
3 June 2024
Money. In a way, it makes the world go round. It’s also a part of one of the three pillars of sustainability – environment, society, and economy. Theory tells us that these three things held in balance would lead to a thriving, sustainable world; but, unfortunately, that isn’t the reality we know.
Without the environment, there’d be no place for society; and without society, there’d be no need for an economy. So why is it that we pursue economic growth exponentially and at the cost of people and the planet? My theory is greed, and this greed has gotten us into a bit of a (ginormous) pickle.
There’s a great divide between the Global North and Global South, and it isn’t the equator. In the Global North, our countries are much more socioeconomically developed and often have different political systems from our neighbours in the Global South. But something that often goes unacknowledged is that the Global North is in this privileged position today through having exploited people and the environment in the Global South. Colonisation is a leading cause of this, with the Global South consisting mostly of countries that have been colonised. Whilst some of these countries are now actively engaging in decolonisation and are emerging as post-colonial states, the residue of the Global North’s historical colonial powers remains present.
The unequal impacts of globalisation add to this divide, with countries in the Global North experiencing its benefits more than those in the Global South. As a result, there are disparities in the levels of wealth experienced by each group of nations. Naturally, this has caused the fairness of the global economy to be called into question and presents the case for more equitable systems of global governance.
Climate action costs money and the Global North’s financial head start means that it is better resourced to address climate change. This raises the need for climate finance. The term ‘climate finance’ has no single definition but has historically been referred to as the financial support given by developed countries to developing countries to address climate change. The United Nations Framework Convention on Climate Change (UNFCCC) presents the closest thing to an official definition:
“Climate finance aims at reducing emissions and enhancing sinks of greenhouse gases and aims at reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts.”
This definition broadens the scope of climate finance and reflects the complexity of our globalised world. It encompasses financial support for all activities addressing climate change from all public and private, global and local actors, and this includes financial flows to developing countries.
Climate finance is important because it’s specifically targeted at vulnerable countries that have contributed the least to climate change but are set to experience the worst of its impacts. Developed countries, responsible for most of the world’s historical emissions, are obligated to provide it.
With the aim of a concerted effort to provide climate finance, at COP15 (the UNFCCC’s annual conference) in 2009, developed countries committed to the goal of collectively giving US$100 billion per year for climate action in developing countries by 2020. This goal was formalised the following year at COP16 and was then reiterated and extended to 2025 at COP21 in 2015, to the extent that the obligation of developed countries to provide climate finance is even included in the Paris Agreement.
This is all great on paper, and demonstrates an example of climate justice in theory. But reality tells a different story and its name is the climate finance gap. This is relatively self-explanatory – it's the difference between current financial flows from developed countries and the average financial needs of developing countries to achieve their long-term goals committed to under the Paris Agreement. It’s also important to note that the US$100 billion amount was determined by political negotiations rather than scientific evidence, which demonstrates that the needs of developing countries are actually much larger than this.
The goal was not met in 2020, and so, at COP26 in 2021, developed countries outlined a Delivery Plan for reaching the US$100 billion target. This stated that the target would not be met until 2023. We clearly need a simplified model for publicly capitalised lending, focused solely on climate mitigation and adaptation, and willing to accept lower returns than the private sector.
Just US$14.4 billion of the US$89.6 billion in funding mobilised by developed countries in 2021 was from the private sector. Meanwhile, many developed countries face high amounts of public debt, domestic spending issues, and the need for finance to address areas of aid other than climate change. This makes it clear that their ability to increase public finance for climate action is extremely limited and outlines the need for a significant increase in private investment.
The benefits of financing concerted climate action aren’t just a matter of survival. Studies suggest that it could add US$43 trillion to the global economy, which is equal to a rise of 4.4% in global GDP by 2070. It’s a long-term game, but acting quickly and effectively would have a great impact.
Delivering on the promise of climate finance is a symbol of trust between countries. It’s not just a moral conscience thing, but a necessity. The Global North had a large part to play in establishing the disparities experienced by the Global South. Now, it must do its part in closing the climate finance gap so we can all take meaningful action to mitigate and adapt to climate change.