Financial Equity for Environmental Justice
While everyone possesses fundamental human rights to thrive and survive, the scarcity of resources to mitigate and adapt to the adverse impacts of climate change is pushing many beyond the reach of a decent livelihood, and even endangering their very existence. This presents a stark injustice, magnified by the fact that those most affected are often those who have contributed the least to the genesis of climate change. The bulk of greenhouse gas emissions emanate from wealthier nations, whereas poorer nations, with fewer industrial facilities and vehicles burning fossil fuels, have historically emitted only a fraction of the overall emissions.
The original 1992 United Nations Framework Convention on Climate Change laid the foundation for climate justice by embracing a pivotal principle: “common but differentiated responsibilities”. This principle necessitates action from all parties concerning climate change. However, justice dictates that those who have had a greater role in causing the issue must bear a greater share of the responsibility in addressing it. High-emission countries must take the lead in promptly reducing emissions. Furthermore, justice hinges on wealthier nations providing financial aid to less affluent countries, enabling them to cope with the significant financial burdens imposed by the escalating impacts of climate change. In many respects, climate finance, when adequately allocated and utilized effectively, serves as a pathway to achieving climate justice.
What is Climate Finance?
As per the United Nations Framework Convention on Climate Change (UNFCCC), climate finance encompasses financing at local, national, or transnational levels, sourced from public, private, and alternative channels, aimed at supporting actions for both mitigating and adapting to climate change. This can involve various financial instruments such as grants, green bonds, equities, debt swaps, guarantees, and concessional loans. Moreover, developing countries have access to several multilateral climate finance funds, including the Green Climate Fund (GCF), the Global Environment Facility (GEF), and the Adaptation Fund (AF).
Climate finance is utilized across a spectrum of activities including mitigation, adaptation, and resilience-building efforts. As climate change impacts permeate all sectors of the economy, public budgets and other financial mechanisms are increasingly factoring in climate risk in their investment decisions, broadening the scope of what constitutes climate finance. For instance, countries like the Maldives consider all financial resources as climate finance due to their heavy reliance on climate resilience for their entire economy and survival.
Significance of Finance for Climate Action
A recent assessment conducted by the UNDP indicates that financing remains a primary obstacle to expediting climate action in developing nations. Wealthier nations, which have significantly contributed to historical climate change, pledged to mobilize $100 billion annually by 2020 to support climate initiatives in lower-income countries. However, this objective has yet to be met, and further funding is necessary to propel the transition to sustainable practices and bolster resilience in developing nations.
Nevertheless, recent research suggests that investing in climate action can produce outcomes that far surpass the initial expenditures. According to a study from the Global Commission on Adaptation, allocating $1 to five critical adaptation sectors could generate total net benefits ranging from $2 to $10.
How Crucial Climate Finance is to the Paris Agreement?
As of 2021, an analysis by UNFCCC reveals that the financing requirements outlined in the Nationally Determined Contributions (NDCs) of 78 countries amount to approximately $5.8 trillion until 2030, averaging around $600 billion annually. This estimation excludes the investments needed for developed countries to reduce their carbon emissions and the substantial costs governments face in addressing the impacts of extreme weather events such as floods, droughts, and wildfires induced by climate change.
The total global climate finance flows, encompassing both private and public, domestic and international sources, reached $640 billion by 2020, with nearly half directed to East Asia and the Pacific region. This underscores a considerable disparity between the needed funding and the actual allocations, particularly when compared to other financial streams within the broader financial system. For instance, global fossil fuel subsidies amounted to $7 trillion as of 2022.
According to IPCC, current financial allocations for climate change mitigation must increase between three and six times to meet the average annual requirements between 2020 and 2030, if the goal of limiting global warming to 2°C or below is to be achieved. The urgency is even greater concerning adaptation efforts, as 90 percent of climate finance is currently allocated to mitigation actions, despite compelling economic arguments for investing in adaptation measures.
Figure: Climate finance provided and mobilised in 2013-2021 (USD billion) [Source: OECD, 2023]
References
OECD. Climate Finance and the USD 100 Billion Goal—OECD. https://www.oecd.org/climate-change/finance-usd-100-billion-goal/
UNDP. (2023, October 2). What is climate finance and why do we need more of it? UNDP Climate Promise. https://climatepromise.undp.org/news-and-stories/what-climate-finance-and-why-do-we-need-more-it
UNFCCC. Introduction to Climate Finance | UNFCCC. https://unfccc.int/topics/introduction-to-climate-finance
United Nations. Finance & Justice.
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