Impact Investing

What is climate funding

climate funding encompasses all those financial resources and instruments committed to supporting action on climate change. climate funding is critically important in climate action, given that large-scale investments are required to make the shift towards a low-carbon global economy possible and to help societies build resilience and adapt to the impacts of climate change. climate finance can emanate from a range of sources: public or private, domestic or international, bilateral or multilateral. It can be made through a range of instruments, including: grants and donations, green bonds, equity, debt swaps, guarantees, and low-interest loans. And it can be used for a range of activities, including mitigation, adaptation, and resilience building. This includes the multilateral funds available for developing countries: the Green Climate Fund (GCF), Global Environment Facility (GEF), Adaptation Fund (AF). These funds have been set up over these years as financial mechanisms of UNFCCC to provide resources to developing countries. As the impacts of climate change are increasingly felt across all economic sectors, the investments that are carried out in public budgets and other financing instruments start considering climate risks, which further expands the definition of climate funding. For instance, countries such as the Maldives consider their entire financing as climate funding since their whole economy and survival is highly dependent on climate resilience. Results of this are increased efforts to use traditional development budgets to finance climate action, particularly efforts to adapt to climate change. What are some examples of climate funding? Some of the climate funding that developing countries may receive can come as grants from the GEF, GCF, and AF. Market-based, low-interest loans are also made available to governments and the private sector through various financial institutions such as the World Bank, the African Development Bank and the Inter-American Development Bank. These grants and loans can be for projects to reduce, absorb, or prevent greenhouse gas emissions, such as renewable energy plants, electric buses, and forest conservation. Or these may be projects meant to enhance resilience to climate change: strengthening early warning systems, strengthening coastal protection, making agriculture and food systems more resilient, building infrastructure able to withstand storms and floods. In addition, governments can earmark funds as part of their budget process for priority climate action, such as those set out in national climate commitments – called nationally determined contributions in the Paris Agreement – or issue sovereign green bonds to finance these projects. The bond is a loan that a government borrows from an investor in exchange for periodic interest payments over a set number of years. At maturity, which generally occurs in the set period, the government returns the actual investment to the investor. climate funding can also be tapped by governments through emission trading and carbon taxes. Under an emission trading system, greenhouse gas emissions are converted into tradable carbon credits. A tradable carbon credit represents one tonne of carbon dioxide or an equivalent amount of another GHG reduced, sequestered, or avoided. Carbon credits can be purchased by countries and private companies in order to increase efforts to reduce GHG emissions. In general, a carbon tax is imposed to discourage the use of products and services that bear a large carbon footprint. Taxes can be levied, for example, on the amount of petrol used at the pump or on the amount of electricity produced by burning fossil fuels. Revenues from these taxes could be channeled into renewable energy, forest protection and other climate protection measures.