Climate Finance

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The effects of climate change are already being seen throughout the world, and a fundamental change in the world’s economy will be needed if the planet is to survive. Developing countries will be among those most affected by climate change; yet they are also the least powerful in mitigating climate change.  

Climate finance is a central pillar of the Paris agreement: To limit global warming, “developed” nations committed to providing $100 billion per year of climate finance (from 2020 onwards). The OECD admit that goal was missed and both the target, and the funds provided towards it, have been widely criticised for a lack of transparency, additionality, accessibility, and coherence with development spend. There is an ongoing need to track and scrutinise climate finance but also an opportunity to improve the target when a new goal is agreed. 

International finance institutions like the World Bank and International Monetary Fund, along with bilateral development agencies, are substantially stepping up their financing and wider commitments to “Paris-alignment”. A fifth of global development assistance is now labelled as climate-related; and the financial resources under the management of international finance institutions are substantial—but the evidence available on the quantity, results, and effectiveness of climate finance remains limited. Climate finance shares the effectiveness challenges of development finance: from fragmentation and transparency, through to access and ownership among recipients. If development agencies and multilateral finance organisations do not overcome these challenges, the result will mean failure to achieve both climate and development goals. 

As the world deals with the fall-out from the COVID-19 pandemic and ongoing challenges from the war in Ukraine and macroeconomic environment, CGD will explore the global architecture for climate and development finance, and how climate financing can be most effective in helping developing countries to deal with and respond to climate change.  

How can development agencies and international financial institutions best support developing countries confronting the challenges of climate change? And how can development agencies Paris-align their operations while ensuring their programmes meet both development and climate objectives?