Analysis of Climate Finance Dynamics Shows Its Quantitative Growth

The essence of the Paris Agreement is to hold global warming well below 2°C and to pursue efforts to limit the temperature increase to 1.5°C compared to pre-industrial levels. The growth of global climate finance is an important positive signal. The increase in investments and allocation of funds for the transition to a low-carbon economy indicate that countries and businesses are beginning to take the task of reducing emissions and adapting to climate change seriously.

However, the expanding gap between current funding volumes and the goals of the Paris Agreement points to systemic problems in global climate policy. There is a lack of necessary definitions for climate finance and unified methodologies for assessing climate projects, gaps in combating greenwashing, difficulties in making decisions on fair distribution of resources between countries with different levels of responsibility for emissions.

There is insufficiency of existing measures, slow implementation of technologies, weakness of incentive mechanisms, and lack of diversity in financial instruments that would ensure large-scale and effective capital redistribution.

Problems in the public finances of developed countries, in particular, accumulated public debts and budget deficits, do not allow them to increase spending on climate finance, including the promised assistance to developing countries for adaptation to climate change. Thus, even with the growth of financing, the money flows are either directed not where needed or do not reach the necessary scale to keep global temperature rise within 1.5–2°C.

In the current conditions, a wider set of financial instruments is needed, including blended finance, which can help mobilize more funds; improving transparency and reporting, as well as creating more effective international platforms for financing precisely those projects that can accelerate decarbonization and support vulnerable regions.

Combining qualitative growth of financing with structural reforms will reduce the gap between the desired and the actual and move toward sustainable and climate-safe development.

Author: Candidate of Economic Sciences, Associate Professor of the Department of World Economy and World Finance at the Financial University under the Government of the Russian Federation  Svetlana Eduardovna Tsvirko