Climate finance

Climate finance is an umbrella term for financial resources such as loans, grants, or domestic budget allocations for climate change mitigation, adaptation and/or resiliency. Finance can come from private and public sources and can be channeled by various intermediaries such as multilateral development banks or other development agencies. Development agencies are particularly important in the transfer of public resources from developed to developing countries in light of their UN Climate Convention obligations.^{[2] : 7}

There are two main sub-categories of climate finance based on different aims. Mitigation finance is investment that aims to reduce global carbon emissions. Adaptation finance aims to respond to the consequences of climate change.^[3] Globally, there is a much greater focus on mitigation, accounting for over 90% of spending on climate.^{[4][5]: 2590} Renewable energy is an important growth area for mitigation investment and has growing policy support.^[6]: 5

Finance can come from private and public sources, and sometimes the two can intersect to create financial solutions. It is widely recognized that public budgets will be insufficient to meet the total needs for climate finance, and that private finance will be important to close the finance gap.^[7]: 16 Many different financial models or instruments have been used for financing climate actions. For example, green bonds (or climate bonds), carbon offsetting, and payment for ecosystem services are some promoted solutions. There is considerable innovation in this area as well as transfer of solutions that were not developed specifically for climate finance such as public–private partnerships and blended finance. There are also many challenges including that of measuring and tracking financial flows, on equitable financial support to developing countries for cutting emissions and adapting to impacts, and on incentivizing further private sector investments.