In the 21st century, humanity navigates a landscape marked by a convergence of crises—what some scholars have aptly termed “polycrisis.” At the heart of this complex web of challenges lies the existential threat of climate change, a defining issue of our time with far-reaching implications for ecosystems, economies, and societies worldwide. The impacts of climate change reverberate across all aspects of society, disproportionately burdening the world’s most vulnerable communities, particularly in developing nations, where the consequences of a warming planet are starkly evident. From extreme weather events to biodiversity loss, from food insecurity to forced migration, the consequences of a warming planet are felt far and wide. At the core of this climate crisis lies an issue of justice—a notion that resonates deeply as we confront the reality that those least responsible for climate change often suffer its most severe consequences. Indeed, the historical legacy of industrialization, carbon emissions, and unchecked consumption primarily traces back to developed nations, who are now responsible for confronting their actions and champion solutions that redress these imbalances. But, to mitigate and adapt to the aforementioned effects, developing countries need funds. This is where climate finance steps in.
Climate finance, whether multilateral or bilateral, public or private, serves as the cornerstone of global efforts to address climate change. It encompasses various financial mechanisms and instruments, including grants, loans, equity investments, and innovative financial mechanisms such as climate bonds and carbon markets. These funds are channeled through a range of mechanisms, including international organizations, multilateral development banks, government agencies, and private sector entities, to support climate-related projects and initiatives worldwide. However, the vast landscape of climate finance cannot be presented without associated challenges, which are particularly strongly felt in developing countries, where vulnerabilities are heightened and resources are often scarce. From the lack of robust climate finance data to the burden of high debt and limited institutional capacity, developing nations face multifaceted barriers to accessing and utilizing climate finance effectively. These challenges underscore the need for tailored solutions that address the lack of climate finance availability, facilitate its accessibility, and foster regional and international cooperation.
Amid these challenges, there is a growing call for a new collective quantified goal for climate finance (NCQG). Such a goal would not only provide a tangible benchmark for fostering new and additional climate finance. Still, it would also contribute to promoting accountability and trust and bridging the climate finance gap. Some notable efforts coming from developing countries are also starting to emerge, such as the Bridgetown Initiative, focusing on reforming the global financial system and architecture and advocating for an automatic debt suspension in emergencies for all future lending, highlighting the necessity for retroactive and comprehensive debt relief to alleviate financial burdens (FAN, 2023) effectively. As the importance of climate finance continues to grow, it is essential for policymakers, practitioners, investors, and young climate advocates to have a comprehensive understanding of the various aspects and complexities of this field. Recognizing the challenge inherent in navigating its complex landscape, it became evident that consolidating essential concepts and issues into a beginner-friendly resource would greatly benefit individuals seeking to deepen their understanding of climate finance. Plus, the collaborative approach guiding this handbook’s development stems from the belief in the power of collective intelligence to provide comprehensive and insightful information on complex subjects such as climate finance.
This handbook is organized into several sections, starting with exploring the lack of a commonly agreed definition of climate finance and tracing the early developments in this field. It then explores the urgent and growing need for climate finance, examining the sources from which funds are channeled and the financial instruments utilized. The handbook also highlights the context surrounding the use of these funds, including mitigation, adaptation, and coping with the loss and damage associated with the effects of climate change. Following this, it addresses the main challenges related to climate finance, covering issues such as data availability, access, allocation, and disbursement of climate finance while navigating through governance constraints, legal and policy challenges, and debt and equity issues. This groundwork sets the stage for exploring solutions to ensure a more effective climate finance mobilization for developing countries.
