Definition of Climate Finance

These are financial resources necessary to address global climate change, can be public or private. There are legal and policy drivers for climate finance and climate finance is key to meeting international legal commitments and driving policy change locally and globally.

Legal and Policy Architecture of Climate Finance

We need to situate our discussion about climate finance within two key legal and policy regimes:

1. global climate regime: Climate finance is central to ensuring legal obligations of the global climate change regime are met: mitigation, adaptation and loss, and damage.
   Obligations of parties to undertake mitigation measures and to adapt to climate change as well as to compensate for climate pollution. All countries have obligations but developed countries have greater obligations to mitigate and support mitigation, adaptation and reparations in developing countries.
   We need to distinguish between:
   
   1. climate finance that developed countries have to undertake as part of their own mitigation measures to meet mitigation commitments under the climate regime; and
   2. climate finance that needs to be channeled to developing countries as support for mitigation, adaptation, loss, and damage. This will be the project’s focus. Here we need to consider whether the volume of finance is sufficient and whether the terms of financing and operational mechanisms for delivering such financing are adequate.
2. global financial architecture: climate finance will be embedded in and delivered through the
   global financial system. We need to unpack both:
   
   1. the impact of the structural characteristics of the global financial system on the mobilisation and delivery of climate finance; and
   2. the impact of climate finance mechanisms on the global financial architecture.
      Both these considerations have significant implications for developing countries. Legal and policy commitments/ drivers for climate finance and operational mechanisms for climate finance can be affected by and affect developing countries’ engagement in the global financial architecture.
      We need to locate climate finance within the broader structural issues of the global financial system, notably the sovereign debt crisis, liquidity constraints, access to capital, and international financial regulation.
3. Key Policy Developments in Climate Finance Post-COP26
   Against the policy and legal backdrop above, we identified three key policy developments relating to climate finance post-COP26 that we should focus on:
   
   1. mainstreaming climate considerations (eg climate risk) into financial policymaking and
      investment decision-making: eg central bank regulation, EU taxonomy, ESG due diligence, and corporate governance;
   2. mobilising and catalysing private climate finance and moving from public to private sources
      of climate finance: eg issuance of green debt, PPPs, blended finance, etc;
   3. retooling public finance to climate action: eg IMF’s new Resilience and Sustainability Trust, debt for climate/nature swaps, etc.
   These three policy developments will have impacts on development countries not only in terms of their responses to climate change but also on their broader development pathways. It will make access to capital more expensive, subject countries to more external regulation and supervision (exacerbating their rule-taker-not-rule-maker status); and create new forms of conditionality and place greater restriction on countries’ policy space.

At the same time, there is no guarantee that these policy ‘solutions’ by the dominant policy and legal communities in the global north will (i) result in meaningful climate action and/or meet commitments under the climate regime; and (ii) provide sufficient protection for communities in the global south at the sharp end of the climate crisis.

The aim of this project will be to undertake research and policy work to unpack these different areas of climate finance, engage in a critique of the existing policy and operational developments and develop alternative solutions where feasible; call for impact assessments and/or develop safeguards or guardrails for use of any new mechanism/instruments.