This is the first installment of our blog series, Climate Finance FAQs. The series explores the often nebulous world of climate finance, providing clarity on some of the key terms and current issues. Read more posts in this series.
Surprising as it may sound, there is no standard definition of climate finance. In fact, there are many differing views on what type of funding constitutes climate finance, how it should be delivered, and how much money developing nations will need to mitigate climate change and adapt to its impacts. This vortex of information can be confusing to navigate. Here, we'll do our best to break down all of the components that define “climate finance.”
Defining Climate Finance: Broadly to Narrowly
In its broadest interpretation, climate finance refers to the flow of funds toward activities that reduce greenhouse gas emissions or help society adapt to climate change’s impacts. It is the totality of flows directed to climate change projects—the same way that “infrastructure finance” refers to the financing of infrastructure, or “consumer finance” refers to providing credit for purchases of big-ticket household items.
The term is most frequently used in the context of international political negotiations on climate change. In this context, climate finance—or international climate finance—is used to describe financial flows from developed to developing countries for climate change mitigation/adaptation activities, like building solar power plants or walls to protect from sea level rise. This interpretation builds off the premise that developed countries have an obligation to help developing countries transform their economies to become less carbon-intensive and more resilient to climate change.