Climate finance refers to financial resources provided by developed countries to support climate mitigation and adaptation efforts in developing nations.

• Importance: of climate finance in addressing global climate change challenges and promoting sustainable development.

Global Climate Financing Mechanisms: GEF, GCF, SCCF

• Global Environment Facility (GEF): Operational since 1994 and seeks long-term financial returns through investments in clean energy.
• Green Climate Fund (GCF): Focuses on limiting or reducing greenhouse gas emissions in developing countries🡺Helps vulnerable societies adapt to climate change.
• Adaptation Fund (AF): Created under the Kyoto Protocol in 2001 and committed $532 million to adaptation and resilience activities.
• Special Climate Change Fund (SCCF) and Least Developed Countries Fund (LDCF): Managed by the GEF and provide additional financial support.
• Global Climate Finance Framework: This framework was launched on the sidelines of COP28 UAE.

• The declaration includes elements on, inter alia, delivering on commitments and achieving ambitious outcomes and widening the sources of concessional finance for climate action.

• UAE announced that it would contribute $30 billion to a new fund aiming to divert private sector capital towards climate investments and improve financing for the Global South.

Climate Financing in India: National Clean Energy Fund, Adaptation Fund, CDM, and Key Initiatives

Challenges In Climate Finance: Global, National challenges

Global challenges

• Lack of universal definition: The lack of definition leads to a lack of trust and transparency on a matter.
• Lack of adequate fund:  Even the pledged fund by developed countries $100 billion per year for climate action in developing nations is inadequate and is not regular.

• Oxfam has accused developed countries of using dishonest and misleading accounting to inflate their climate finance contributions to developing countries by as much as 225%.

• Lack of adequate methodology: A lack of available data, tools and capacity for determining and costing such needs in several countries imply that these figures are likely an underestimate.
• Climate finance as loan: The higher income countries have also been criticised for giving most of the money as non-concessional loans. “This has added to debt pressures across regions and income groups,” according to a UN report.
• Diversion of money: CARE international has reported that 52% of climate finance provided by 23 rich countries from 2011 to 2020 was money that previously went to development budgets, including programs focused on health, education, and women’s rights.

National challenges

• India’s climate finance market insufficiently supports climate change adaptation.
• Long gestation periods deter financial institutions from investing.
• Budget constraints often stall green projects.

WAY FORWARD:

• New Collective Quantified Goal (NCQG): It should be finalised at the earliest at COP 29 after balancing developed and developing countries aspiration.
• Time frames and specific commitments: Whether the new goal should have a short-term time period (2025-29), in line with NDCs or longer, say 10 years or more (for instance, until 2050), or a combination should be finalised. 
• Qualitative Elements and transparency: The type of finance (concessional, grant based, public or private) and tacking progress should be finalised similar to Enhanced Transparency Framework (Paris Agreement).
• Freeing up fiscal space for climate action: Through wider use of climate-resilient debt clauses; consideration of debt-for-climate swaps; and sustainability linked bonds. Ex: IMF Special Drawing Rights (SDRs) should be channelled, subject to national legal frameworks.
• Building better, bigger, and more effective MDBs: Recognising their role at G20, the MDBs need to enhance operating models, improve responsiveness and accessibility, and increase financial capacity so that they can better address global challenges such as climate change. 

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