Finance & Justice

Everyone in the world risks feeling the fallout from climate change, from hotter days to sudden floods. The means to respond vary widely, however. These can be as simple as installing an energy-efficient air conditioner to cool your home. Or as complicated as erecting a sophisticated network of dams and canals to prevent a city from slipping under rising seas. Either way, lots of finance is required, often beyond what individuals or entire countries can afford. Even basic measures to reduce greenhouse gas emissions and adapt to climate change may be out of reach.

While all people have inherent human rights to live and thrive, the lack of resources to limit and adjust to climate fallout is pushing a decent life and even survival beyond reach for many. That’s a stark injustice, compounded by the fact that countries and communities with the most limited means are mostly those who have contributed little to creating climate change. Most greenhouse gas emissions have come from wealthier countries. Poorer nations, with fewer factories and cars and household appliances burning fossil fuels, have historically emitted only a small share of the total.

The original 1992 United Nations Framework Convention on Climate Change set the stage for climate justice by embracing a landmark principle: common but differentiated responsibilities. It requires everyone to act on climate change. But justice demands that those who have contributed more to the problem assume a greater responsibility for solving it. Heavy emitters have to act first and fast in cutting emissions, for example. Justice also depends on wealthier nations providing finance to countries with more limited means so they can keep up with enormous financial burdens as climate change accelerates.

In many respects, climate finance, when it is sufficient and invested in the right ways, is a path to climate justice. How can it happen? The UN Secretary-General's Acceleration Agenda for 2023 outlines six critical actions for governments, businesses and financial leaders.
 

"Promises made on international climate finance must be promises kept."
— United Nations Secretary-General, António Guterres (27 July 2023)

 

1. Make good on the $100 billion annual promise to developing countries for climate action

Since 2009, global climate talks have agreed on mobilizing $100 billion a year for developing countries to take climate action, both to adapt to climate change and cut emissions. The money is supposed to come from wealthier countries, through bilateral, regional and multilateral channels, as well private funds generated by public interventions. Funds can flow through a variety of mechanisms, such as grants, loans and even insurance.

So far, the $100 billion goal has not been reached, however, and the distribution of funds has not been equitable. In 2020, based on the latest OECD data, developed countries provided $83.3 billion. Only 8 percent of the total went to low-income countries and about a quarter to Africa, even though both are highly vulnerable to climate change and home to the majority of people in poverty. Loans made up the largest funding category, mainly going to middle-income countries. This increases investment costs even as many developing countries are struggling with heavy public debt burdens and face impossible choices, such as between funding climate adaptation and improving essential public services.  

The $100 billion commitment is important because every dollar counts in combatting climate change. Realizing this commitment is also a critical affirmation that countries can trust each other to join forces in achieving common goals. It signifies that the international community is committed to justice and to not leaving anyone behind – but only if it is achieved now, in full, and in line with principles of fairness and equity.
 

2. Double finance to help countries adapt to climate impacts

While every country will need to work towards net-zero emissions, each country and community also must adapt to climate change. Adaptation is the foremost priority in countries with lower emissions and acute vulnerability to climate fallout, as is the case for many small island developing States and least developed countries. Building storm-resistant housing, planting drought-tolerant crops, installing reliable water supplies and investing in social safety nets are among many adaptation essentials.                                                               

With half the world’s population now living in the climate “danger zone”, where people are 15 times more likely to die from climate impacts, the Secretary-General has called for doubling finance for adaptation. It must be equitably distributed in ways that do not impose additional constraints. Concerningly, over 60 per cent of adaptation finance involves loans instead of grants, a share that has been rising. Nearly all of it comes from the public sector, with a heavy reliance on international sources in many developing regions.

Climate adaptation is becoming more expensive as the magnitude of climate change sets in. Countries may need to spend up to $300 billion a year by 2030 and $500 billion by 2050, according to the United Nations Environment Programme. Yet these estimated costs are 5 to 10 times greater than current funding flows. The Climate Policy Initiative found that the world today spends under $50 billion on adaptation a year, less than 10 per cent of climate investments overall. This disparity is less acute but still evident in the $100 billion commitment. In 2020, around $29 billion went to adaptation compared to nearly $49 billion to mitigating greenhouse gas emissions, according to the OECD.
 

3. Reform the World Bank and other development banks to make them fit-for-purpose

The current system of lending money to countries for climate and sustainable development is broken. The Secretary-General has referred to the international financial system as “short-sighted, crisis-prone, and bear(ing) no relation to the economic reality of today”, noting that it was created before climate change even existed.  

Injustices in the international financial system have profound impacts. Even if many countries want to invest in climate action that benefits the world as a whole, many cannot afford to do so. Currently, 52 developing countries are suffering severe debt problems. They are home to 40 per cent of all people living in extreme poverty; half of them are among the world’s most climate-vulnerable nations.

High financing costs largely drive unsustainable national debt burdens. Even before the recent surge in interest rates, least developed countries borrowing from international capital markets faced rates of up to 8 per cent compared to 1 per cent in many wealthier countries. When it comes to climate finance, this can translate into heavy costs beyond what climate action already requires. In 2019-2020, over 60 per cent of climate finance entailed borrowing funds, or around $384 billion. Only $47 billion came with low cost or concessional interest rates. No-cost grant finance was only $36 billion.

The Secretary-General has called for reforming the international financial system to make climate and development finance more affordable and adequate, and positioned to combat the scale of the climate crisis. He has urged an annual SDG Stimulus that would boost financing for sustainable development by at least $500 billion per year. The Secretary-General and the Prime Minister of Barbados have joined forces under the Bridgetown Initiative, which advocates channeling billions from the International Monetary Fund, multilateral development banks and the SDG Stimulus Plan to developing nations, and mobilizing over $1.5 trillion annually in private-sector green investments.

Given the scale of climate finance required, current injustices are not only wrong but a serious obstacle to progress that will determine the future of the planet. Public and private climate finance almost doubled from 2011 to 2020, and may have reached up to $940 billion in 2021, with three quarters raised domestically. Most is concentrated in East Asia and the Pacific, North America and Western Europe, however. Avoiding the worst impacts of climate change could require $4.3 trillion a year by 2030; costs will only escalate the more the Earth continues to warm.
 

"As fossil fuel finance is scaled down, climate finance for renewable energy should be scaled up." — United Nations Secretary-General, António Guterres (8 November 2022)

 

4. Replenish the Green Climate Fund in 2023

The Green Climate Fund (GCF) is the world's largest climate fund, created by the Paris Agreement to channel finance to developing countries to fight climate change. Half its resources go to climate mitigation and the other half to adaptation. The fund supports climate justice in part through the lower cost of adaptation finance, which must be provided through grants or the equivalent. Further, half of adaptation resources must go to the most climate-vulnerable countries, including small island developing States, the least developed countries and African States.

In its first round of resource mobilization, from 2020 to 2023, the GCF raised $12.8 billion to improve the resilience of a billion people in 128 countries. A second round is underway to fund the GCF from 2024 to 2027, a period of urgent action for climate change and the Sustainable Development Goals.
 

5. Operationalize the new loss and damage fund

In 2022, global climate talks agreed to create a Loss and Damage Fund. While the details are still being hashed out, such as to define where and how the money should be distributed, the UN Secretary-General has described action on loss and damage a matter of international solidarity and climate justice and urged establishing the fund without delay.

Funds for adaptation help prepare for and lessen climate impacts. Yet loss and damage are inevitable, and disproportionately and unfairly experienced by vulnerable developing countries. Prolonged heat waves, desertification, ocean acidification and extreme events, such as bushfires and crop failures, are already happening and will become worse over time, destroying infrastructure and sapping struggling economies. Some countries will lose large portions of land to sea level rise.

Finance specifically dedicated to loss and damage helps pay for climate-related impacts that happen even if countries adapt and prepare well in advance. It can draw on various financial tools. The Secretary-General has proposed taxes on windfall fossil fuel profits as one option. Debt swaps, where existing debt is forgiven so that funds can be used for climate responses, offer another alternative.

Additional elements may comprise social protection systems and insurance to provide safety nets during a crisis. Many countries are developing these but they can be further supported, including through the Global Accelerator on Jobs and Social Protection for Just Transitions. It aims to extend social protection to the 4 billion people who currently go without it.
 

Loss & Damage Fund : Why does it matter?

 

6. Protect all people from climate disasters with early warning systems by 2027

When disasters loom, early warning systems save lives. Yet only half of countries have them. As hazardous weather and climate events intensify, the Secretary-General has launched a drive to cover everyone within the next five years at the latest. This is more feasible than ever since 75 percent of people have a mobile phone and 95 percent can access the Internet. It is also more needed. Disasters have increased five-fold over the last 50 years, causing an average loss of 115 lives and $202 million in losses every day.

Early warning systems not only uphold human rights to life and safety but are also highly cost-effective. The Global Commission on Adaptation estimated that a 24-hour notice of an impending disaster can reduce damage by 30 percent. Investing $800 million in such systems in developing countries would prevent losses of $3 to $16 billion annually.

With that in mind, the Early Warnings for All initiative advocates spending $3.1 billion from 2023 to 2027 to achieve universal coverage. That’s equivalent to just 50 cents per person a year. To marshal rapid action, the United Nations is partnering with the Red Cross, civil society, tech companies, donor governments, development banks and the insurance sector.