What is climate finance and why is it important?

Climate finance is local, national or international funding – from public, private and other sources – that aims to “support mitigation and adaptation actions” to address climate change. In other words, it’s the money the world needs to help poorer, developing nations to prevent climate change and cope with its impacts. Climate finance is essential to help significantly reduce emissions and enable all countries to adapt to the effects of a changing climate.

In 2009, rich countries agreed to collectively provide at least $100 billion a year to the developing world by 2020 to help them cut carbon emissions and deal with the impacts of the climate crisis. However, this target was missed, and is now expected to be met within two years – by 2023 – according to a report published before COP26, known as the Climate Finance Delivery Plan.

Ahead of COP26, the UK announced its intention to double the nation’s International Climate Finance commitment to help developing nations with £11.6 billion over the next five years. The aim was to encourage other countries to follow suit and increase their commitments through to 2025 – which we’ll hopefully expect to see during the course of discussions at COP26 this Wednesday.

Earlier this week, the Rockefeller and IKEA foundations announced plans for a new alliance that will enable rich governments and rich individuals to make “incremental, efficient donations” to help the transition to clean energy in developing nations. The Global Energy Alliance for People and Planet will invest $10 billion to test strategies and technologies to support renewable energy projects globally, with an expectation that this will attract 10 times the initial investment to eventually unlock $100 billion in private and public investment.

The new alliance aims to reach 1 billion people with reliable, renewable power, avoid creating 4 billion tonnes of unnecessary carbon emissions, and make more than 150 million green jobs. This initiative is an important and welcome part of global efforts to create a just and inclusive clean energy transition and help vulnerable communities in the Global South adapt to the effects of climate change.

Some of the climate finance commitments announced during the first two days of the summit include:

• $19.2 billion of public and private funds to end and reverse deforestation by 2030.
• $500 million from the Australian Government to support projects in the Indian Pacific region.
• £3 billion as part of the UK’s new Clean Green Initiative (CGI) in climate financing for green growth in developing nations over the next five years, including £200 million for a new Climate Innovation Facility.
• $10 billion from Japan in new climate funds for developing countries.
• $8.5 billion from Western nations to help South Africa speed up the phase out of coal power.
• $130 billion from pension funds in the Nordic countries and the UK to invest in clean energy and climate projects.

Addressing the climate crisis and reaching net zero emissions by 2050 is not going to be cheap – but to manage the increasing impacts of climate change on people’s lives, all countries will need funding.

In the UK alone, the Climate Change Committee estimates it could cost tens of billions of pounds per year, and around 1-2% of national wealth each year by 2050 to reach net zero. But if we do nothing, the environmental costs of climate change will be much higher than the monetary costs of achieving net zero: many trillions of pounds, according to some estimates.

We can’t put a price on the benefits of achieving net zero; it’s not just about cutting emissions, it’s also about a better way of living. Reaching net zero will mean cleaner air and water, warmer and healthier homes, cleaner transport, greener spaces, and better habitats for our wildlife.

Head to our Climate talk at COP26 hub to keep up to date with the latest news and announcements from the climate conference.