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The United Nations Framework Convention on Climate Change (UNFCCC) Standing Committee on Finance defines climate finance as “finance that aims at reducing emissions and enhancing sinks of greenhouse gases and aims at reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts.”

Climate Finance represents an understanding that impacts of climate change create vulnerabilities among developing countries – of which many are insignificant contributors to the Green House Gas emissions which are responsible for the climate changes we experience and which are largely consequent of the large emissions made by developed countries. Many Member Parties of the UNFCCC entered agreements that are focused on combating climate change and global warming. Two of these are the Kyoto Protocol and the Paris Agreement, the latter which commits signatories to agree to reduce greenhouse gas emissions in their countries and limit the global temperature rise to 1.5 degrees Celsius.

The concept of Climate finance ensures that financial allocations towards climate change mitigation and adaptation are made. Financial assistance is called from Developed Member Parties of the Kyoto protocol and the Paris Agreement to assist those developing countries and Member Parties that are not significant contributors of greenhouse gases but are more vulnerable to the threats of climate change. Vulnerable countries include Small Island Developing States (SIDS) like Grenada and other Caribbean countries where increased severity of droughts and hurricanes are predicted to occur as a direct result of climate change.

While climate finance has been a central element of the negotiations in one form or another since 1992, it is now most often associated with the target figure of mobilising US$ 100 billion a year by 2020 by developed countries for developing countries towards implementation of mitigation and adaptation projects which increase climate change resilience.

This target was first agreed in the Copenhagen Accord in 2009 and expanded upon in the Cancun Agreements in 2010 where the Green Climate Fund (GCF) was established to act as a key delivery mechanism. In the Paris Agreement in 2015 this target was further reinforced, with a goal to raise the target after 2025 and that this funding would come from a “wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance,” according to the UNFCCC.

The USD 100 billion target has now become a political focal point for further discussions around many aspects of climate change related finance, particularly those related to developing countries.

As a result of these agreements developing countries are able to establish frameworks for the identification of country needs, creation of project proposals and concept notes; for the procurement of funds. This is guided by the fund criteria and is often initiated through a recognized entity as is done within the Green Climate Fund which requires prior engagement with and approval by the appointed NDA of the proposing country. Numerous funds are available including, Global Environmental Facility, Clean Technology Fund, Forest Investment Fund and BioCarbon fund. Each requires applicants to adequately align with fund objectives and satisfy specific criteria. However, in general these funds strongly support adaptive and mitigatory projects of varying sizes which bring about significant and beneficial environmental and social co-benefits, illustrating the potential for low-carbon technology and sink enhancement.

For a list of climate funds from multilateral and bilateral institutions, click here.

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