Climate finance refers to the financing processes for investments related to climate change mitigation and adaptation. It is a multifaceted concept that generally refers to finance for activities aiming to mitigate or adapt to the impacts of climate change. Climate finance can be drawn from public, private, and alternative sources of financing, and it seeks to support local, national, or transnational financing. 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 is critical to addressing climate change because large-scale investments are required to significantly reduce emissions, notably in sectors that emit large quantities of greenhouse gases. Climate finance is equally important for adaptation, for which significant financial resources will be similarly required to allow societies and economies to adapt to the adverse effects and reduce the impacts of climate change.
The term "climate finance" is also frequently associated with international diplomacy on climate change. In this context, climate finance implies "new and additional financial resources" provided by developed countries to developing countries so that they can meet the full and incremental costs of climate change and decarbonization. The Green Climate Fund (GCF) is the worlds largest climate fund, created by the Paris Agreement to channel finance to developing countries to fight climate change.
UNEPs work on climate finance is systematic and two-pronged. Through the Finance Initiative, UNEP focuses on supporting private sector financial institutions including Banks, Investors, and Insurers to understand and mitigate climate risks, seize the commercial opportunities from climate action, and ultimately take all necessary measures to fully align portfolios with the mitigation and adaptation objectives of the Paris Agreement.
