Climate Finance: who are the main players?

Climate Finance refers to the many different sources and ways of financing investments in climate change mitigation and adaptation projects. Not so long ago, if the term Climate Finance had come up in conversation, the focus would probably have been on the fact that addressing climate change hinges on getting a much-needed basic finance framework in place. Nowadays, the conversation is likely to recognise that a basic framework is now firmly in place, and that considerable finance flows are happening, but that nevertheless there is a need to quickly and substantially scale-up those finance flows.

No sensible person would deny that in order for countries to meet the commitments they made within the UN’s Paris Agreement on Climate Change, massive amounts of finance still need to be unlocked. That money will allow the development of the vast numbers of mitigation and adaptation projects which are needed now and in coming years.

Who are the main actors in climate finance?

Against that backdrop, here we offer a brief (and non-exhaustive) summary of the main sources of climate finance available today.

• Official bodies –such bodies play an important role in coordinating public and private finance sources, as well as providing limited finance themselves. Such organisations include, for example, the UNFCCC, the UNEP, the OECD, and the G20. The coordinating decisions they take are of central importance to the overall climate finance picture.
• Governments – the important aspects here include the actual finance earmarked and provided to climate change initiatives, as well as the institutional capacity and their level of interest in supporting projects. Funds exist at national, regional, local and municipal government levels.
• Development Finance Institutions – this includes both multilateral sources (such as the Inter-American, Asian and African Development Banks) and bilateral sources (such as JICA (Japan), KfW (Germany) and the UK Development Fund (UK)).
• Climate Funds – these funds are primarily multilateral and based on contributions from countries. They include, for instance, the Green Climate Fund, and the Adaptation Fund.
• Green Investment Banks – as the name suggests, these are banks with a specific focus on providing finance lines to projects with a climate change mitigation and/or adaptation focus.
• International capital markets – this refers in particular to the provision of debt finance, at the international level, in the form of green bonds to climate change projects.
• Domestic capital markets – this group concerns the issuance of green bonds at the national level, in other words where capital market players issue green bonds to support projects in the same country. Mexico, for example, has been very active in this respect.
• Corporations – this group is the largest provider of climate finance, through their ever-increasing volumes of investments across multiple sectors, including energy generation and efficiency, transport, and built environment infrastructure. As a general trend, corporations are increasingly looking for ‘climate-friendly’ investments, often driven by consumer and shareholder demand for improved CSR performance.
• Aid agencies – these groups can play a key role in helping finance projects which are highly important but which are otherwise unfinanceable (where, for example, the benefits of a project are clear such as in certain adaptation investments, but where it is unclear who should pay).
• Rating agencies – these organisations oversee corporations and the capital markets, and increasingly play a central role in estimating climate risk and performance; they provide analyses on the climate performance (and ‘greenness’) of green bonds and companies. Such organisations include, for example, Moody’s and Standard & Poors.
• Insurance – the role of insurance in the battle to cope with the effects of climate change is clear. Insurance policies which provide cover for climate impacts and risks is vital for protecting livelihoods. Moreover, as a holder of very substantial amounts of finance, the insurance industry can play an important role as a finance provider (through bonds, etc.) to climate change mitigation and adaptation investments.
• Community-focused approaches – online fundraising platforms (such as ‘crowdfunding’) have made it easier to campaign to raise finance for the development / commercialisation of specific ideas and technologies. Through these tools, individuals and organisations make financial commitments towards a given investment or project (the money is paid only if the fundraising target is reached). The approach has been used especially in adaptation projects where community members have a clear stake in ensuring that projects are developed.
• Foundations – this group often funds the research into the ideas and products which in turn impact on the climate finance landscape and help organisations play their role in addressing climate change. Foundations also play an important role in funding the parts of climate finance that commercial funding is unwilling to take on.

Each of these groupings is comprised of numerous organisations: indeed, the numbers often run into the tens or hundreds of organisations.

The numbers and types of active financing organizations tends to vary massively between countries and over time. Building-up an accurate and complete picture of the climate finance landscape in a given country can be challenging (mainly due to information gaps), as well as being very time-consuming. That’s one of the many reasons why getting the advice of an expert can help save money and time, as well as ensuring that project developers make sound investment decisions taking full advantage of the many financing options available to them.