Editing IPCC:AR6/WGIII/Chapter-15 (section)

=== 15.3.2 Estimates of Climate Finance Flows ===

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The measurement of climate finance flows continues to face similar definitional, coverage and reliability issues as at the time of AR5 and the Special Report on Global Warming of 1.5°C, despite progress made (more sources, greater frequency, and some definitional improvements) by a range of data providers and collators. Based on available estimates (Table 15.1 and Figure 15.3), flows of annual global climate finance are on an upward trend since AR5, reaching a high-bound estimate of USD681 billion in 2016 ( [[#UNFCCC--2018a|UNFCCC 2018a]] ), representing USD674 billion 2015. Latest available estimates indicate a drop in 2018 ( [[#Buchner--2019|Buchner et al. 2019]] ) and a rebound in 2019 and 2020 ( ''medium confidence'' ) ( [[#Naran--2021|Naran et al. 2021]] ). Although not directly comparable in terms of scope, current climate finance flows remain small (approx. 3%) compared to the GFCF reference point introduced in [[#15.3.1|Section 15.3.1]] , and need to be put in perspective with remaining fossil fuel financing ( ''medium confidence'' ) ( [[#15.3.2|Section 15.3.2]] .3).

'''Table 15.1 | Total climate finance flows between 2013 and 2020.'''

{| class="wikitable"
|-
! Source (type)

! 2013

! 2014

! 2015

! 2016

! 2017

! 2018

! 2019

! 2020

|-
| UNFCCC SCF (total high)

| 687

| 584

| 680

| 681

| colspan="2"| Published after lit. cut-off

| n/a

| n/a

|-
| ''Deflated to USD'' 2015

| ''706''

| ''590''

| ''680''

| ''674''

|
|-
| UNFCCC SCF (total low/CPI)

| 339

| 392

| 472

| 456

| /608

| /540

| /623

| /640

|-
| ''Deflated to USD'' 2015

| ''349''

| ''396''

| ''472''

| ''451''

| ''/590''

| ''/513''

| ''/581''

| ''/590''

|}

Note: CPI: Climate Policy Initiative; SCF: Standing Committee on Finance. Numbers in current billion USD. Deflated to USD 2015 in italic ''.'' Given the variations in numbers reported by different entities, changes in data, definitions and methodologies over time, there is low confidence attached to the aggregate numbers presented here. The higher bound reported in the SCF’s Biennial Assessment reports includes estimates from the International Energy Agency on energy efficiency investments, which are excludes from the lower bound and CPI’s estimates. Sources: [[#UNFCCC--2018a|UNFCCC (2018a)]] ; [[#Buchner--2019|Buchner et al. (2019)]] ; [[#Naran--2021|Naran et al. (2021)]] .

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'''Figure 15.3 | Available estimates of global climate finance between 2014 and 2020.''' Note: Numbers in current billion USD. Deflated to USD 2015 see Table 15.1 in italic. Type of Economy figure '''(left)''' : Regional breakdown based on official UN country classification. ‘0’ no regional mapping information available. Sectoral figure '''(right)''' : Policy includes Disaster Risk Management; Policy and national budget support and capacity building. Transport includes Sustainable/Low-carbon Transport. Energy Efficiency includes Industry, Extractive Industries, Manufacturing &amp; Trade, Low-carbon Technologies, Information and Communications Technology, Buildings and Infrastructure. Electricity includes Renewable Energy Feneration, “Infrastructure, energy and other built environment”, Transmission and Distribution Systems, and Energy Systems. No sector means no sector information available, or negligible flows. Other includes Non-energy GHG reductions, Coastal Protection. Source: own calculations, based on [[#Naran--2021|Naran et al. (2021)]] .

At an aggregate level, in both developed and developing countries, the vast majority of tracked climate finance is sourced from domestic or national markets rather than cross-border financing ( [[#Buchner--2019|Buchner et al. 2019]] ). This reinforces the point that national policies and settings remain crucial ( [[#15.6.2|Section 15.6.2]] ), along with the development of local capital markets ( [[#15.6.7|Section 15.6.7]] ).

Climate finance in developing countries remains heavily concentrated in a few large economies ( ''high confidence'' ), with Brazil, India, China and South Africa accounting for around one-quarter to more than a third depending on the year, a share similar to that represented by developed countries. Least-developed countries (LDCs), on the other hand, continue to represent less than 5% year-on-year ( ''medium confidence'' ) ( [[#BNEF--2019|BNEF 2019]] ; [[#Buchner--2019|Buchner et al. 2019]] ). Further, the relatively modest growth of climate finance in developed countries is a matter of concern given that economic circumstances are, in most cases, relatively more amenable to greater financing, savings and affordability than in developing countries.

At a global level, the majority of tracked climate finance is assessed as coming from private actors ( [[#Buchner--2019|Buchner et al. 2019]] ), although, the boundaries between private and public finance include significant grey zones (Box 15.2), which implies that different definitions could lead to different conclusions ( [[#Yeo--2019|Yeo 2019]] ; [[#Weikmans--2019|Weikmans and Roberts 2019]] ). However, private investments in climate projects and activities often benefit from public support in the form of co-financing, guarantees or fiscal measures. In terms of financial instruments and mechanisms, debt as well as balance sheet financing (which can rely on both own resources and further debt) and project financing (combining a large debt portion and smaller equity portion) represent the lion’s share. In this context, the rapid rise of climate-related bond issuances since AR5 ( [[#Giorgi--2021|Giorgi and Michetti 2021]] ) represents an opportunity for scaling up climate finance but also poses underlying issues of integrity ( [[#Nicol--2018a|Nicol et al. 2018a]] ; [[#Shishlov--2018|Shishlov et al. 2018]] ) and additionality ( [[#Schneeweiss--2019|Schneeweiss 2019]] ), as further discussed in [[#15.6.5|Section 15.6.5]] , and needs to be considered in the context of overall indebtedness and debt sustainability (Sections 15.6.1 and 15.6.3).

Mitigation continues to represent the lion’s share of global climate finance (consistently above 90% between 2017 and 2020), and in particular renewable energy, followed by energy efficiency and transport ( ''high confidence'' ) ( [[#UNFCCC--2018a|UNFCCC 2018a]] ; [[#Buchner--2019|Buchner et al. 2019]] ). While capacity additions on the ground kept rising, falling technology costs in certain sectors (e.g., solar energy) has had a negative impact on the year-on-year trend that can be observed in terms of volumes of climate finance ( [[#BNEF--2019|BNEF 2019]] ; [[#IRENA--2019a|IRENA 2019a]] ). However, such cost reduction could free up investment and financing capacities for potential use in other climate-related activities.

Tracking adaptation finance continues to pose significant challenges in terms of data and methods. Notably, the mainstreaming of resilience into investments and business decisions makes it difficult to identify relevant activities within financial datasets ( [[#Agrawala--2011|Agrawala et al. 2011]] ; [[#Brown--2015|Brown et al. 2015]] ; [[#Averchenkova--2016|Averchenkova et al. 2016]] ). Despite these limitations, evidence shows that finance for adaptation remains fragmented and significantly below rapidly rising needs ( [[#15.4|Section 15.4]] and Cross-Chapter Box FINANCE: Finance for Adaptation and Resilience in [[IPCC:Wg3:Chapter:Chapter-17|Chapter 17]] of AR6 WGII report). Further, there is increasing awareness about the need to better understand and address the interlinkages between climate change adaptation and disaster risk reduction (DRR) towards achieving resilience ( [[#OECD--2020a|OECD 2020a]] ). [[#Watson--2015|Watson et al. (2015)]] however, note that between 2003 and 2014, of the USD2 billion that flowed through dedicated climate change adaptation funds, only USD369 million explicitly went to DRR activities ( [[#Climate%20Funds%20Update--2014|Climate Funds Update 2014]] ; [[#Nakhooda--2014a|Nakhooda et al. 2014a]] ; [[#Nakhooda--2014b|Nakhooda et al. 2014b]] ; [[#Watson--2015|Watson et al. 2015]] ). For the private sector, insurance and reinsurance remain the dominant way to transfer risk as discussed in [[#15.6.4|Section 15.6.4]] ).

More generally, significant gaps remain to track climate finance comprehensively at a global level:

'''•''' Available estimates are based on a good coverage of investments in renewable energy and, where available, energy efficiency and transport, while other sectors remain more difficult to track, such as industry, agriculture and land use ( ''high confidence'' ) ( [[#UNFCCC--2018a|UNFCCC 2018a]] ; [[#Buchner--2019|Buchner et al. 2019]] ).

• In contrast to international public climate finance, domestic public finance data remain partial despite initiatives to track domestic climate finance (e.g., [[#Hainaut--2018|Hainaut and Cochran 2018]] ) and public expenditures ( ''high confidence'' ) (for instance based on the UNDP’s Climate Public Expenditure and Institutional Review approach).

Data on private and commercial finance remain very patchy, particularly for corporate financing (including debt financing provided by commercial banks), for which it is difficult to establish a link with activities and projects on the ground ( ''high confidence'' ). Further, as individual sources of aggregate reporting ( [[#UNFCCC--2018a|UNFCCC 2018a]] ; [[#Buchner--2019|Buchner et al. 2019]] ; [[#FS-UNEP%20Centre%20and%20BNEF--2020|FS-UNEP Centre and BNEF 2020]] ) tend to rely on the same main data sources (notably the BNEF commercial database for renewable energy investments) as well as to cross-check numbers against similar other sources, there is a potential for ‘group-think’ and bias.

Such data gaps as well as varying definitions of what qualifies as ‘climate’ (or more broadly as ‘green’ and ‘sustainable’) not only pose a measurement challenge. They also result in a lack of clarity for investors and financiers seeking climate-related opportunities. Such uncertainty can lead both to reduced climate finance as well as to a lack of transparency in climate-related reporting (further discussed in [[#15.6.1|Section 15.6.1]] ), which in turn further hinders reliable measurement.

In terms of finance provided and mobilised by developed countries for climate action in developing countries, while accounting scope and methodologies continue to be debated (Box 15.4), progress has been achieved on these matters in the context of the UNFCCC ( [[#UNFCCC--2019b|UNFCCC 2019b]] ). A consensus, however, exists, on a need to further scale up public finance and improve its effectiveness in mobilising private finance ( [[#OECD--2020b|OECD 2020b]] ), as well as to further prioritise adaptation financing, in particular towards the most vulnerable countries ( [[#Carty--2020|Carty et al. 2020]] ). The relatively low share of adaptation in international climate finance to date may in part be due to a low level of obligation and precision in global adaptation rules and commitments ( [[#Hall--2018|Hall and Persson 2018]] ). Further, providers of international climate finance may have more incentive to support mitigation over adaptation as mitigation benefits are global while the benefits of adaptation are local or regional ( [[#Abadie--2013|Abadie et al. 2013]] ).

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