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

=== FAQ 15.3 | What defines a financing gap, and where are the critically identified gaps? ===

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A financing gap is defined as the difference between current flows and average needs to meet the long-term goals of the Paris Agreement. Gaps are driven by various barriers inside (short-termism, information gaps, home bias, limited visibility of future pipelines) and outside (e.g., missing pricing of externalities, missing regulatory frameworks) of the financial sector. Current mitigation financing flows come in significantly below average needs across all regions and sectors despite the availability of sufficient capital on a global basis. Globally, yearly climate finance flows have to increase by a factor between three and six to meet average annual needs between 2020 and 2030.

Gaps are in particular concerning for many developing countries, with COVID-19 exacerbating the macroeconomic outlook and fiscal space for governments. Also, limited institutional capacity represents a key barrier for many developing countries, burdening risk perceptions and access to appropriately priced financing as well as limiting their ability to actively manage the transformation. Existing fundamental inequities in access to finance, as well as its terms and conditions, and countries’ exposure to physical impacts of climate change, overall result in a worsening outlook for a global just transition.

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