What is climate finance?

Posted on 01 February 2023

Developing nations are on the front lines of the climate crisis, but unlike the world’s biggest economies, many are without access to the resources needed to mitigate and adapt to climate impacts.

The UN initiated climate financing to address the imbalance and ensure the wealthiest nations pay their fair share to help poorer nations protect their citizens and environments from climate-driven disasters.

What are mitigation and adaptation projects?

  • Mitigation projects
    • Involve limiting climate change, with emphasis placed on heat–trapping and greenhouse gasses. Examples can include limiting gas emissions, renewable energy investments and funding clean transportation.
  • Adaptation projects
    • Communities adapting to life in a changing climate. Examples of this can include infrastructure to adjust to changes in weather (like water systems that adapt to drought), and revitalising wetlands.

The aim of good climate financing is to invest in projects that benefit communities impacted by climate change so they have an influence on proposed projects, in addition to benefiting human rights and adhering to climate justice.

What is loss & damage?

Loss and damage refers to the costs of recovering from climate impacts such as extreme storms, rising sea levels, severe droughts, and powerful wildfires that destroy lives, infrastructure, and economic sectors. 

Where does the money come from?

Highly developed countries and “wealthy” governments predominantly contribute to climate financing in a variety of ways. The money to finance climate action is also funded by the private sectors of countries, in the forms of:

  • Loans
  • investments
  • Grants

Global cooperation

The UNFCCC (The UN Convention on Climate Change) is set up to support developing country parties in funding and implementing climate financing projects.  The UNFCC multilateral climate funds like GCF (Green Climate Fund) are Individual initiatives and act as an operating entity of the financial structure since the Convention was introduced in 1994.

The benefit of developing countries using the GCF structure for climate financing is:

  • Main funds support goals reducing emissions and addressing climate change (equally financed).
  • Easier to access funds for developing countries (compared to other UN funding groups).
  • De-risking investment to mobilize finance at scale.
  • Mainstream risks and opportunities of climate finance to align finances with sustainable initiatives in addition to mitigation and adaptation projects.

Global collaboration initiatives include the Paris Agreement, which is a conference of parties that reaffirms the obligations and climate financing aims of developed countries. The annual United Nations Climate Change Conference (COP). The most recent conference, COP27 addressed the inability of wealthy countries to meet their climate financial target of US 100 billion in 2020, so the discussion focused on new targets, establishing a new fund specifically for loss and damage and focusing on accountability and data of NGOs to secure climate financing.

What is Aotearoa New Zealand doing?

The New Zealand government aims to pledge NZ $1.3 billion in grant-based climate finance between 2022 and 2025. In addition to this, New Zealand’s Ministry of Foreign Affairs and Trade (MFAT) is refining the establishment of a five-year financing plan. This establishment plan will have three complementary delivery mechanisms with the aim to focus on community resilience to the impacts of climate change. This will be done through supporting community-level climate adaptation and mitigation programmes.

Additionally, this programme aims to:

  • support inclusive, community-driven, and sustainable adaptation and mitigation initiatives for vulnerable and marginalised communities
  • Support locally led and nature-based solutions.

What happens without sufficient climate finance?

If financing for climate projects is not placed on mitigating greenhouse gasses and adapting to climate changes, the probability of limiting the warming of the planet will be significantly reduced. This means more catastrophic disasters for the world and its inhabitants.

This article was written by Olivia Vriens during her internship with the Council for International Development


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Asad, I., Pósfai, I., Mák, V., & Schalatek, L. (Producers). (2019). What is Climate Finance? [video]. Heinrich Böll Stiftung Washington, DC. 

Global Citizen: What is loss and damage?

EEA. (n.d). What is the difference between adaptation and mitigation? 

Green Climate Fund. (n.d). About GCF

IFAD. (2022). Why climate financing matters: Your questions and answers

NASA. (2022). Responding to Climate Change

Ministry of Foreign Affairs and Trade. (n.d). Climate Change Support

Tactiv (n.d) What COP 27’s Focus on Climate Finance Means for NGO’s

United Nations Climate Change. (n.d). Introduction to Climate Finance 

UN Environment Programme. (n.d). Climate Finance 


climate finance climate financing mitigation loss and damage adaptation climate change