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Funding mechanisms

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Climate change poses enormous financial challenges. The combined cost of mitigating and adapting to climate change has been estimated at several hundred billion U.S. dollars per year, of which the majority will have to be invested in developing countries. International and domestic climate finance is therefore essential to reducing climate risk and avoiding the worst impacts of climate change. 

Relevant CTCN Technical Assistance

Funding mechanisms

The global climate finance architecture is complex: finance is channeled through multilateral funds – such as the Global Environment Facility and the Climate Investment Funds – as well as increasingly through bilateral channels. In addition, a growing number of recipient countries have set up national climate change funds that receive funding from multiple developed countries in an effort to coordinate and align donor interests with national priorities. The proliferation of climate finance mechanisms increases the challenges of coordinating and accessing finance. Figure 1 from the Climate Funds Update presents an overview of the climate funding mechanisms. For a list of multilateral and bilateral climate funds and initiatives see Climate Funds Update

Figure 1. Architecture of climate funding mechanisms

National climate finance institutions (NCFIs): NCF's or NCFI's are mechanisms that enable governments to strengthen national political and fiscal systems through directing financing towards national climate change projects and programmes. As it is country driven, it supports the strengthening of national institutions and coordinates climate change activities to enhance sustainable development and aid effectiveness. NCFIs also help to manage, blend, evaluate and monitor climate change funding activities. The benefits of establishing an NCFI include, but are not limited to:

  • Allowing governments to innovatively blend international and domestic public and private funding sources, which can be very useful in improving aid effectiveness
  • Strengthening national institutions and management of climate finance through capacity building in climate finance (e.g. fiduciary management) to streamline diverse funding sources
  • Reducing fragmentation of climate finance within governments through a mainstreaming of efforts; and
  • Coordinating and promoting national climate change activities.

For more guidance visit The Clean Energy Finance Solutions Center and our network member Climate Technology Initiative - Private Financing Advisory Network

Gender and climate finance

Women, who form the majority of the world’s two billion poorest people, are often disproportionally affected by climate change impacts as a result of persisting gender norms and discriminations. Women and men also contribute to climate change responses in different ways. The Cancun Agreements acknowledge that gender equality and the effective participation of women are important for all aspects of any response to climate change, but especially for adaptation. Gender-responsive climate financing instruments and funding allocations are needed. This is a matter of using scarce public funding in an equitable, efficient and effective way. It also acknowledges that climate finance decisions are not made within a normative vacuum, but must be guided by the acknowledgement of women’s rights as unalienable human rights. Many climate funds started out gender-blind, but over the past few years have recognized the need to consider gender retroactively, resulting in important fund structure and policy improvements. To see an outline of key principles and actions for making climate-financing instruments more responsive to the needs of men and women as equal participants in decision-making, see "Gender and climate finance"

    Case studies and publications

    References

    WeADAPT

    Climate Funds Update

    UNFCCC