Financing the socioecological transformation

Overarching priority area for the International Climate (last updated: September 2024)

The availability of financial resources, whether for the dissemination of innovative, sustainable technologies, the design and scaling-up of climate- and biodiversity-friendly business models or the expansion of climate-friendly and resilient infrastructure, is decisive for the success of the transformation in developing and emerging countries throughout all funding areas of the International Climate Initiative (IKI).

As a consequence, the IKI will be placing a stronger focus on the steering of global finance flows in line with the Paris Agreement and the establishment of the green financial sector as well as the mobilisation of private investment.

This will include efforts to improve general conditions in the financial and manufacturing sectors of partner countries, with the aim of enabling higher levels of investment in climate change mitigation and biodiversity conservation. Activities will also be pursued for the introduction and strengthening of instruments for greenhouse gas pricing. Funding will also support the integrated use of carbon markets, including voluntary carbon markets within the framework set out by Article 6 of the Paris Agreement on international cooperation.

In addition to improving these general conditions, targeted incentives will also be used to leverage private investment across all funding areas of the IKI. In doing so, the IKI will on the one hand be focusing on the direct mobilisation of private investment by establishing and participating in financial instruments. On the other hand, the IKI will also be working to accelerate other investment by providing advice on greenhouse gas pricing instruments to banks, regulatory authorities and policymakers.

International agreements on the financing of climate change mitigation and adaptation to the impacts of climate change

Back in 2009, the world’s advanced economies signed the Copenhagen Accord, undertaking to collectively mobilise USD 100 billion annually by 2020 to support climate change mitigation and adaptation measures in developing and emerging countries. In 2015, at the UN Climate Change Conference in Paris, this commitment was extended to 2025 and was achieved for the first time in 2022. Germany now makes an annual contribution in this context of more than EUR 6 billion. A new climate finance goal (New Collective Quantified Goal, NCQG) of more than EUR 100 billion, intended to target the needs and priorities of developing countries in particular, will be negotiated as part of the programme for COP29, which will be held in Baku, Azerbaijan in November 2024.

However, this new goal will not be financed solely by means of public funds from previous donor countries, but from a range of sources stemming from bilateral and multilateral cooperation, and with a particular focus on private climate finance. Accordingly, public funds must also be deployed effectively so as to mobilise and catalyse private finance for climate change mitigation. 

At the 2021 UN Climate Change Conference in Glasgow, developed countries were also called on to at least double the funding collectively provided for adaptation measures in developing countries by 2025 compared to the 2019 baseline – also to ensure a balance between international spending on climate change mitigation and adaptation.

The Paris Agreement sets out a total of three long-term goals: limiting the global temperature increase to 1.5 C, adaptation, and ‘making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.’ (article 2.1c of the Paris Agreement). This long-term goal highlights the fact that, in order to limit global warming to 1.5°C and achieve better adaptation to climate change, global finance flows – both public and private – must be harmonised with these goals.

Multilateral funds play an important role in climate finance, with one important fund in this context being the Green Climate Fund (GCF) set up in 2020. The second replenishment for 2024–2027 has reached a funding level of USD 14 billion to date, EUR 2 billion of which is from Germany. Other notable funds include the Global Environmental Facility (GEF), the Adaptation Fund (AF) and the Climate Investment Funds (CIF). During COP27, the parties to the UNFCCC also agreed to create an international fund for responding to climate-related loss and damage, officially known as the Fund for Responding to Loss and Damage. To date, this new fund has attracted commitments of more than USD 660 million.

The Paris Agreement also envisages the introduction of instruments for market-based cooperation. Article 6 establishes the legal basis for introducing cooperative mechanisms that enable an international transfer of mitigation outcomes between countries and which are intended to strengthen the ambition of nation states to take action on climate. Article 6.2 permits UNFCCC parties to cooperate directly with one another. This means that mitigation measures can be implemented in one country and the resulting mitigation outcomes can be transferred to another country, where they can be credited towards the nationally determined contribution. The ‘Paris Agreement Crediting Mechanism’ set out by Article 6.4 of the agreement also envisages the issuing of emission reduction credits that can be utilised for a range of purposes (such as the voluntary carbon market). The voluntary carbon market (VCM) can help mobilise private capital for climate change mitigation projects, which is used to strengthen NDC implementation and helps raise global ambitions. However, this is conditional on the emission reduction credits being of high integrity and, at the same time, on the fact that their use does not replace or delay a company’s own internal efforts to reduce its emissions.

Capitalisation and mobilisation of financial resources for biodiversity conservation and preservation

Although our prosperity and almost the entirety of our economic activities depend directly or indirectly on biodiversity and its ecosystems, their value is currently not recognised and not appropriately accounted for by economic or political decision-making.

This is primarily because the services that nature provides to us are viewed as inexhaustible and many of them are available to us at no cost. According to figures from Nature, the average annual global financing gap for biodiversity amounts to no less than USD 711 billion.

As public funds cannot be stretched to close this gap, this means that far greater participation is needed from the private sector in particular. The financing of biodiversity conservation is therefore essential for the implementation of the goals of the Global Biodiversity Framework (GBF).

The GBF specifies that the loss of biological diversity must be stopped and reversed by 2030. To achieve this, the international community has decided on four long-term targets by 2050 and 23 medium-term targets by 2030. For example, food waste and the spread of invasive species are to be halved by 2030, and states should be empowered to require businesses and financial institutions to disclose their activities that have a harmful impact on biological diversity.

At the COP16 United Nations Biodiversity Conference, which will be held from 21 October to 1 November 2024 in Cali, Columbia, the financial sector will therefore play a leading role in relation to the implementation mechanism and financing.

Financing mechanisms for biodiversity conservation that are already in place include the Global Biodiversity Framework Fund (GBFF) for the implementation of the Kunming-Montreal Global Biodiversity Framework, or the NBSAP Accelerator Partnership, which is an initiative that provides targeted help to countries for the ambitious implementation of their biodiversity strategies ‑and action plans.

The IKI Strategy

The IKI wants to maximise its impact on climate action and biodiversity conservation. To this end, it concentrates its funding activities on prioritised fields of action within the four funding areas and on three cross-cutting priorities. Another key element is the close cooperation with selected partner countries, especially with the IKI’s priority countries.

Click here for the IKI Strategy

IKI approaches to sustainable finance

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