Mainstreaming climate finance into international public financial flows: What role for the G20?

Mainstreaming climate finance into international public financial flows: What role for the G20?

The adoption of the Paris Climate Agreement and the Sustainable Development Goals in 2015 firmly anchored the issue of climate change at the centre of international and national development policy. These agreements set out an ambitious set of universal targets, as well as national policy engagements (in the field of climate change, nationally determined contributions). The issue of finance is at the heart of these policy agendas.

This Issue Brief examines the role of the G20 and related institutions in driving the mainstreaming of climate change into international public finance. The transition to low-carbon, climate-resilient economies will require a large-scale shift of investment from high to low-carbon sectors. The scale of this shift means that private (and mostly domestic) capital will be crucial to this transition. In line with this, the Paris Agreement sets the objective of “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development” (UNFCCC 2015, Article 2.1c). However, domestic public capital can provide an important catalyst; and international public flows will be even more important for poorer, vulnerable countries; and for activities where market failures mean that private capital will not invest.

This paper argues that the G20 can make an important contribution to this objective of mainstreaming climate concerns into public financial flows. This holds also of private financial flows, although this paper limits itself to public financial flows.

Key messages:

  • public climate finance can provide a crucial complement to the necessary, economy-wide shift of investments required for the transition to low-carbon, climate-resilient societies. Developed countries have notably an important obligation under the Paris Agreement to continue to provide climate finance. However, the landscape of international public finance is growing more diverse. New international financial institutions are emerging, promoting important flows of South-South funding
  • there is thus a need for a new set of principles reflecting this trend and the objectives of the Paris Agreement and the Sustainable Development Goals. Notably, public financial flows should contribute to the objectives of both agreements; should be based on nationally determined contributions (NDCs) and long-term low emissions development strategies (LT-LEDS); and should take care not to divert funding from traditional development objectives like education, health, poverty reduction, good governance, etc.
  • the G20 can play a role in promoting principles of mainstreaming climate finance into international financial institutions, thanks notably to its financial expertise, policy weight, and geographic coverage. The G20 could further articulate its role in this regard, and continuously improve experience sharing and transparency of different international financial institutions’ data and policies
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