Climate Finance

Key challenges

• Finance is not flowing to the right projects, nor at the right scale. This is aggravated by an outdated International Financial Architecture which means that the infrastructure to support flows, particularly to the Global South, is ineffective.
• Global inequality is rising. Climate measures that don’t effectively consider social justice issues and unintended consequences can lead to backlash. Equally, given large flows of public and private finance are being mobilised for climate solutions, there’s an opportunity to build a more socially just Europe.
• Whilst Europe is a leader on sustainable finance, there are still inadequate policies and regulation of the financial and corporate sectors which leads to a misalignment with net zero goals.
• There are also gaps in climate data, analytics, methodologies, and the tools required to drive the financial system towards net zero. This leads to a lack of credible transition plans, and issues in scrutinising such plans.
• Greenwashing is a serious barrier to progress. It represents the new climate denialism: weak net zero targets are made by companies with little to no evidence of how they will be implemented and limited regulatory scrutiny.
• The green transition is capital intensive and requires large upfront investment in infrastructure. Yet the current economic environment of shrinking fiscal space, high global interest rates, and the ongoing cost of living crisis, is leading to increased pressure on public finances.
• Politically, there’s been a serious erosion of trust between the Global North and the Global South around financing for the transition, exemplified by the inability for richer nations to deliver on their $100 billion pledge, promised in Copenhagen in 2009.