What is climate finance?
Have you heard of the term climate finance? If you are new to this, you might be wondering how climate and finance jive together. It may refer to different things depending on the person that you are talking with. From a broad point of view, it may refer to businesses that use financial institutions or even technology to improve the purpose of environmental sustainability. For example, we have the production and installation of solar panels and other equivalent renewable resources. On the other hand, we can also use it in a more detailed and narrow sense. It may also refer to a capital transfer from one developed nation to an undeveloped one because they follow recommendations given in international agreements like the 2016 Paris Agreement. Let us discuss this more below.
How can climate and finance be together in one thought?
If you talked to grandparents, they might have mentioned that the environment was so much before than today. The pollution was not too much, and climate change was not this worse. What is climate change? It is the extended pattern progression in the climate. We cannot deny that humans are to be blamed for these changes. We use fossil fuels that are nonrenewable resources. These massively harm the environment because the Earth’s temperature rises when they are burned. Greenhouse gases increase in the atmosphere. So, different entities search for ways to oppose this climate change. Here comes the part where it makes sense that climate and finance jive together. Climate financing refers to any financing used to combat climate change. Financing is a broad term. It may happen on an international, national, or municipal level, and it can come from many sources, be it public or private. The same is true with climate financing.
Many huge entities started to get more involved.
Climate change is being felt more and more every year. Many company giants and even nations cannot sit still anymore, especially now that many people are becoming more aware of the issue. Hence, climate finance’s role and is gaining more importance. Fortunately, many financial institutions and technologies started working on this shift in global energy infrastructure.
But how does financing help combat climate change?
Let’s see. Banks and any other equal make it possible to transfer capital to other countries without any hassle. Financial markets dictate the price of energy commodities. Derivative markets help hedge risks regarding energy pricing. Also, stock exchanges and investment instruments manage investments in renewable energy companies. These are only some, and there are many more ways how financing helps in fighting climate change. All these activities fall under climate finance, and they will most likely accelerate more in the long run.
What about the narrow term?
We mentioned that it might also refer to another meaning. How can developed countries support underdeveloped countries regarding the shift to energy sources and other technology with improved environmental footprints? This issue always ends up in unending heated discussion because of different opinions.