Climate Finance and COP29: Why Money Matters

COP29 is now upon us again, and in Baku, Azerbaijan, leaders are meeting to try to find solutions to an escalating climate emergency. This year’s COP is likely to be defined by the monetary commitments required to address the impacts of climate change – with negotiators grappling with the challenge of raising and investing the funds needed to achieve the world’s climate ambitions.

Why climate finance matters

Climate finance has been at the heart of COP negotiations for decades, and while we often hear academic language like “mitigation”, “adaptation”, “loss and damage”, it’s a more nuanced and complex discussion than that. Ultimately, it’s about how best to funnel cash from one side of the planet – the developed side that’s contributed significantly to global warming – to the side that’s experiencing the worst of the change.

According to the Intergovernmental Panel on Climate Change (IPCC), people in the developing world are 15 times more likely to be victims of natural catastrophes than people in the developed world, and with huge financial challenges involved in post-disaster rehabilitation, these countries will need greater assistance in confronting the effects of climate change.

Investments, undetected costs, and loss and damage

It’s customary to separate climate finance into three buckets: investments; undetected costs; and loss and damage, and these areas will be top of the agenda at COP29:

1. Investments, such as those in wind farms or solar panels are projects that provide a dollar pay-off and that also produce obvious emissions cuts. They’re simple, straightforward, and attractive to investors. These programmes – often described in optimistic terms at gatherings like COP – form a key part of the worldwide transition to renewable energy.
2. Undetected costs are harder to quantify though. Businesses need to insure they’re adaptable, so they can respond to the consequences of climate change, and that they have mitigation in place to reduce global carbon emissions. But, things like drought-tolerant crops and insuring against storms and floods aren’t investments, they’re essentially bets. And it’s here in the bucket of adaptation that the biggest funding holes exist. This will be quietly and anxiously discussed at COP29, with the big question being “how much will this likely cost and where will all the money come from?”
3. Loss and damage, the third bucket, is the most controversial of them all. This is not about mitigation, or adaptation, it’s about compensation, and compensating those nations that stand to lose it all to climate change. Farmland has been ruined, ecosystems have been desecrated, and families have been displaced. How exactly do you measure such loss? The Loss and Damage Fund will be the subject of much discussion at COP29, but the numbers are clear: After the fund was launched, a number of developed nations pledged over $420 million in voluntary donations at the Conference. To date, commitments have already risen to $661 million. Wealthy countries are yet to do the same.

Is the will there?

At the heart of all these talks is the nagging doubt: will the richest nations be able to find the political will to fulfil their promises, or will they continue to rely on assurances on future investments, and on private equity moving in the same direction as governments?
For less developed nations, the solution is urgent. Climate change is upon them – with rising sea levels, flooding, and droughts now occurring with alarming regularity.

But the answers are there

Climate capital can be made available in other ways, through green bonds, sustainable credit and cutting-edge global alliances. The World Bank and the International Monetary Fund could at some point adapt their lending strategies to include climate adaptation and resilience. But all these solutions, can only work if the money is there.

Only climate finance can enable us to take meaningful climate action. Without it, the world will have no chance of achieving its emissions reduction targets and shielding underserved communities from the devasting impact of climate change.

COP29 will end, as it always does, with speeches and signings, and with commitments to action. But, for those on the frontline of climate change, the questions will remain: Where is the money? When will we see it? And how far will these commitments go?