FNI Climate Policy Perspectives 7, November 2012
Climate change finance is currently estimated at between approximately USD 70 and 120 billion per year. However, these estimates involve a fair amount of uncertainty. There is no agreed definition of what climate finance includes; moreover, for private sector flows, the range is estimated using mismatched data sources.
The significant sums of financing committed in the international climate change negotiations (USD 100 billion per year by 2020) are expected to be earmarked according to the traditional template whereby developed countries provide financing to developing countries. Not only is this an outdated view of how private investment moves in today's global world, it also provides an impractical framework for keeping track of financial flows. Furthermore, the developed/developing country negotiating viewpoints are plagued by disagreement as to which public sector and private sector financial flows should count.
Managing limited financial resources effectively requires grasping how financial flows contribute to results in climate mitigation and adaptation. As yet we have little understanding of the tangible results being achieved from these flows, and how public money and instruments drive private investments. Better understanding will require consistent information on a range of indicators of successful financial interventions, including leveraging ratios. We need to consider what financial kinds of information could serve both purposes: to measure progress towards the USD 100 billion commitment, and to measure how effective financial flows are in achieving results.
We need a common definition of what types of flows are to be considered 'climate change finance'. Until such a definition has been agreed, governments and organizations must be more transparent as to what account as 'climate finance'. Governments should work with private investor groups and data providers to adapt existing information so as to provide a more comprehensive dataset on private climate finance.