audio calendar close compressed excel Group 2 Created with Sketch. image Group menu pdf pin play search ticket icon Created with Sketch. Group Created with Sketch. video word
Climate finance

What is Climate Finance?

Part of:


View more:

In association with: Tearfund UK

Climate finance is essential for those living in poverty. But what is it and why is it so important?

Climate finance is a broad term, but generally it refers to funding for activities that help countries tackle and learn to live with climate change. The UNFCCC (United Nations Framework Convention on Climate Change) defines climate finance as ‘local, national or transnational financing – drawn from public, private and alternative sources of financing – that seeks to support mitigation and adaptation actions that will address climate change.'

Climate finance explained

Responding to climate change requires investment on a huge scale – both to stop the crisis from getting worse, mainly by reducing emissions (known as ‘mitigation’), and to adapt to its impacts, such as changing weather patterns (known as ‘adaptation’). Without this investment, the world will not achieve its climate goals.

Another phrase you might hear in connection with the climate crisis is ‘loss and damage’. This refers to the consequences of climate change that go beyond what can be adapted to: losses that can’t be recovered and damage that is irreversible. It includes economic losses such as damage to infrastructure, crops, fishing equipment, livelihoods and property, but also the loss of people’s health, mobility and even lives.

Finance is also needed to pay for the loss and damage already being experienced by those whose lives, homes and livelihoods are being destroyed as a result of the climate crisis.

Why is climate finance so important?

The climate crisis is a global problem that all countries need to adapt to, but its effects are felt most by people living in poverty in low-income countries. These nations did the least to contribute to climate change, and they also have the fewest resources to respond to it.

In July, the Organisation for Economic Co-operation and Development (OECD) released the official figure for climate finance for 2020, which showed a shortfall of 16.7 billion dollars. Of the 83.3 billion dollars of climate finance in 2020, 34% was utilised for adaptation. This is well below the 50% target. However, other analysis shows that the figure could be much smaller than the OECD number because -

  • Most of the climate finance is loans and other non grant instruments that push low-income countries into further national debt. Loans made up 71% of public climate finance in 2020.*
  • A significant proportion of climate finance goes to projects which are not primarily for climate action.*

For those living in poverty

Tearfund UK’s new report, Dying to adapt, finds that some sub-Saharan African countries could face climate adaptation costs up to five times higher than their annual spend on healthcare. And this despite the fact that they emit 27 times less greenhouse gas than the global average. The impacts and costs of the climate crisis are being disproportionately felt in these and other low-income countries and that is a huge injustice.

Global response

Yet despite the calls of climate-vulnerable nations for this to be addressed, at the COP26 in Scotland last year, wealthy countries failed on two counts. They didn’t agree to concrete action to meet existing commitments – including a pledge made in 2009 to provide $100 billion a year from 2020 – and they didn’t commit anywhere near the level of new support needed.

Wealthy nations (including Australia), who are the most responsible for climate change, must step up and increase their financial support for climate action in low-income countries. Unless they do, millions of people could be forced back or pushed deeper into poverty and the climate crisis will continue to accelerate.


On the agenda for COP 27 are a variety of issues that require immediate focus and significantly impact the global response to the climate crisis. These issues build on the three core pillars of the Paris Climate Agreement: climate mitigation, climate adaptation and

climate financing. Action on 'loss and damage' is becoming an increasingly important part as well.

What can be done?

Not sure what you can do? Want to know more about the connection between faith and justice? We’ve created a hub page for you to find out more about COP27 and what you can be doing.

Pray with us

  • Pray that world leaders will make wise decisions and deliver on their climate finance promises.
  • Thank God for the work he is doing through Tearfund’s partners who are delivering practical solutions to the climate crisis in climate-vulnerable communities – from new farming techniques to tree-planting projects.
  • Pray that climate finance will reach those that need it most, and that it will enable people to lift themselves out of poverty and reach their full potential.

This article has been adapted with permission from Tearfund UK:

Carty and Kowalzig, “Climate Finance Short-Changed: The Real Value of the $100 Billion Commitment in 2019–2020.”