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Climate finance: what was actually agreed in Paris?

Written by Smita Nakhooda

​The head of the Bank of England Mark Carney said, in his keynote speech during COP21, that climate change was the issue for the future of the financial sector. 

Financial institutions and private investors finally seem to be getting the message; they’ve tumbled over each other to launch new initiatives on climate action in the run up to and during the UN negotiations. 

Here’s our take on the big hitters at Paris:

New financial offers from lenders

Big banks have pledged to scale up their investments in renewable and clean energy, green bonds, low-emission transport and agriculture. 

French companies have been particularly prominent, galvanised by the Presidency’s efforts to mobilise action from business, cities and civil society. Crédit Agricole CIB will make $60bn in new climate finance available by the end of 2018, and the French multinational Bank BNP Paribas has committed $16bn. A coalition of Societe General and French energy and technology companies, including the oil firm Total, EDF Energy, and Orange announced new bank and bond financing of €80bn for climate change projects. 

Other banks, including Bank of America and HSBC, have also made major commitments. Most of these institutions, however, continue to invest heavily in high-carbon activities. 

Major funds start to kick the carbon habit

But some investors have also signed up to quit carbon: the Portfolio Decarbonisation Coalition, which manages $600bn in assets, committed to divesting from high carbon investments, as did the Fossil Fuel Divestment Campaign representing 500 institutions and $3.4 trillion in assets. 

26 public and private financial institutions from developed and developing countries with $11 trillion in assets adopted the voluntary climate mainstreaming principles. Proposed steps include developing climate strategies, assessing climate risk, and accounting for their greenhouse gas emissions.

New energy innovation partnerships

20 countries, including both the US and Saudi Arabia, launched Mission Innovation to support clean energy innovation and double investment in energy research and development from current levels of about $10 billion.  

The programme's implementation will also be supported by partners in a Breakthrough Energy Coalition backed by high-profile philanthropists such as Bill Gates (who has committed $2 billion), Mark Zuckerberg, Richard Branson, and India’s industrialist Mukesh Ambani. 

These commitments recognise both the need for a clean energy revolution and the business opportunities that addressing climate change can offer. Forward-looking business heads are showing they understand that the cost of inaction on climate change will be devastating.

Countries are scaling up climate funding

Governments pledged new climate finance in the run up to COP21, putting their cards on the table early to press for an ambitious deal. 

We estimate that the public finance offered by developed countries will result in at least $18.8 billion per year by 2020. In addition, Japan aims to mobilise $10bn per year in public and private finance by 2020. 

New pledges to climate funds, including the Adaptation Fund, Least Developed Countries Fund, and the Green Climate Fund (GCF), added up to more than $1.5bn (including pledges of $1m from the city of Paris, and funding from the state government of Quebec).

All multilateral development banks have also pledged to scale up  climate finance in developing countries substantially by 2020, to more than $30 billion per year.

Seeing all finance through a green lens

The need to green all investments in all forms around the world has permeated the UN climate negotiations. The goal in the draft agreement states that finance flows should be consistent with a pathway towards low emission and climate resilient development, in the context of sustainable development priorities and efforts to eradicate poverty. 

At least $100 billion per year will be mobilised from public and private sources to help developing countries mitigate and adapt to climate change by 2020, and a new bigger goal is to be agreed by 2025. 

Over the next five years we must begin to unlock the investments needed to deliver on the promises all countries made this year on both climate and development. 

Shifting investment so that countries can achieve and exceed their national pledges (known as INDCs) and stopping investment in old world, high-carbon approaches to development will gives us the chance to actually deliver the Paris deal that the world worked so hard to strike. 

Read more research and analysis on COP21.