Climate Financing Requires Climate Justice

Finance is at the center of the ongoing climate negotiations at COP29. Yet, the prospect of establishing a new finance target looks bleak. With less than two days to go, countries have still not managed to agree on how the target should be structured, who should contribute to the target, and, above all, how much the target should be. The underlying problem of climate finance is climate justice, or rather the lack of it. 

Climate finance can be divided into three types: mitigation, adaptation, and loss & damage. Mitigation refers to efforts that lower emissions, while adaptation refers to actions that help people adapt their lives and livelihoods to a warmer planet with more extreme weather. For example, this could involve supporting farmers’ efforts to maintain their food production in a drought-prone area through the introduction of drought-resistant crops. Loss & damage can be defined as the economic and non-economic loss & damage caused by climate change that cannot be adapted to. For instance, it could involve compensating a farmer who can no longer utilize his farm due to rising sea levels. 

While the perspective of justice is important in all three types of climate finance, the lack of justice is most evident in loss & damage and adaptation finance. This has to do with the polluter pays principle. The highest emitting countries that have contributed the most to climate change should bear the greatest responsibility for solving the crisis. Most countries are more or less in agreement with this principle, but in practice, climate finance is far from just. The costs are simply far too high in relation to what the major emitters are paying. Moreover, many payments have been made in the form of loans and have focused on mitigation rather than adaptation and loss & damage. Let’s look more closely at these three climate injustices: 

• The amount of climate finance is insufficient
  The previous goal for climate finance, which expires next year, was set at 100 billion USD per year. This is the sum that should be renegotiated at COP29. So far, negotiations have not settled on any specific figure, but there has been talk of both a sum that is three times larger and one that is ten times larger than the previous goal. Although these numbers may sound vast, they do not reflect the actual needs. According to the Climate Policy Initiative, at least 8.5 trillion USD per year is needed until 2030, and this number needs to increase to 10 trillion USD per year between 2031 and 2050. Other sources are slightly more modest, estimating that the needs until 2030 will be around 6 trillion USD per year. Regardless of the source, sums like 300 billion or 1 trillion USD per year are far from sufficient. They would only cover 3.5–17 percent of the costs.
• Climate finance is delivered in an unjust form
  A large portion of current climate finance is delivered in the form of loans. According to CAN Europe, over half of the climate finance provided by EU countries has been delivered as loans rather than grants. Some of the finance delivered through the largest climate fund, the Green Climate Fund (GCF), where Sweden is a major donor, is also provided as loans. So not only do the major emitters pay too little, but they pay in a format that creates an injustice when the poorer and most affected countries are expected to not only repay the loans but repay them with interest. This means that those that are hit the hardest by the effects of climate change and who have contributed the least pay the most and are further indebted.
• Climate finance focuses on the wrong area
  As previously mentioned, there are three areas that require financing. Mitigation is the area that has received the largest share of global climate finance. A major reason for this is that it is the only area where investments can be seen as profitable. For example, there is often an economic return on investment when shifting from fossil fuels to green energy. But for the other two areas, adaptation and loss & damage, investments are rarely profitable. Therefore, there is no incentive for private finance for climate adaptation or loss & damage. To compensate for this, public climate finance should prioritize areas where there is extremely little private funding to cover the needs. Sadly though, most of the public climate finance currently goes to mitigation – this is climate injustice.

Swedish pledges to climate finance at COP29
Given these three aspects of climate justice, we can analyze the pledges made by the Swedish government last week, when they announced that they would contribute with 130 million SEK to the Adaptation Fund, 200 million SEK to the Loss & Damage Fund, and 8 billion SEK to GCF. 

• Sweden’s pledge to loss & damage is insufficient
  When it comes to the amount, it should be noted that the two latter pledges are multi-year grants, meaning that the GCF sum will amount to approximately 2 billion SEK per year. According to Oxfam, Sweden’s fair share of finance for loss & damage should be at least 20 billion SEK per year. So, while it is welcome that Sweden for the first time chose to provide finance for loss & damage, the amount is far too little. To put Sweden’s contribution into perspective, the flash flood in Gävle in 2021 cost the municipality 335 million SEK. This means that what Sweden is paying globally for loss & damage over several years does not even cover 60 percent of the cost of a single event such as the flash flood in Gävle.
• Sweden’s climate finance is partially delivered in an unjust form
  As for the pledge to GCF, the amount is considerably fairer, and Sweden is considered one of the world’s largest contributors to GCF. However, this is where other aspects of justice become important. As mentioned earlier, some of the funds distributed by GCF are provided in the form of loans, and even though interest rates are relatively low, it is still a moral dilemma that countries not responsible for the climate crisis are forced to foot the bill when they repay the loan. The GCF is also criticized for being difficult to access. Therefore, it would have been better if Sweden had increased the type of climate finance that is accessible to those most affected by the climate crisis, such as smallholder farmers. According to IFAD, so far only 1.7 percent of adaptation finance has been provided to smallholder farmers in developing countries.
• Sweden’s climate finance partially focuses on the wrong area
  It is regrettable that Sweden has chosen to give only 130 million SEK to the Adaptation Fund. According to a new report from UNEP, the finance gap for climate adaptation is estimated to be between 187–359 billion USD per year. When We Effect speaks with smallholder farmers around the world, the message is clear – it is money for adaptation they need and want.

Moreover, Sweden’s contribution of only 200 million SEK to loss & damage, which is at least 100 times too little compared to Sweden’s historical responsibility, is another indication that Sweden needs to rethink. Even though finance for loss & damage does not solve the climate crisis, it is a matter of owning up to your responsibility. It’s about climate justice. We need climate finance for all three areas, and it must be distributed in a just manner among these areas.