Climate Finance
Resources are needed across all sectors and at all levels to address climate change. Catalyzing investments can promote climate adaptation and resilience.
The Economic Impacts of Climate Change
Around the world, climate disasters have generated disastrous impacts that will only worsen. Whether to prevent, mitigate or adapt to the effects of climate change, it’s clear that huge amounts of capital and the creative use of financial tools are necessary to promote and protect resilience.
The Intergovernmental Panel on Climate Change estimates $1.6 trillion is needed annually to keep global warming within the 1.5-2 °C target range. However, several barriers limit the flow of finance toward climate action, including a lack of understanding of the urgency of the climate crisis and limited public sector finance. To date, private sector investments fall far below current needs.
It's clear that additional resources are needed across all sectors and at all levels, ranging from national government investments like electric grids that can handle extensive, clean power sources, down to the community level for actions like reforestation to reduce flood risks.
How Can Increased Funding Promote Resilience?
Catalyzing private investments can promote climate change adaptation and climate resilience. An increased focus on and investment in climate adaptation and resilience measures will support:
- Climate-adapted agriculture
- Sustainable water and sanitation services
- Health and education services
- Resilient infrastructure
- Ecosystem protection
- Assistance to populations after climate shocks
- Nature-based solutions
- Significant emissions reductions
- Increased economic productivity and opportunity
USAID's Commitments to Fund Climate Adaptation
USAID has announced that it will mobilize $150 billion in public and private finance for climate adaptation measures by 2030. Increasing and scaling climate finance tools can create a virtuous cycle of economic benefits for those most affected by climate change by bringing finance to riskier geographies, sectors, populations and communities. Learn more about USAID’s efforts to unlock private sector resources to address climate change here.
USAID’s Climate Strategy will guide the Agency’s efforts through 2030 to advance equitable and ambitious actions to confront the climate crisis. Under the Climate Strategy, USAID has committed to providing and mobilizing finance to support climate actions, especially those focused on adaptation and mitigation.
QUOTE: "USAID will take, support, and facilitate targeted direct action to confront the most urgent demands of the climate crisis -- focusing on climate mitigation and adaptation efforts in priority geographies and contexts to have maximum impact, while mobilizing increased finance and partnering with Indigenous Peoples and local communities, women and youth in locally-led efforts to address the climate crisis."
As part of this effort, USAID will:
- Bring finance to vulnerable geographies, sectors, populations and communities through efforts that convene and catalyze impactful private and public finance
- Employ blended finance, loan guarantees and insurance, among other tools, to mobilize climate finance
- Enhance the ability of entrepreneurs and partners to seek financing and access helpful tools
- Mobilize domestic resources, both public and private, through partnerships
- Support inclusive approaches and access to climate finance
- Leverage locally led development to ensure local priorities and needs are met
- Ensure transparent and accountable governance of investments
USAID will work with partner governments and local actors to create a resilient, prosperous and equitable world with net-zero greenhouse gas emissions.
How is Climate Finance Used?
Blended finance, the strategic use of public resources to attract private capital, can dramatically increase the scale and scope of climate finance in the coming years. Blended finance combines donor funding and private capital to reduce risks and increase opportunities for private investors while generating positive development outcomes. An estimated $31 billion for climate-focused investments has been channeled through blended finance models to date. Most blended finance has gone toward mitigation efforts; however, there have increasingly been calls to commit additional funding toward adaptation.
Unlocking and catalyzing private sector funding through blended finance is a critical first step in promoting adaptation and resilience. But how can this funding be used?
Disaster Risk Insurance
Climate risk finance tools, including insurance, can promote resilience by reducing vulnerabilities to climate risks. These tools provide a critical safety net, protecting assets, lives and livelihoods from the impact of climate disasters. Research into disaster risk financing suggests that increased insurance coverage could reduce losses in the poorest countries by as much as 25%.
Locally Led Adaptation
As both public and private investments in adaptation and resilience increase, locally led adaptation (LLA) may help ensure that investments meet local priorities and needs. LLA requires finance and decision-making processes that:
- Prioritize local actors who are often best placed to identify adaptation solutions
- Support transparency, accountability and equitable resource mobilization
Learn more about the ways LLA can enhance the effectiveness of climate financing tools.
