Climate finance

Question 1

What is climate finance?

Answer 1

Climate finance refers to “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.”

Question 2

How does the UNFCC, Kyoto protocol and the Paris agreement all say about climate finance?

Answer 2

They all call for financial assistance from Parties with more financial resources to those that are less endowed and more vulnerable (common but differenciated principle)

Question 3

What are some things the Paris agreement says about climate finance?

Answer 3

• art. 9 (1): developed countries are to provide financial resources to assist developed countries with respect to both mitigation and adaptation
• art. 9 (2): other parties are also encouraged to provide or continue to provide such support voluntarily
• art. 9 (3): developed countries are to take the lead in mobilizing climate finance from a wide variety of sources, instruments and channels, should represent a progession beyond previous efforts

Question 4

What did the COP16 agree on in Cancon agreements?

Answer 4

• developed countries agreed to allocate USD 100 billion per year by 2020 to support mitigation and adaptation efforts in developing countries
  
  • through bilateral, regional and multilateral channels: development banks, int. financial institutions, UNFCCC financial mechanism (global environmental facility, and green climate fund)
• plan to negotiate a new collective goal before 2025

Question 5

What is the coalition of finance ministers for climate action? And what are the Helsiniki principles?

Answer 5

• the Coalition is a grouping of Finance Ministers committed to taking collective and domestic action on climate change and achieving the objectives of the Paris Agreement
• the Helsinki principles are 6 principles that promte national climate cation (they are designed to be aspirational, and are formally non-binding
  
  • principle 5 related to mobilizing climate finance

Question 6

What are the different modalities for regulating climate finance?

Answer 6

• financial mechanisms
  
  • financial instruments that directly mobilise or leverage finance, especially private capital, through economic incentives and disincentives that nudge action in a green and sustainable direction
• facilitative modalities
  
  • non-financial complementary measures for mobilising greener private capital by building up knowledge and capacity in the medium-longer term

Question 7

What are some examples of financial mechanisms?

Answer 7

• carbon pricing: tax on GHG, ETS
• blended finance: mechanisms intended to mitigate project or investment risks, such as government guarantees
• tax incentives: government support through revenue loss, rather than upfront expenditure, tax credits, tax reduction etc.
• green bonds: debt-financing instruments that seek to raise finance/refinance for projects and assets that assert an environemtnal or climate objective in their use of proceeds

Question 8

What are some examples of facilitative modalities?

Answer 8

• green and brown taxonomies: a common language of ‘green’ and ‘brown’ to serve as guidance for investment decisions
• climate related reporting and financial disclosure: corporate directors and finance actors required to disclose their climate-related risks and opportunities - also busines plan for net-zero transition?, + better disclosure to investors and shareholders can change capital allocation decisions by the markets - facilitate the transition to a low-carbon economy with a minimal regulatory intervention by law-makers
• market and prudential (forsvarlighet) regulation: climate considerations as part ofa prudent regulation of banks and insurers
• ideas labs and matchmaking training schemes

Question 9

What is sustainable finance (EU)?

Answer 9

• refers to the process of taking environmental, social and governance (ESG) consideration into account when making investment decisions in the financial sector, leading to more long-term investments in sustainable economic activities and projects
• environmental considerations: might include climate change mitigation and adaptation, as well as the environment more broadly, for instance the preservation of biodiversity, pollution prevention and the circular economy
• social considerations: could refer to issues of inequality, inclusiveness, labour relations, investment in human capital and communities, as well as human rights issues
• governance: of public and private institutions includes management structures, employee relations and executive remuneration (how the company is directed and controlled) - plays a fundamental role in ensuring the inclusion (companies with strong governance aims to operate transparently, with accountability and integrity)

Question 10

What are some examples of EU’s legal instruments in climate finance?

Answer 10

• non-financial reporting directive
• taxonomy regulation
• sustainable finance disclosure regulation
• corporate sustainability reporting directive

Question 11

What does the EU taxonomy regulation regulate?

Answer 11

• a common classification system: it establishes the criteria for determining whether an economic activity qualifies as environmentally sustainable for the purposes of establishing the degree to which an investment is environmentally sustainable
  
  • helps direct investments to the economic activities most needed for the transition, in line with the European Green Deal objectives
• important finance transparency tool
• applies to financial market participants that make available financial products ++

Question 12

What are the criteria under EU’s taxonomy regulation for being classified as environmentally sustainable economic activities?

Answer 12

• contribution substantially to one or more of environmental objectives listed in the regulation (mitigation, adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, protection and resoration of biodiversity and ecosystems)
• does not significantly harm any of these objectives
• carried out in compliance to minimum safeguards laid down in the regulation
• complies with technical screening criteria established by the commission
  
  • the commission establish the actual list of environmentally sustainable activities by defining technical screeing criteria for each environmental objective through delegated acts

Question 13

What does the EU corporate sustainability reporting directive regulate?

Answer 13

• it builds and will replace rules by the non-financial reporting directive
• requires large corporations to publish ESG information: large public-interest companies with more than 500 employees (companies, banks and insurance companies)
  
  • to publish regular reports on social and environmental risks they face, and how their activities impact people and the environment
• strengthens existing rule on ESG reporting: extended scope - large companies, as well as listed SMEs, will now be required to report on sustainability (expected to affect around 50k EU companies)
• requires companies to report on double materiality: disclose both the risks they face because of climate effects and in impacts they may cause to the climate and society
• sustainability data must be submitted in a standardized digital format: in accordance with european sustainability reporting standards