Maarg Manthan · Topic 18.13

Global Climate Finance Architecture

Environment & Ecology › International Environmental Governance and Conventions · Topic 18.13

Climate finance refers to local, national or transnational financing, from public, private and alternative sources, that supports mitigation and adaptation actions. The UNFCCC and the Paris Agreement say that developed countries should provide financial resources to assist developing countries. At Copenhagen in 2009, developed countries promised to mobilise US$100 billion a year by 2020, a goal OECD data suggest was first met in 2022. At COP29 in Baku in 2024, they agreed a New Collective Quantified Goal (NCQG) of at least US$300 billion a year by 2035, with a wider call to scale up finance from all sources to US$1.3 trillion a year by 2035. The architecture includes the operating entities of the UNFCCC financial mechanism, the Green Climate Fund (GCF, set up in 2010 at Cancun, based in Songdo, South Korea) and the Global Environment Facility; the Adaptation Fund (set up under the Kyoto Protocol, now serving the Paris Agreement); the Least Developed Countries Fund and the Special Climate Change Fund; and the Fund for responding to Loss and Damage agreed at COP27 and made operational at COP28, hosted by the World Bank. Other channels are multilateral development banks, the Climate Investment Funds, bilateral aid and private finance. The Standing Committee on Finance advises the COP. India has its own National Clean Energy and Environment Fund and National Adaptation Fund for Climate Change.

5 min read · UPSC Prelims · Environment & Ecology · International Environmental Governance and Conventions

At a Glance

Copenhagen pledge US$100 billion a year
NCQG US$300 billion by 2035
GCF Songdo, South Korea
Adaptation Fund Under Kyoto
L&D fund Agreed COP27
Exam link UPSC Prelims, Environment & Ecology: International Environmental Governance and Conventions

Where Does It Fit?

This topic follows the UNFCCC and explains how climate action in developing countries is financed. It leads to India’s position on climate policy and to later topics on loss and damage. Previous topic: United Nations Framework Convention on Climate Change (UNFCCC), 1992. Next topic: India’s Position on Climate Change Policy.

Which Funds Make Up the Climate Finance Architecture?

Fund or channel	Features
Green Climate Fund	Set up at COP16 Cancun in 2010; HQ Songdo, Incheon, South Korea; operating entity of the UNFCCC financial mechanism; funds mitigation and adaptation, aiming at balance
Global Environment Facility	Serves the UNFCCC and other conventions; also manages LDCF and SCCF
Adaptation Fund	Created under the Kyoto Protocol; funded partly by a 2 percent share of CDM credits; now serves the Paris Agreement
LDCF and SCCF	Least Developed Countries Fund and Special Climate Change Fund for adaptation and technology
Fund for responding to Loss and Damage	Agreed at COP27 in 2022; operationalised at COP28 in 2023; hosted by the World Bank with a board
Climate Investment Funds	World Bank-hosted funds for clean technology and resilience
Multilateral development banks	World Bank, ADB, AIIB and others give climate loans and grants

What Are the Goals and Issues?

US$100 billion goal: pledged at Copenhagen 2009 for 2020; OECD says it was met in 2022 at about US$116 billion
NCQG: New Collective Quantified Goal from COP29: at least US$300 billion a year by 2035, with a call for US$1.3 trillion from all sources
Standing Committee on Finance: advises the COP on the financial mechanism
Concerns: loans versus grants, accounting of what counts as climate finance, adaptation lagging mitigation
Access: small and vulnerable countries find it hard to reach funds
Private finance: needs to be mobilised through blended finance
India’s stand: finance must be new, additional, grant-based and predictable from developed countries
Indian funds: National Clean Energy and Environment Fund and National Adaptation Fund for Climate Change

What Else Should You Remember?

Definition: finance that supports mitigation and adaptation
UNFCCC Article 4: developed countries to provide new and additional finance
Paris Article 9: developed countries should provide finance and others are encouraged to do so voluntarily
Article 2.1(c): making finance flows consistent with low-emission, climate-resilient development
GCF first replenishment: 2020 to 2023 with about US$10 billion
GCF second replenishment: GCF-2 for 2024 to 2027 with about US$12.8 billion
GCF readiness: helps countries prepare projects
Accredited entities: agencies that can receive GCF money
NDA: National Designated Authority; in India, the Department of Economic Affairs
Adaptation Fund Board: manages the fund
Loss and Damage Fund: FRLD, with pledges of about US$700 million initially
Santiago Network: provides technical help on loss and damage
Climate finance flows: global climate finance by public and private sources runs well above US$1 trillion a year, according to estimates
Climate Policy Initiative: tracks global flows
Green bonds: debt instruments to fund green projects; India issued sovereign green bonds from 2023
Sovereign Green Bonds: India’s government issued them to raise funds for green projects
Carbon markets: a possible source of finance
Debt for climate swaps: proposed way for indebted states
Taxonomy: climate finance classification systems
NAFCC: National Adaptation Fund for Climate Change, set up in 2015, with NABARD as implementing agency
NCEF: National Clean Energy Fund created in 2010 from a coal cess
Link to previous: see United Nations Framework Convention on Climate Change (UNFCCC), 1992
Link to next: see India’s Position on Climate Change Policy
Link to GEF: see Global Environment Facility (GEF)
Caution: amounts and replenishment figures change, so verify with the funds’ websites
Exam hint: learn the funds with their host, year of creation and purpose

Why Does It Matter for the Exam?

Old goal: US$100 billion
New goal: US$300 billion by 2035
GCF HQ: Songdo
Current affairs link: NCQG and loss and damage fund
Common errors: confusing the GEF with the Green Climate Fund

As an analytical point, climate finance is the main bargaining chip in negotiations, since developing countries say they cannot raise ambition without support. The quality, grant element and adaptation share of the money matter as much as the headline numbers.

Why Is This Topic Important?

Duty Developed lead
Funds GCF, AF, GEF
Gap Scale

What Came Next?

The next topic covers India’s position on climate change policy. Next topic: India’s Position on Climate Change Policy.

Key People and Terms

GCF Green Climate Fund
NCQG New Collective Quantified Goal
LDCF Least Developed Countries Fund
FRLD Loss and Damage fund
SCF Standing Committee on Finance
NDA National Designated Authority

Exam Corner

Points to Remember

Copenhagen goal: US$100 billion.
NCQG: US$300 billion by 2035.
GCF set up 2010, Songdo.
Adaptation Fund under Kyoto.
L&D fund agreed 2022.

Do Not Confuse With

GCF and GEF Climate-only fund versus multi-convention fund
Adaptation Fund and LDCF Kyoto-based versus least developed countries fund
100 billion goal and NCQG Old versus new finance goal

Memory Hook

Hundred billion for twenty, three hundred for thirty-five; GCF in Songdo, AF from Kyoto.

Mains Angle

Questions ask for funds and goals. These points help.

Funds GCF, AF, GEF
Goals 100, 300
Gaps Access, grants

A Question You May Face

An original practice question, not a past paper question.

“Discuss the global climate finance architecture and the issues related to climate finance for developing countries.”

How to Answer

Duty Developed lead.
Funds GCF, AF.
Goals 100, 300.
Gaps Grants, access.

GS Relevance

Prelims: funds, goals, HQs. GS Paper 2 and 3: climate finance.

Frequently Asked Questions

What is climate finance?

Climate finance means funds from public, private and other sources used to support actions to reduce greenhouse gas emissions and adapt to climate change. Under the UNFCCC and the Paris Agreement, developed countries have to provide climate finance to developing countries, who are more vulnerable and have less capacity to pay.

What was the US$100 billion climate finance goal?

At Copenhagen in 2009, developed countries promised to mobilise US$100 billion a year by 2020 for climate action in developing countries. The goal was reached late, with OECD figures showing it was first met in 2022. Developing countries said that much of it was loans and that adaptation received too little.

What is the New Collective Quantified Goal?

The New Collective Quantified Goal on climate finance was agreed at COP29 in Baku in 2024. It commits developed countries to take the lead in mobilising at least US$300 billion a year by 2035 for developing countries, within a broader aim of scaling up finance from all sources to US$1.3 trillion a year by 2035.

What is the Green Climate Fund?

The Green Climate Fund is the largest dedicated climate fund, set up in 2010 at COP16 in Cancun and located in Songdo, South Korea. It is an operating entity of the UNFCCC financial mechanism and supports developing countries' mitigation and adaptation projects, aiming for a balanced allocation, with funds channelled through accredited entities.

What is the fund for loss and damage?

The Fund for responding to Loss and Damage was agreed at COP27 in 2022 to help developing countries that are particularly vulnerable to the adverse effects of climate change deal with losses beyond adaptation. It was made operational at COP28 in 2023, is hosted by the World Bank, and began with pledges of around US$700 million.

PYQ Practice — Statement Analysis

1 The Green Climate Fund is headquartered in South Korea.

True

At Songdo.

2 The Adaptation Fund was set up under the Paris Agreement.

False

Under the Kyoto Protocol.

3 COP29 set a new finance goal of US$300 billion by 2035.