According to UNFCCC Standing Committee on Finance, climate finance is "finance that aims at reducing emissions and improving greenhouse gas sinks, as well as reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts."
The term has been used in a narrow sense to refer to transfers of public resources from developed to developing countries, in light of their UN Climate Convention obligations to provide "new and additional financial resources", and in a wider sense to refer to all financial flows relating to climate change mitigation and adaptation.
UNFCCC, Kyoto Protocol and Paris Agreement call for financial assistance. In accordance with the principle of “common but differentiated responsibility and respective capabilities” set out in the Convention, developed country Parties are to provide financial resources to assist developing country Parties in implementing the objectives of the UNFCCC.
The Convention has created Financial Mechanisms to offer cash to developing nation Parties to help with this.
- Since the Convention's entrance into force in 1994, the Global Environment Facility (GEF) has acted as the financial mechanism's operating institution.
- Copenhagen Accord: Parties agreed for a "goal" for the world to raise $100 billion per year by 2020, from "a wide variety of sources", to help developing countries cut carbon emissions (mitigation). New multilateral funding for adaptation will be delivered, with a governance structure.
- COP 16 (2010): Parties established the Green Climate Fund (GCF) and in 2011 (COP 17) also designated it as an operating entity of the financial mechanism.
- Establishment of special funds: Special Climate Change Fund (SCCF), the Least Developed Countries Fund (LDCF), both managed by the GEF; and the Adaptation Fund (AF) under the Kyoto Protocol in 2001. (See Diagram)