COP 29 Conference ends with agreement to triple finance to Developing Countries

The 29th Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change ended on the 24th of November with a new finance goal to support countries to protect their economies and populations from the impacts of climate change as well as to implement the transition to renewable energy. Climate finance was the dominant theme at COP 29, and a last-minute agreement was reached to triple the volume of financial flows to developing countries, from the previous goal of USD 100 billion annually, to USD 300 billion annually by 2035. It was also agreed that all actors would work together to scale up finance to developing countries from public and private sources to the amount of USD 1.3 trillion per year by 2035.

However, this agreement has been met with disappointment by many developing countries which have expressed the opinion that this amount falls far short of the amounts needed to ensure climate mitigation and adaption. In 1992, within the framework of the UNFCCC, major industrialised countries which are responsible for the greater part of historical greenhouse gas emissions agreed that they were obliged to provide climate finance. However, both determining the amount required and agreeing on a framework for payments has proven to be very challenging. 

On the one hand, a ‘climate finance gap’ remains in place: the impacts of climate change continue to accumulate, and the urgency of raising sufficient capital to avert these impacts is equally building up.  There are many different definitions of climate finance, but the UNFCCC defines it as the collection of “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”. 

A study by Allen & Overy and the Climate Policy Initiative have estimated that USD 6.2 trillion is required annually until 2030 to transition to net zero  emissions. Beyond this, UNEP’s 2024 adaptation gap report has pegged the gap in adaptation finance at between USD 187-359 billion per year. Seen in this context, the USD 300 billion commitment falls short of needs both for mitigation and adaptation. 

A recent study by Peter Newell has argued that alongside a finance gap, there is also a production gap and a governance gap in approaches to financing climate action. The production gap refers to the fact that while efforts are underway to mobilise public and private funding for climate action, both governments and the private sector plan to produce more than double the amount of fossil fuels in 2030 than would be consistent with limiting global warming to 1,5°C. According to a recent report, the 60 largest banks globally invested USD 705 billion in fossil fuel companies in 2023.  To resolve the contradiction between the mobilisation of capital towards climate goals and the mobilisation of capital for fossil fuel development, measures need to be introduced to redirect finance away from fossil fuels and towards measures that are in line with the global climate goals. 

This issue speaks to a third gap mentioned in the study, i.e. the governance gap, which refers to the need to regulate the financial sector in order to achieve these goals. Investments in carbon intensive sectors need to be deterred, while financial measures need to be put in place to encourage investment to flow towards areas where it is most needed. The governance gap also touches on an issue of redistribution, as the financial flows for finance for mitigation currently far outweigh the financial flows for climate adaptation. Newell cites examples from 2020, finance for mitigation activities amounted to USD 586 billion, against USD 49 billion for adaptation.

The last-minute agreement on climate finance is being seen as a testimony to the functioning of multilateralism, as the volume of financial commitments have in fact tripled.  However, representatives of the Alliance of Small Island States and the Least Developed Countries have expressed their disappointment at the agreement, stating that the amount agreed to falls far short of what is needed.