• Client: Ministry of Foreign Affairs of Denmark
  • Implementation period: 2015 - 2015 (Completed)
  • Geographic coverage: Denmark

Climate finance: what is it and can we agree on the accounting methods?

A lot of money is needed for the prevention of or adaptation to climate change. During the COP in Copenhagen (2009) it was decided that the rich developed countries will support the developing countries with €100 billion per year to spend on climate related projects. This money will be coming from both public and climate funds. But what is climate finance? There is not yet an internationally agreed definition of climate finance nor an agreement on the accounting methods. This study aims to improve the understanding of key considerations and methodological options for estimating publicly mobilised private finance and to test different methodological approaches through pilot measurements. The study is also a contribution to the international effort, led by the OECD’s Research Collaborative, on Tracking Private Climate Finance to enhance transparency on the mobilisation of private climate finance.

Example of a fund-of-funds

Key findings of the research can be summarised as follows:

  1. Methodological choices have a great impact on the final outcome of the calculations, as well as the definition for climate finance, the valuing of the different instruments and the way other agencies and funds are included. The ‘Joint Statement’ where many OECD members agree on some basic choices is a good first step but much more work needs to be done. It can be foreseen that climate financewill become even more important in the future and will become more and more intertwined with development finance. If that is the case, we can expect that also the accounting procedures for both can be harmonized or linked.
  2. Climate finance is a very relevant topic. The world is looking more and more to private climate finance, because of its enormous volume and great dynamics and because of the constraints many donor countries have on their public spending. However, the private sector will always take the risk/return-ratio as the basis of their decision. It is mainly up to the public sector to improve the framework conditions and the risk/return-ratio for climate projects in order to really attract large volumes of private investments.
  3. The data show that the Danish climate finance mobilised relatively little private capital during the 2010-13 period, while the Danish Export Credit Agency and Investment Fund for Developing Countries had a high mobilisation impact. There is a logic that instruments that are ‘closer to market reality’ are also closer to ‘mobilising private climate finance’.