Exploring climate finance and domestic mitigation instruments

Climate finance, in its broadest definition, refers to domestic or international finance derived from public, private, and alternative sources of funding in support of climate change mitigation and adaptation efforts. A narrower definition of climate finance pertains to finance provided for mitigation and adaptation efforts in developing countries, which rely on this finance to implement climate policies and activities that facilitate the achievement of adaptation and mitigation objectives. Climate finance is typically distinguished from carbon market approaches, which have evolved in parallel to climate finance. Carbon finance can be combined and used complementarily to climate finance and refers to the revenues from the sale of emission units through carbon market tools.

A variety of international financial institutions and mechanisms have specialised in providing and leveraging international climate finance. Notable among them is the financial mechanism supporting the UNFCCC, which includes the GEF, GCF and AF. Other entities are closely involved in directing funds toward climate action. These encompass commercial banks and funds, private financial entities, as well as bilateral or multi lateral development banks.

This section offers a non-exhaustive overview of some of the prominent international climate finance institutions.

The West African Development Bank, also known as the Banque Ouest Africaine de Développement (BOAD), is a regional financial institution responsible for promoting development in West Africa and encouraging economic intergration within the region. To achieve its mission, BOAD plays a role in gathering funds from within its member countries, securing foreign capital through loans, and offering financial support in the form of equity investments, loans, guarantees, and interest rebates.

Another major player in the sub-region is the African Development Bank Group (AfDB), a multilateral institution whose objective is to contribute to the sustainable economic development and social progress of African countries. Both the AfDB and BOAD work to curb emissions in the sub-region.

Carbon markets and climate finance are distinct instruments to mobilise investment into mitigation activities with high adaptation and sustainable development benefits. Linking carbon markets with climate finance involves creating synergies and holds the potential to optimise and supplement the use of financial resources to achieve additional emission reductions.

Effectively leveraging both tools demands a good understanding of critical questions related to attribution, underlining the need for meticulous planning, close coordination, and effective collaboration among governments, financial institutions, and private sector entities.