Towards a more transformative approach to climate finance

Without deliberate and proactive attempts to redirect and regulate flows of public and private finance, achieving the goals of the Paris Agreement will remain elusive. Yet, despite extensive engagement with different dimensions of climate finance by academics and policy practitioners alike, the financial system continues to be fundamentally misaligned with climate goals by locking in high-carbon development pathways while inadequately resourcing climate adaptation. Moving beyond dominant discourses about mobilising and de-risking private finance, this paper seeks to identify potential alternative interventions and leverage points to align the mobilization and redirection of finance with a more transformative approach to climate finance that targets the sources of climate change in a globally unequal fossil-fuel economy. This implies making greater use of the many policy tools that governments have at their disposal with regards to taxation and regulation, often deployed to fund the welfare state or for macroeconomic management, but which constitute powerful levers for mobilising and redirecting climate finance that have been excluded thus far from conventional definitions of climate finance used by the international community. Consciously moving beyond a narrower focus on financing decarbonization, this implies greater attention to redirecting, hypothecating and regulating the whole ecosystem of global finance so that the goals and organization of the global financial system and global climate action are better aligned. Alongside mobilising new finance, there is a need to consider deliberate and proactive attempts to redirect, redistribute and regulate flows of public and private finance to achieve the goals of the Paris Agreement.The article identifies a finance gap, a production gap and a governance gap in dominant approaches to financing climate action.This article draws attention to the need to address the neglected issues of debt, taxation and regulation in order to lay the basis a more transformative approach to climate finance.It proposes governance reforms at the national and international level to address these gaps including reform of multilateral development banks and of national financial institutions such as central banks.