Making finance work for low-carbon and climate resilient development

SEI’s work on international finance and sustainable development has previously focused on the effectiveness, efficiency and fairness of the international climate finance regime, i.e. the mobilisation of international funding on the ground in developing countries to help address climate change.

While this remains an important focus, we also recognise that climate finance – and even the broader flows of Official Development Assistance – represent only a tiny fraction of global financial flows and investments. To really evaluate whether climate finance and ODA are effective in helping countries to prepare for climate change and pursue sustainable development, we also need to understand the behaviour and impacts of much larger flows of finance in the mainstream economy.

SEI analysis shows the flows of climate finance to small island developing states in the Caribbean.
SEI analysis shows the flows of climate finance to small island developing states in the Caribbean.

Thus, SEI’s work on finance also looks beyond the climate finance agenda, at how the global financial system at large either supports or undermines the societal transitions needed to achieve the goals of sustainable development.

There are some observable shifts in finance that might facilitate incremental steps towards sustainable development, such as a growth in green bonds, large-scale investments in renewable energy and transport systems, high profile campaigns by large institutional investors to divest from fossil fuels, as well as commitments in the G20 to remove fossil fuel subsidies.

But we also know that large volumes of finance continue to undermine the climate change agenda, such as ongoing investments in fossil fuel assets. This raises questions about how well aligned the global financial system actually is with the pursuit globally of sustainable development.

The distribution of climate finance among small island states in the Caribbean between 2010 to 2015.
The distribution of climate finance among small island states in the Caribbean between 2010 to 2015.

We are centrally interested in the way finance is supporting or undermining the transition to low carbon and climate resilient development, and particularly from the perspective of developing countries.  Our work on finance is structured around three inter-related themes:

  1. The effectiveness of international climate and development finance for developing countries, and ways it might be made more effective and more responsive to the needs of, particularly, the most vulnerable.
  2. The patterns in mainstream finance that either support or work against the goals of international climate and development finance, including the potential for expanding appetite among mainstream investors so that finance might catalyse the structural transitions needed to achieve sustainable development globally; and
  3. The effect that financial markets themselves, including issues like increasing “financialisation”, have on global investment patterns and how they influence sustainable development.