Illustration: Rameez Waheed

Ambiguity to Accountability: Climate Finance from an International Law Perspective


The 28th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP28) was convened in Dubai from 30 November to 12 December 2023. Stakeholders gathered to deliberate on policies, strategies, and actions aimed at mitigating worldwide greenhouse gas emissions. Over 80,000 individuals, including chiefs of state and government, members of international organizations, civil society representatives, and private sector representatives, attended last year’s event. At COP28, the first Global Stocktake took place, assessing the advances on the COP21 objectives agreed upon in Paris in 2015.

Some of the highlights of the COP28 Global Stocktake reports are related to climate finance. The report urged elevating global efforts to meet the Paris Agreement goals, which seek to reduce greenhouse gas (GHG) emissions to 43% by 2030 and 60% by 2035, with the purpose of attaining net-zero CO2 emissions by 2050. Furthermore, the reports emphasize the pivotal significance of multilateral financial architecture, new and innovative technology, and capacity-building to facilitate impactful climate initiatives. The transformation of the global financial system to support climate-resilient, low-emission development is a crucial element.

Concurrently, there is a demand for the mobilization of support towards climate action in developing nations, taking into account the historical backdrop of emissions. It is also widely acknowledged that accurate accounting and accountability mechanisms are essential for monitoring the contributions of these actors. In addition to the essential aspects cited in the COP28 report, as well as the important outcomes of the meeting, it is necessary to highlight the significance of climate finance from an international law perspective in a discussion on the subject.

Climate finance plays a central role in addressing the challenges posed by climate change. Empowered by the law, it puts into action the principles of common but differentiated responsibilities and respective capabilities enshrined in international agreements, such as the United Nations Framework Convention on Climate Change. The allocation of financial resources to support climate action in developing countries serves a dual purpose— acknowledging the historical context of emissions arising from the developed world, and encouraging a fair and just approach to addressing the consequences of climate change.

International law recognizes the interlinked nature of the global community of nations in combating climate change and emphasizes the developed world’s responsibility to provide financial assistance to those less able to deal with its negative impacts. Climate finance is a concrete expression of this commitment, finding its basis in the law, and serves as a mechanism to bring developed and developing countries closer in their common endeavor to find a way forward with sustainable and climate-resilient development.

Moreover, discussions on climate finance at international forums like COP28 are important for two reasons— they set out the need for transparent and accountable mechanisms, and they offer tools to monitor the contributions of various actors. This not only ensures the effective utilization of financial resources but also strengthens the trust and cooperation necessary for achieving the collective goals set out in agreements such as the Paris Agreement. In essence, climate finance can be seen as the foundation of international collaboration to address climate change, enshrined in international treaties, reflecting a commitment to the vision of a shared and sustainable future.

What is Climate Finance?

Climate finance has been integral in international climate change discourses and is most often linked to the objective of providing $100 billion per year in climate finance to developing countries by 2020, which was agreed upon in COP15 Copenhagen. Even though there is no universal definition of climate finance, the Standing Committee on Finance (SCF) under the United Nations Framework Convention on Climate Change (UNFCCC) states that Climate Finance  “aims at reducing emissions, and enhancing sinks of greenhouse gases and aims at reducing the vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts.”

Hong, Karolyi, and Sheinkman provide a more comprehensive definition, which sees climate finance as a study that involves the examination of both local and global financing mechanisms, covering public and private investments. The term ‘climate financing’ is commonly linked to international diplomatic endeavors regarding climate change. Climate financing refers to the provision of “new and additional financial resources” by developed countries to developing countries. The purpose of this financial support is to enable developing nations to cover the whole and additional expenses associated with addressing climate change and transitioning to a low-carbon economy.

The fact that there isn’t a single, agreed-upon definition of climate finance makes the fight against climate change much more difficult and complex. There is room for ambiguity and different interpretations among financial institutions, countries, and stakeholders if there isn’t a standard definition. For example, there is no definitive decision about whether the USD 100 billion annually only refers to monetary transactions (e.g., grants, loans) or if it encompasses other financial instruments like guarantees and insurance, which typically do not lead to an actual payment. It is hard to keep track of, report, and compare climate finance contributions correctly because of this lack of clarity.

This makes it hard to see progress, spot trends, and make sure countries are held accountable. It fragments the landscape in which different groups can use different standards, and this can cause reporting problems and incorrect resource allocation. Lack of definition also harms transparency, making it more challenging to build trust among stakeholders and for global collaboration. Fundamentally, the absence of a unified definition of climate finance may lead to inefficiencies, misunderstanding of objectives, and insufficient resources that are critical for tackling the pressing issues presented by climate change.

Is Climate Finance an instrument of Climate Justice? 

Some scholars view climate finance as a crucial instrument for achieving climate justice since it upholds the ideals of fairness and accountability in the global efforts to address climate change. Developing countries perceive public transfers of climate finance as essential for providing an equitable resolution to the challenges posed by the climate crisis. Within the broader framework of climate finance, it is acknowledged that it serves a purpose beyond being a mere financial tool. It also serves as a means to remedy historical injustices.

The notion of historical responsibility argues that nations that have made substantial historical contributions to the emission of greenhouse gases have a greater duty to address the ensuing global climate issue. These states, often industrialized countries that have released significant levels of emissions, have not only been instrumental in producing the current climate difficulties but have also hindered the progress of less prosperous nations.

Climate financing, in this context, serves as a method of rectifying these past disparities by offering financial resources to susceptible nations for the sake of both mitigating and adapting to climate change. It recognizes the need for a fair distribution of responsibility in addressing climate change, taking into consideration the past activities that have contributed to the current issue. Climate financing functions not just as a financial tool but also as a concrete example of equity, impartiality, and a joint dedication to a sustainable and inclusive future.

However, the challenges of justice are evident in the ongoing debates related to the fair allocation of resources and the distribution of responsibilities in the realm of climate governance. The allocation of financial resources for climate finance, technological transfer, and adaptation measures causes concerns regarding fairness. For example, which countries should have greater responsibilities in addressing and reducing the impacts of climate change? Similarly, when it comes to climate governance, who should have the decision-making power, particularly in the formulation of rules and laws that regulate climate finance?

The widely acknowledged ‘polluter pays’ principle suggests that the financial burden of pollution management, which aims to prevent harm to the environment or human health, should fall on the polluters. Polluters are held accountable for the pollution they generate. As an illustration, a manufacturing facility that generates a potentially hazardous substance is typically obligated to ensure its proper disposal. The expenses incurred as a result of pollution are borne by the polluter, not the taxpayer. This is referred to as the “internalization” of “negative environmental externalities” from an economic standpoint. The pollution costs are charged to the polluter, which results in an increase of product and service prices to incorporate those pollution costs. Therefore, companies will be motivated to market less polluting products in response to consumer demand for lower-priced goods.

How Does International Law Regulate Climate Finance?

From an international legal standpoint, the commitments of developed countries towards developing nations in climate finance and justice are well-seated in law. The instruments and funds mentioned above set out clear responsibilities and, in the absence of hard enforcement mechanisms, represent the sole avenue of attaining a fair and just approach to the critical challenge of climate change. The implementation and functioning of these instruments will be the defining factor in giving life to these promises through tangible and quantifiable results, measuring the progress of the overriding climate goals. This is important to tackle this major crisis, leveraging the economic power of industrialized nations, and ensure that they demonstrate accountability for their historical and current role in the deterioration of the environment and its sociopolitical consequences.

The international legal framework regarding climate finance is found in the Kyoto Protocol to the UNFCCC, the Paris Agreement, the Governing Instrument of the Green Climate Fund, and the UNFCCC itself. Article 4(2-5) of the UNFCCC sets out the responsibilities placed on developed country Parties under the Convention. Of these, Article 4(3) is the most relevant to climate finance, specifying that the above-mentioned Parties shall provide financial resources to assist developing country parties with their reporting and implementation duties. 

It is possible to break down the obligations in this provision into two parts. The first part of the Article refers to developed country Party assistance to developing country Parties regarding their commitments under Article 12(1) of the Convention. This Article relates to requirements relating to inventory-taking of current greenhouse gas emission sources, providing information on steps taken to comply with the Convention, as well as other relevant information to be provided as necessary.

The second part of the provision refers to the implementation of the commitments enumerated in Article 4(1), which forms the backbone of the Convention. This wide-ranging provision tasks Parties with the development and regular update of national inventories, formulation of mitigation and adaptation programs, promotion of technology transfer, sustainable management of sinks and reservoirs, cooperation in preparation for adaptation, consideration of climate change in policies, and active participation in research, information exchange, and public awareness efforts related to climate change.

Heads of State and Government at COP21, in Paris, France on 30 November 2015.

The costs relating to these requirements shall be borne with support and assistance from developed country Parties and be agreed together with the entities in charge of the financial mechanism as laid out in Article 11. As can be seen, the UNFCCC entrusts developed country Parties with substantial financial responsibilities regarding the capacity of developing country Parties to fulfill these momentous climate obligations under the Convention.

Further international legal instruments that specify the responsibilities of Parties to the Convention when it comes to climate finance are the Kyoto Protocol to the UNFCCC and the Paris Agreement. In addition, the Green Climate Fund (GCF) was established in 2010 and approved in 2011, with its primary function defined as directing financial resources to developing nations to help them adapt to and mitigate the impacts of climate change. 

Article 12 of the Kyoto Protocol defines the Clean Development Mechanism (CDM), outlining its purpose to direct developed country Parties to aid developing country Parties in sustainable development and contribute to the Convention’s ultimate objective while assisting them in meeting emission commitments. The CDM allows non-Annex I (developing) Parties to benefit from certified emission reductions, and Annex I (developed) Parties may use these reductions for compliance.

The CDM is subject to the authority of the Conference of the Parties, supervised by an executive board, and involves independent auditing. It aims to ensure transparency, efficiency, and accountability, with a share of proceeds covering administrative expenses and assisting vulnerable developing countries in climate change adaptation costs. Participation may involve public and private entities, and certified emission reductions obtained from 2000 onward can contribute to compliance in the initial commitment period.

Article 9 of the Paris Agreement requires that developed country Parties provide financial resources for both mitigation and adaptation to assist developing country Parties, with a call for voluntary support from other Parties. Developed countries are urged to lead in mobilizing climate finance from diverse sources, ensuring a balance between adaptation and mitigation, especially for vulnerable countries. Developed countries are required to communicate financial information biennially, and the global stocktake will consider this information. Transparency in reporting support for developing countries is mandated, with the Financial Mechanism of the Convention serving as the financial mechanism of the Agreement. The institutions involved aim to ensure efficient access to financial resources, particularly for the least developed countries and small island developing States.

Finally, the GCF, guided by its governing instrument, serves as the financial mechanism of the UNFCCC, directing diverse financial resources to developing countries to support country-driven strategies for climate change action relating to adaptation and mitigation, ensuring transparency, and promoting efficient access to resources.

The enforceability of any treaty under international law depends on the willingness and the degree to which state parties accept to be bound, conceding a certain portion of their sovereignty to the compliance mechanism laid out in the instrument, whether that be a committee, a tribunal, or a court. This concession is hardly irreversible, as the world has seen with the temporary US withdrawal in 2020 from the Paris Agreement, and the functioning of many important international law mechanisms, such as those governing the law of the sea or prohibiting the proliferation of chemical weapons.

While the 2015 Paris Agreement is described as a legally binding treaty, due to the reasons mentioned above, it is deficient when it comes to enforceability and non-compliance mechanisms. As such treaties are regarded as soft law, it is the political pressure and public criticism in the international arena that compels nations to comply with the requirements of the Agreement, such as the transparency and reporting obligations and progress assessment mechanisms that review nations’ NDCs (nationally determined contributions) every five years.  

The Declaration on a Global Climate Finance Framework announced at COP28, is one of such non-binding instruments aimed at setting out climate finance goals and policy considerations. Of the nations that took part in the declaration, the United Kingdom, for example, raised doubts about its commitments when its government only five months prior announced a plan to grant upwards of 100 new licenses for oil and gas exploitation in the North Sea. In the face of such obstacles, the potential for sustaining the progress of climate promises made by developed countries lies in the ongoing support and encouragement from their peers, the global community, and environmental groups. The speed at which change will occur is yet to be determined.

Ongoing legal and financial frameworks, and the sound operation of existing ones, combined with international pressure from state and non-state actors, can encourage more substantial and transparent financial support. At times, incongruences between what is said and what is done cast doubt on the efficacy of legal mechanisms in ensuring equitable contributions and the concrete fulfillment of financial obligations. The pursuit of climate justice through collective action remains an intricate matter, however, the mechanisms mentioned above provide a foundation for accountability and potential progress in fostering a more inclusive and responsible approach to mitigating climate change.

The Path Forward

Ultimately, improving the climate finance system means improving climate justice. By focusing on historical responsibilities and quantifying the contributions of developed nations to emissions and economic gains, the international legal system can stay abreast of the rapidly evolving and complex world of climate finance. Ensuring proportional assistance must be codified in law, with sound reporting and enforcement mechanisms aimed at improving transparency and guaranteeing compliance.

The global community of scientific civil society and non-governmental organizations can play a crucial part here, contributing to the independent assessment and audit capacities. This can provide an impartial, balancing factor to the frequently politically weighted concerns and decisions that are brought forward. In addition, including the voices of marginalized communities in the decision-making process will ensure an equitable distribution of financial resources to those most impacted by climate change.

In conclusion, achieving a more just and accountable climate finance system requires a range of improvements: a better definition of the issues at hand, enhanced governance, and a strengthened legal framework. It is necessary to lay out the rules for financial contributions, considering past responsibility and matching it to each country’s capability. This can help set up a fair and effective system, through improved oversight, reporting, and independent audits to maintain transparency. Strengthening the legal framework can improve enforceability and accountability.

Together, these improvements not only build confidence in the legitimacy of climate finance from a legal perspective but also create a practical framework that is better positioned to demand increased commitment, resulting in more concrete and decisive action and implementation in the global struggle against climate change.

Irma Nugrahanti

Irma is an international development practitioner with an MSc in Finance and Accounting and currently a PhD researcher at the International Institute of Social Studies of Erasmus University Rotterdam. Her doctoral research investigates the implementation and impacts of gender-responsive climate budgeting in Indonesia, exploring its efficacy in integrating gender equality concerns within climate change mitigation and adaptation policies at both national and regional levels.

Andrés Orhan Martinez-Caro

Andrés is an international lawyer based in the Netherlands. He holds an LLB in International and European Law, an MA in Social Sciences and an LLM in International Technology Law. His interests include transnational migration and climate change, in addition to his professional specialisation in privacy law.

Leave a Reply

Your email address will not be published.

Don't Miss