Based on a sectoral perspective to global climate governance, this Study provides an initial assessment of the emerging institutional architecture that aims to deliver concrete governance functions to overcome underlying barriers for the implementation of the Agreement’s goal on aligning financial flows. 

Key Messages

  • The governance landscape since the adoption of the Paris Agreement shows the emergence of a new objective in international environmental governance, namely the alignment of global finance with climate and sustainable development objectives. By targeting all ‘finance flows’ and other actors outside of the UN climate regime, this new objective constitutes both a challenge and an opportunity for strengthening global climate finance governance.
  • The emerging institutional architecture reflects a growing awareness about the role of global finance for the climate transition. However it fails to deliver critical functions for governing the alignment of global finance with the Paris Agreement, with significant gaps in the provision of guidance and signal, setting of international rules, and providing transparency and accountability. In order to translate the Paris climate goals to public and private financial actors, international governance would need to provide credible and consistent guidance and standards on climate-aligned financial flows and systems, including a collective commitment to phase out fossil fuel financing. This points to an urgent need for enhanced international cooperation and coordination between global climate, sustainable development and financial governance to achieve more coherence.
  • Some of the identified gaps could be filled through the UN climate regime itself by developing a framework for the implementation of Article 2.1(c). Other barriers such as the financial system’s short-term bias and non-aligned incentives for financial actors relate more directly to global financial governance. Multilateral development banks and climate funds can scale up efforts as standard-setters and knowledge providers on Paris-aligned finance.
  • To promote a more systemic alignment between climate and financial governance, there is scope for the G20 to facilitate a climate and sustainable finance agenda between international financial institutions and financial sector regulators and to address fragmentation within financial governance on regulatory and supervisory standards. There is potential to build on existing G20 initiatives such as the Financial Stability Board’s private sector-led Task Force on Climate-Related Financial Disclosures (TCFD).
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18 pages
  • Bianka Kretschmer