Climate finance and global justice

As the climate crisis deepens, efforts to incorporate climate issues into finance intensify. However, a significant limitation of the ongoing climate-related initiatives and policies in finance is that they ignore global climate justice issues, enhancing thereby processes that increase injustice. This paper first provides a classification of the channels by which climate finance initiatives and policies are exacerbating global climate injustice. These are (i) the ‘exposing by self-protecting’ channel that reflects how the ongoing attempts of private finance to protect itself from climate risks can increase climate vulnerability in the Global South, (ii) the ‘decarbonising by exploiting’ channel that captures how climate finance can exacerbate green extractivism and (iii) the ‘climate derisking’ channel that refers to the attempts of private global financial institutions to create new sources of profitability at low risks by exploiting the need for climate change mitigation and adaptation in the Global South. The paper then puts forward three pillars that should be incorporated into national and international climate finance so as for climate finance injustices to be addressed and the financial system to become consistent with global climate justice principles. Pillar I refers to the differentiated climate responsibilities for Global North and Global South financial institutions. Pillar II captures the need for Global North financial institutions’ climate mitigation actions to be consistent with global justice. Pillar III suggests the establishment of permanent mechanisms by which the Global North will support the financing of climate spending in the Global South, based on climate debt responsibilities as well as capabilities associated with the hierarchies of the global financial architecture. The paper also outlines the political economy and technical challenges that the incorporation of these pillars into the global financial system would face.By failing to consider global justice issues, recent climate finance initiatives and policies are exacerbating climate injustice.Efforts to make financial systems climate-aligned should follow a ‘one size doesn’t fit all’ approach. In the Global South the climate alignment of financial systems should pay specific attention to country-specific developmental challenges and the urgency of climate adaptation.Green extractivism conditionalities should become a central component of the decarbonization of financial systems in the Global North.Permanent climate justice financial mechanisms, such as a Climate Justice Facility and climate just collateral frameworks, should become an integral part of a holistic policy framework aiming at addressing global climate injustice.Public authorities should play a leading role in addressing the technical challenges associated with the incorporation of global justice into climate finance.