The contribution of climate finance toward environmental sustainability: New global evidence

Abstract

In recent years, climate finance has emerged as a viable solution for combating climate change and its environmental consequences while also financing adaptation. As a unique form of international aid, climate finance seeks to promote green growth while simultaneously working to reduce carbon dioxide emissions, but its effectiveness on low-carbon pathways in recipient countries is still unclear. This research analyzes multilateral climate finance flows from 2000 through 2018 to assess whether climate finance succeeds in reducing carbon emissions and promoting the green growth of recipient countries. The results show that climate finance contributes to decreasing carbon emissions and that the impact of mitigation finance seems greater than that of adaptation finance. Moreover, the reduction effect of climate finance is more notable in small island developing states and countries with stronger economic development. These findings thus provide valuable implications for policymakers to help achieve the transition to net-zero emissions in this decade and improve environmental quality.