Public Financial Institutions and Climate Change

Climate finance is at the heart of addressing climate change. To limit the temperature rise to 1.5 degrees Celsius, more than 4 billion USD of climate finance is required annually by 2030. Raising such amounts is challenging given the already high and rapidly increasing levels of public debt in relation to the impact of the Covid-19 pandemic and rising inflation worldwide. The UN Climate Change Conference 2021 (COP26) reinforced the importance of taking climate into account in every financial decision for both public and private financial actors. As significant asset owners, public financial institutions (PFIs) provide similar amounts of international climate finance as private institutions. Their investment allocation (e.g., shifting from carbon-intensive to low-carbon infrastructure) can substantially affect the climate system and emission trajectories. However, those PFIs are underappreciated in the academic debate about their engagement in climate actions. To understand the role and potential of PFIs in addressing climate change, we provide the basics about these institutions and why and how they might help address climate change.