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Financial markets, financial sector and climate finance

The financial sector plays a central role for the implementation of the Paris Agreement. But how can we negotiate and shape the implementation of financing mechanisms for climate protection and the adaptation to climate change?

The financial sector plays a key role in achieving the climate goals of the Paris Agreement and is highly relevant to climate economic research. Therefore, the cross-cutting theme financial markets, financial sector and climate finance will interconnect all projects in the funding measure that deal with finance aspects.

The agreement at the COP21 in Paris has set the internationally binding target of making financial flows compatible with the attempt to decarbonise national economies. On the one hand, this means that financial flows must be controlled or redirected as such that only climate-friendly investments are financed. On the other hand, projects and measures that enable adaptation to climate change and promote a higher level of resilience to climate change impacts have to be developed and funded.

Efforts to implement these goals are evident not only at the international level, but also in the EU with the action plan for financing sustainable growth. The German federal government addresses the topic sustainable finance in the Climate Action Plan 2050 and in the Sustainable Finance Strategy adopted in February 2019.

However, it is clear that far-reaching changes in the financial system and business processes are necessary to achieve the Paris goal. According to the High-Level Expert Group on Sustainable Finance (HLEG), there is more than one possible transformation pathway rendering the change process highly challenging. In order to address these challenges, the cross-cutting theme coordinates and strengthens research on finance aspects.