Briefing

Governance; Climate change

Keywords:
Conference of the Parties (COP) 27,
climate finance, Least Developed
Countries (LDCs), United Nations
Framework Convention on Climate
Change (UNFCCC), transparency

Issue date
August 2022

Policy Urgent but overlooked: a spotlight

pointers on the long-term finance goal of
Developed countries
must commit to driving
implementation of Article
the Paris Agreement
2.1c, in relation to both
domestic and international Article 2 of the Paris Agreement provides a reinforced framework for climate
financial flows. They have a
range of tools to progress action by setting out three interlinked long-term goals: limiting temperature rise
this goal. (2.1a); increasing ability to adapt (2.1b); and making financial flows consistent
Support for developing with a low-emission and climate-resilient development path (2.1c). While the
countries to implement phrasing of the final goal seems relatively straightforward, its implications are
Article 2.1c should include
assistance in evolving and far-reaching, with potential to be transformative. But to date, this third objective
updating nationally
determined contributions has received insufficient consideration. Uncertainties around how to interpret,
and long-terms strategies; implement and assess Article 2.1c remain high, but attaining more clarity is
both should encompass
ways to operationalise crucial: the pending first Global Stocktake will assess progress on all three
Article 2.1.c that are long-term goals. This briefing paper introduces Article 2.1c, unpacks its
consistent with national
development priorities and meaning and relevance, and looks ahead to next steps in 2022’s UNFCCC
a framework for a just
transition. talks by providing key messages for national-level policymakers keen to better
understand this long-term goal.
While implementation of
Article 2.1c is important to
all countries, it should not
dilute developed countries’ Article 2.1 of the Paris Agreement sets out The third goal has far-reaching implications,
responsibility to provide three interconnected long-term goals, which recognising that we must not only increase
climate finance to countries aim to provide a reinforced framework to act on climate finance to achieve the temperature and
that have not historically climate change: adaptation goals, but also redirect the public and
contributed to climate private finance that is locking countries into
change (in accordance • The first (2.1a), relates to efforts to limit
with Article 9 of the Paris high-emission, low-resilience futures.1 But it has
temperature increase to well below 2°C above
Agreement). received the least consideration of all the goals:
pre-industrial levels with pursuit of efforts to
there is currently no official definition nor detailed
To reach a shared
limit the increase to 1.5°C
description of its content. Article 2.1c refers
understanding of Article • The second (2.1b) relates to increasing the neither to the traditional terms related to climate
2.1c that can support
progress and the Global
ability to adapt to and foster resilience to the finance nor to its providers and recipients. Instead,
Stocktake, Parties to the adverse impacts of climate change it uses new terms such as finance ‘flows’,
UNFCCC could propose a •
‘consistent’ and ‘pathway’ that are not further
dedicated work programme
The third (2.1c) refers to “making finance flows
defined.2 Currently no dedicated space exists
for deeper discussion and consistent with a pathway towards low
within the UNFCCC process to fully articulate a
explore opportunities within greenhouse gas emissions and
the UNFCCC architecture
definition for this goal nor to develop requirements
climate-resilient development”.
to increase accountability for Parties to report on the consistency of their
for this goal.

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IIED Briefing

climate flows. These knowledge gaps pose a The need to define ‘Paris alignment’
challenge to operationalising Article 2.1c and
In recent years, growing numbers of public and
assessing it over time.
private institutions have publicly committed
The need for definition and guidance on Article to ‘align’ their activities to the goals of the
2.1c is becoming increasingly evident3: the first Paris Agreement. The Institute for Climate
Global Stocktake (GST), due Economics notes, “while not used in the Paris
The need for definition to be completed in 2023, will
seek to assess collective
Agreement itself, the term ‘Paris Alignment’
has rapidly become a catch-all phrase referring
and guidance on Article progress toward all three
long-term goals of the Paris
to the process needed to make an actor’s
activities ‘consistent’ with the goals of the Paris
2.1c is becoming Agreement. However, given Agreement.”9 But without pre-defined criteria,
the uncertainty around Article the ‘Paris alignment’ of finance flows is open
increasingly evident 2.1c, it is not clear how the to interpretation.
GST will assess progress or
National governments, the actors primarily
hold governments accountable for their
responsible for delivering Article 2.1c, already
supportive and non-supportive actions.
have a range of levers to influence how finance is
In anticipation of the GST and next steps in this spent; for instance, by aligning their own public
year’s UNFCCC talks, this briefing seeks to shed finance flows with the Paris Agreement by
much-needed light on Article 2.1c by unpacking increasing the budget for climate action and
the key issues arising from it, highlighting decreasing public funding and investment in
challenges around definition and implementation, fossil fuels (see Box 1). Governments can also
and providing key messages for those provide fiscal, policy and regulatory frameworks
policymakers keen to ensure their national and incentives to shift private investments and
development pathways are climate resilient, consumer choices towards climate-friendly
emission light, and adequately funded. options. Specifically, governments can:
(1) gradually eliminate financing, investment and
Article 2.1c: unpacking the issues subsidies for fossil fuels and other high-polluting
A signal for systemic change industries; (2) introduce carbon pricing and taxes;
and (3) harness public finance to ‘de-risk’ private
Financing the global transformation of the
sector investments and support low-carbon
energy sector alone will require US$4.4
development projects.10
trillion annually from 2021–2025.4 Clearly,
to embark on a transition to a low-emission Private sector actors have also shown increasing
and climate-resilient development pathway, interest in aligning finance flows with the Paris
public finance flows alone will not suffice. Agreement. Several voluntary initiatives and
Decarbonising the global economy to mitigate coalitions have emerged since the adoption of the
the effects of climate change can only be Paris Agreement,11 including the UN-convened
achieved if the entire financial system is aligned Next Zero Asset Owner Alliance, which
with the objectives of Article 2.1. represents 74 pension funds, insurance
companies and investors all committed to
The ambition of the Paris Agreement goes
transitioning their portfolios to net zero
beyond ‘climate finance’ as articulated in
greenhouse gas (GHG) emissions by 2025. But
Article 9 (which obliges developed countries
to see real progress on Article 2.1c, it is
to provide climate finance to developing
necessary for both the public and private sectors
countries) and seeks to engage a broader
to better understand which activities could be
range of actors. The term ‘finance flows’ used
relevant,12 including by asking what exactly
in Article 2.1c is simultaneously vague and all-
constitutes a ‘green’ or ‘climate-aligned’
encompassing,5 referring to all finance flows,
investment? Does it mean climate proofing all
public and private, national and international, and
financing-related activities? If so, how? Does
including financial instruments such as bonds,
consistency mean alignment with a 2°C target, or
insurances and equity.6 This third long-term goal
1.5°C? Recent government efforts outside the
involves diverse financial actors with a role in
UNFCCC system, such as the EU ‘taxonomy’ of
managing and distributing financial resources,
sustainable economic activities,13 can offer
including financial institutions, corporations and
informative insight. However, minimum criteria
governments.7 For many, it is a vital piece of the
and guidance must still be clarified by Parties to
Paris puzzle, sending a strong signal about the
the Paris Agreement, especially as the term
need to ensure that all finance flows actively
‘pathway’ implies a variety of routes to assess the
support the transition to a low-greenhouse
consistency of activities with the Agreement’s
emissions, climate-resilient world.8
goals, including national and sectorial pathways.14
IIED Briefing

A developing country perspective

Box 1. Challenge and opportunity of bridging the
The long-term goal articulated in Article 2.1c is ‘alignment gap’
relevant to both developing and developed
countries. However, it rests within Article 2 of the The latest Intergovernmental Panel on Climate Change (IPCC) report19
Paris Agreement, which aims to strengthen the showed how far investment and financial flows are from reaching the levels
global response to the threat of climate change in needed to deliver on the Paris Agreement. The considerable gaps in
the context of sustainable development and mitigation investments indicate these must grow across all regions and
efforts to eradicate poverty. sectors. One analysis of the report estimates that investments in electricity
need to grow by 2–5 times, in energy efficiency by 2–10 times, in transport by
Options and progress for implementing Article 7–8 times and in agriculture, forestry and other land use by 10–29 times.20
2.1c will look different for different countries.
Decarbonisation and a climate-resilient transition To compound this, the IPCC also found that the increasing finance flows for
will be challenging for developing countries with climate action remain insufficient in comparison to fossil fuel investment and
high proportions of fossil fuels in their energy mix, subsidies. Latest figures from the UNFCCC’s Standing Committee on
or those still economically dependent on fossil Finance (SCF) showed climate finance flows for 2017–2018 reached as
fuel product exports to support public spending. much as US$775 billion on average per year;21 but investment in fossil fuels
In addition, in many countries, a significant amounted to US$977 billion in the same period. Fossil fuel subsidies
proportion of emissions come from deforestation amounted to US$472 billion in 2018 alone.22 These numbers indicate the
due to expansion of the agricultural frontier and scale of the challenge, but also the scale of the opportunity that would arise if
the transformation of forest into pastures for all financial flows were consistent with climate objectives in the near future.23
cattle ranching, which increases economic and
social challenges.
Increase information to inform action
As some countries have emphasised, it is
At COP26, the SCF (the central body within the
unrealistic to expect that developing countries
UNFCCC providing input on Article 2.1c) was
will follow similar timelines to developed countries
given two mandates related to advancing work
to transition their economies and entirely shift
on this long-term goal. Both are expected to be
away from fossil fuels.15 Transition to an
delivered in time to inform discussions at COP27:
environmentally sustainable, climate-resilient,
low-carbon economy and just society does not 1. Further map the available information
happen overnight. Developing countries will relevant to Article 2.1c. This builds on the first
require significant financial support and mapping exercise, conducted as part of the
investment to transform their economies and fourth biennial assessment in 2020 (an overview
embark on a low-carbon pathway. This will involve of climate finance flows given in Chapter 4 of the
diversifying national economies to create related technical report11 offers a valuable
sustainable alternatives and jobs for those in starting point for understanding Article 2.1c).
sectors, cities and regions relying on carbon-
2. Synthesise views on ways to achieve
intensive industries and production. Developing
Article 2.1c, including options for approaches
countries would indeed need a framework for a
and guidelines for implementation.
‘just transition’ that aims to achieve economic
Considering the existing knowledge gaps, it is
transformation without jeopardising important
important that the synthesis report:
development goals such as employment, food
security and eradicating poverty.16 (i) Discusses activities that might be relevant to
implementation (this involves defining
Alongside this, a critical distinction must be
‘consistency’ and ‘alignment’)
observed. While implementing Article 2.1c is
important to all countries, efforts to do so must (ii) Suggests criteria and methodologies for
be understood as separate from the provision and tracking progress
mobilisation of climate finance mandated by
(iii) Explores solutions, methods and tools for
Article 9 the Paris Agreement, which sets out
accelerating action.
developed countries’ obligation to provide and
mobilise climate finance for mitigation, adaptation Enable deeper, broader engagement
and loss and damage to countries that have not
historically contributed to climate change.1 The Next year, the first Global Stocktake (GST)
commitment to provide US$100 billion per year will consider how far implementation of the
originates in this provision. Paris Agreement’s three long-term goals has
progressed, including Article 2.1c. We know
Next steps within the UNFCCC? the GST process will certainly rely on reports
2022 offers several opportunities for the by the SCF and IPCC, but it is unclear whether
UNFCCC to support progress on Article 2.1c: additional data or information sources will be
collected and considered. While limited sources
IIED Briefing

are a concern, the GST has already shown biennial transparency reports are expected to
interest in better understanding Article 2.1c. describe how support provided and mobilised
has assisted the long-term goals, including
In June 2022, the GST’s first technical dialogue17 Article 2.1c. While this reporting requirement
(held during the 56th meeting of the Subsidiary — set out in paragraph 121.q of the modalities, Knowledge
Bodies) included a roundtable meeting that procedures and guidelines (MPGs) of the ETF Products
discussed progress on climate finance and on — does not request specific information, future
Article 2.1c more specifically; presentations by versions of the MPGs could do so. This might,
experts from the SCF and IPCC were followed for example, be done via an additional column in The International Institute
by interventions from Parties addressing a set for Environment and
developed countries’ CTFs (the ‘common tabular Development (IIED)
of reflection questions. This meeting formats’ used for electronic reporting). More promotes sustainable
demonstrated that there are still diverging views specific information on Article 2.1c could in turn development, linking local
on Article 2.1c, including uncertainties around increase the substance of inputs to the GST. priorities to global
interpretation and implementation. challenges. We support
Conversely, under the ETF, developing countries some of the world’s most
It is yet to be seen whether Parties will engage vulnerable people to
can report on financial, technology transfer and
more deeply with these questions at the third and strengthen their voice in
capacity-building support needed and received decision making.
fourth technical dialogues, later in 2022 and in
for climate action. Within this, they could identify
June 2023 respectively. To assist the GST,
specific policy and capacity-building support
Parties could propose the creation of a
needed to operationalise Article 2.1c in line with Contact
dedicated work programme under the UNFCCC Illari Aragon
their nationally determined contributions and
to discuss matters related to Article 2.1c in more [email protected]
long-term strategies.18
depth, including engaging non-Party
Third Floor, 235 High Holborn
stakeholders such as private sector actors. A Time to act on the long-term London, WC1V 7DN
dedicated space could help to crystallise relevant finance goal United Kingdom
methodologies, standards to track progress, and Tel: +44 (0)20 3463 7399
guidance to the international community on Article 2.1c is fundamental to the Paris www.iied.org
implementation of Article 2.1c. Agreement: it is not just one of three goals, it is a
IIED welcomes feedback
means to meet the other two. To free the
Consider leveraging transformative potential of Article 2.1c, a unified
via: @IIED and
www.facebook.com/theiied
transparency reporting understanding of ‘Paris-aligned finance flows’ and
how to measure progress are both critical, ISBN 978-1-78431-986-1
Ultimately, transparency is what will build trust
and confidence for effective implementation of especially as the GST looms closer.
the Paris Agreement. The challenge of Article Illari Aragon and Evans Davie Njewa This briefing has been
2.1c is that individual country reporting is not produced with the generous
yet defined. But the Enhanced Transparency Illari Aragon is a senior researcher in IIED’s Climate Change Group. support of Irish Aid and Sida
Evans Davie Njewa is lead climate finance negotiator for the LDC (Sweden).
Framework (ETF), though not equipped to Group and former board member of both the Adaptation Fund and
the Green Climate Fund.
require specific information on progress towards
Article 2.1c, could generate valuable information.
For instance, in 2024, developed countries’ first

Notes
1
Lopez Carbajal, A, Rojas Squella, X and Watson, C (2021) Consistency case study: actions supporting Article 2.1c of the Paris Agreement in
Colombia. Climate Works Foundation and ODI. / 2 Zamarioli, LH, Pauw, P, König, M and Chenet, H (2021) The climate consistency goal and the
transformation of global finance. Nature Climate Change 11, 578–583. / 3 Goritz, A, Nettersheim, C and Ryfisch, D (2021) Making finance flows
consistent with the Paris Agreement: Opportunities and challenges concerning Article 2.1c. Page 7. Climate Finance Advisory Service (CFAS). /
4
IRENA (2021) World Energy Transitions Outlook: 1.5°C Pathway. International Renewable Energy Agency, Abu Dhabi. / 5 Deutsche
Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH (2022) Submission to the UNFCCC. Matters relating to the SCF — ways to achieve
Article 2.1(c). / 6 Goritz, A, Nettersheim, C and Ryfisch, D (2021) Making finance flows consistent with the Paris Agreement: Opportunities and
challenges concerning Article 2.1c. Page 4. CFAS. / 7 Goritz, A, Nettersheim, C and Ryfisch, D (2021) Making finance flows consistent with the
Paris Agreement: Opportunities and challenges concerning Article 2.1c. Page 8. CFAS. / 8 Whitley, S, Thwaites, J, Wright, H and Ott, C (2018)
Making finance consistent with climate goals. Insights for operationalising Article 2.1c of the UNFCCC Paris Agreement. Page 6. ODI, London. /
9
Cochran, I and Pauthier, A (2019) A Framework for Alignment with the Paris Agreement: Why, What and How for Financial Institutions? Page 9.
Institute for Climate Economics. / 10 For more on tools to drive action see: note 8. / 11 See: UNFCCC (2021) UNFCCC Standing Committee on
Finance. Fourth (2020) Biennial Assessment and Overview of Climate Finance Flows. https://bit.ly/3OCHFVY / 12 Gortiz, A, Nettersheim, C and
Ryfish, D (2021) Making finance flows consistent with the Paris Agreement: Opportunities and challenges concerning article 2.1.c. Page 9. CFAS.
/ 13 This taxonomy establishes criteria for determining whether an economic activity qualifies as environmentally sustainable. / 14 Gortiz, A,
Nettersheim, C and Ryfish, D (2021) Making finance flows consistent with the Paris Agreement: Opportunities and challenges concerning article
2.1.c. Page 12. CFAS. / 15 Republic of Zambia on behalf of the African Group of Negotiators (AGN) (2022) Views on ways to achieve Article 2,
paragraph 1(c) of the Paris Agreement. https://bit.ly/3PWLGG6 / 16 Republic of Kenya (2022) Views on ways to achieve Article 2, paragraph 1(c)
of the Paris Agreement. https://bit.ly/3cIZYeM / 17 The GST consists of three components: (1) information, collection and preparation; (2)
technical assessment; and (3) consideration of outputs. The Technical Dialogues forms part of the second component. / 18 Whitley, S, Thwaites, J,
Wright, H and Ott, C (2018) Making finance consistent with climate goals. Insights for operationalising Article 2.1c of the UNFCCC Paris
Agreement. Page 26. ODI, London. / 19 IPCC (2022) Sixth Assessment Report. Climate Change 2022: Mitigation of Climate Change, the
Working Group III contribution. / 20 See: Maltais, A (2022) Investment and finance gaps. In: Eight takeaways from the IPCC report on climate
mitigation. Stockholm Environment Institute. www.sei.org/perspectives/takeaways-ipcc-report-climate-mitigation / 21 See: note 11, page 7. /
22
See: note 11, page 12. / 23 Goritz, A, Nettersheim, C and Ryfish, D (2021) Making finance flows consistent with the Paris Agreement:
Opportunities and challenges concerning article 2.1.c. Page 5. CFAS.

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