Climate finance
Climate finance describes the financial resources used to support mitigation of or adaptation to climate change impacts. It aims to fund projects that promote sustainability, enhance resilience, and facilitate the transition to a low-carbon economy.
Sandra Odendahl, Senior Vice President and Head, Sustainability, Diversity and Social Impact at BDC, says climate finance can strengthen your ability to adapt to anticipated changes.
She gives some examples of climate financing. “It could include providing capital to raise the seawall in a coastal city to protect it from ocean surges or financing a new power generation facility that runs on biomass so that you can shut down a fossil fuel one.”
While those examples describe more significant government-led initiatives, some smaller business projects might require climate financing. For example:
- Retrofitting your building to make it more energy-efficient or resilient to climate risks
- Purchasing more energy-efficient manufacturing equipment
- Installing solar panels
- Installing water-efficient fixtures and systems to minimize hot water use
- Investing in electric vehicle charging stations
- Adopting software to monitor energy use, waste and emissions
Who funds climate finance?
Climate finance can come from public, private, and philanthropic sources, government funding, international aid, and investments.
“One specific tool is a climate bond,” Odendahl says. “This is where large corporations or national or subnational governments issue a bond and commit to the purchasers that the proceeds of the bond issuance will be used for very specific things related to climate mitigation, adaptation, or resilience.”
If the government really wants to move the needle on mitigation and adaptation, then climate finance can be set up as something quite attractive.
Sandra Odendahl
BDC Senior Vice President and Head, Sustainability, Diversity and Social Impact
What are the benefits of climate finance?
The most obvious benefit of climate finance is that it accelerates our transition to an environmentally sustainable economy. The more money is spent on climate change mitigation, the closer Canada is to meeting its greenhouse gas (GHG) emission reduction targets.
Odendahl says climate finance can take the form of grants, low-interest loans and higher-risk financing from governments looking to fulfill their climate commitments. This incentivizes entrepreneurs to make their businesses more sustainable at a manageable cost.
“If the government really wants to move the needle on mitigation and adaptation, then climate finance can be set up as something quite attractive. It can be backstopped through government subsidies.”
Business owners can leverage a combination of their investments, grants and loans to accomplish their climate goals. It is a good idea to look at all the options available to help fund these projects.
Odendahl explains that there are interesting programs for businesses, such as zero-emission vehicle infrastructure funding, which helps cover the cost of electrifying vehicle fleets, and the Net Zero Accelerator Fund, which allows companies to lower their carbon footprint. Crown corporations such as BDC, FCC and EDC have also been able to provide loans and investments to finance climate-related projects.
What kinds of climate financing is available?
Depending on the scale of the project, reducing GHG emissions may require climate financing through a combination of a grant and/or a business loan. Entrepreneurs have many options.
- Federal grants
Consult the government of Canada’s Environment and Climate Change Canada funding programs page to see various programs your company could benefit from.
The Green Industrial Facilities and Manufacturing Program provides financial assistance for projects that maximize energy performance, GHG emissions reduction and competitiveness for industry. - Business loans
BDC Small Business Loans are available. They can be accessed on short notice using an online application and can be used to invest in climate-related projects. - Working capital loans
BDC also provides working capital loans that can help you obtain an environmental certification, conduct an energy audit, or hire an expert to develop your emissions reduction plan.
Climate finance around the world
A 2023 OECD report surveyed 67 public development organizations and private banks to understand climate finance in different regions better. The report, partially supported by BDC, revealed how ubiquitous climate-related financing has become worldwide.
- Many financial institutions offer green and sustainable financing instruments.
- Most financing for net-zero investments by SMEs is provided through debt instruments.
- 67% of public banks use guarantees to mobilize private financing for SMEs’ net-zero investments.
- Most public and private financial institutions provide workshops, consulting services, training, tools and other means for SMEs to measure, report and act on climate change.
How much climate finance is needed for Canada to meet its climate goals?
Climate and clean tech investments in Canada would need to reach $60 billion a year for the rest of the decade for the economy to achieve net zero by 2050, according to RBC’s Climate Action Institute (CAI).
While Canada has been increasing its climate finance numbers, improvements are still needed to achieve these goals.
The CAI measured public markets and private equity capital investments in climate and clean tech and found that they reached $14 billion in 2023, representing 12% of all new capital investments.
According to the CAI, investments in climate action have grown by 50% since 2021, while capital flows from public and private sources grew from $15 billion to $22 billion.
Odendahl says some business sectors are particularly ripe for climate investment.
“There are still several gaps to fill with climate finance. One of the big ones is in the electricity sector. To achieve a low carbon economy, we’ve got to get much more of our energy from electricity (versus fossil fuels), which means we need to build a lot more clean electricity generation and transmission installations.”
She says there are four major types of companies that attract climate finance. The first are companies that innovate and help us to have a lower carbon footprint, such as solar panel manufacturers and other clean tech companies.
The second are the companies essential to the low-carbon economy’s supply chain, such as those that produce critical minerals for electric vehicle batteries.
Investing in climate leaders is the third part of the prescription. “This might be a company that produces battery-powered trucks, where they’re in a traditional sector but at the leading edge of trucking in a completely different, low carbon way.”
Finally, investments are also needed for climate change adaptation and resilience. “That would be investing in things like solar-powered backup generators, better stormwater collection systems, or anything people will need when extreme weather hits.”
What is Canada’s international climate finance strategy?
Canada joined other developed countries in 2009 in committing to mobilize US$100 billion each year in international climate finance to developing countries. At the 2021 G7 Leaders’ Summit, Canada announced it doubled its global climate finance commitment to $5.3 billion to support developing countries in combating climate change while striving to address biodiversity loss around the world.
A brief timeline outlines some of Canada’s commitment to international climate finance.
- In 2010, Canada committed to providing $1.2 billion in climate finance from 2010 to 2013 to over 50 developing countries to help them address the effects of climate change.
- In 2015, it announced $2.65 billion in climate finance to developing countries in 2015-2021.
- In 2021, it committed to providing $5.3 billion in climate finance to developing countries in 2021-2026.
- That same year, it co-led a process with Germany to build trust that developed countries will meet their commitments and the US$100 billion climate finance goal by 2025.
Next step
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