From Hell to Heaven: How Climate Risks Hurt the Poor and Climate Finance Heals Them

This study explores the global impact of climate finance on wealth and income inequality, utilizing the IV-GMM model to capture nuanced relationships. Key findings indicate that climate finance effectively reduces both forms of inequality, benefiting low-income populations and suggesting it as a viable tool for inequality reduction. Notably, the impact of climate finance is asymmetric: countries with lower initial inequality levels experience more pronounced benefits, while the effect lessens as inequality increases. Additionally, climate risks—represented by natural disasters— worsen inequality, underscoring climate finance’s dual role in directly reducing inequality and indirectly mitigating disaster impacts. These insights offer valuable policy implications, highlighting climate finance as a means to promote equity and alleviate poverty in the face of escalating climate challenges.