Climate change is the single greatest challenge humanity has ever faced, threatening water and food security, health, livelihoods, and the safety of billions of people. The latest report from the UN Intergovernmental Panel on Climate Change (IPCC) has stated that the planet will reach the critical threshold of 1.5 degrees Celsius above pre-industrial levels by as early as 2030, triggering the risk of extreme drought, wildfires, floods and food shortages for hundreds of millions of people – posing a threat to the achievement of the entire Agenda 2030.

In order to stay within safe planetary boundaries and within 1.5-degree future, countries must raise the ambition of their National Determined Contributions (NDC) and translate them into bold, tangible, implementable actions. Accelerating the implementation of NDCs requires clear financing strategies which work to mobilize resources from both public and private sectors.

Climate Budget Tagging (CBT) is one of a set of climate related finance tools designed to help countries mainstream climate change in public financial management in order to mitigate the economic, social and environmental impacts of climate change.

This guidance note is intended for government agencies responsible for climate finance within Ministries of Finance, Ministries of Planning, or climate change policy making bodies (e.g. Climate Change Commissions, Ministry of Climate Change, Ministry of Environment and Forests etc.) that wish to set up a Climate Budget Tagging (CBT) system or strengthen an existing one. The note focuses on the design of a CBT system that is grounded in government financial management and, as such, covers public sector expenditure – while acknowledging that a significant portion of climate relevant spending occurs in the private sector and non-governmental organizations.