This paper develops a better understanding of what may be understood as a barrier to climate friendly investment and suggests to tool that could be used in appropriate policy design. In addition to an overview of the broader conceptual definitions of a barrier, the paper develops a definition of a barrier to adaptation and mitigation investment according to economic mechanisms that lead to the decreased attractiveness of the investment (relative to the hypothetical case of functioning markets) leading to the market imperfections as well as the impact on the risk and return profile. This illustrates that in general barriers may be addressed to correct the market imperfection or compensating the investor. The decomposition of the barriers along the market imperfection and investor’s perception enable to suggests a tool to suggest the design for the require policy change.
