Following up on the year of climate finance

2024 was billed as a key year for climate finance at the global level, but what are the key takeaways and implications for 2025? 

2024 was billed as a key year for climate finance at the global level, but what are the key takeaways and implications for 2025?

In the multilateral negotiations on climate change, 2024 was of particular importance due to the need to set a new global goal on climate finance (the so-called NCQG). After two weeks of intense negotiations during the United Nations Climate Change Conference in Baku (COP29), countries finally agreed in the early morning hours of 24 November to set a goal of “at least USD 300 billion per year by 2035 for developing country Parties for climate action.” This money is envisioned to come from a wide variety of sources—public and private, bilateral and multilateral, including alternative sources—, with developed country Parties taking the lead for its provision.

This new goal replaces the previous goal of $ 100 billion per year, which was widely considered to be incommensurate to the needs of developing countries. As the decision highlights, the costed needs of developing countries for financing climate action are estimated at $ 5.1–6.8 trillion up until 2030 ($ 455–584 billion per year). Accordingly, even the new goal might not be enough to allow scaled-up ambition that can steer the global warming trajectory to stay below 1.5 or 2 degrees Celsius, while also building long-term resilience against climate impacts.

To address this shortfall, the decision on the new finance goal calls on all actors “to work together to enable the scaling up of financing to developing country Parties for climate action from all public and private sources to at least USD 1.3 trillion per year by 2035,” setting an aspirational goal that significantly surpasses the goal of $ 300 billion.

Why climate finance?

Without climate finance provided by developed countries—the main historic contributors to GHG emissions and, therefore, global warming—, it is clear who will suffer the most: vulnerable, resource-constrained countries and communities that lack sufficient domestic funds to address climate impacts and manage relevant risks. Those on the frontlines of climate change, often the ones who are least responsible for it, will face extreme weather events and long-term impacts to their livelihoods, wellbeing, and lives, leading to devastating losses and damages.

The COP29 decision acknowledges “the fiscal constraints and increasing costs to adapt to the adverse effects of climate change” as well as the need for “public and grant-based resources and highly concessional finance.” Currently, a lot of climate finance is provided through loans, not grants, leading to mounting debt and putting additional pressure on developing countries. There is a need of “significantly reducing the cost of capital and increasing the mobilization ratio of finance mobilized from public sources by 2030,” which would help developing countries to access funding and preserve their domestic fiscal space. Innovative financial instruments—such as debt swaps, climate-resilient debt clauses, first-loss instruments, guarantees, local currency financing, and foreign exchange risk instruments—have also been highlighted as part of a comprehensive approach in this context.

Climate finance comes from a variety of sources, who each have different access modalities, reporting mechanisms, and processes. This includes the major multilateral funds—most prominently, the Green Climate Fund (GCF), the Global Environment Facility (GEF), the Adaptation Fund, and the recently established Fund for Responding to Loss and Damage—, multilateral development banks, bilateral funding, and other sources, including the private sector and philanthropies.

However, how these sources will enact the planned increase from $ 100 billion to $ 300 billion or even $ 1.3 trillion is still to be decided. With the goal agreed upon, it is now up to countries and other actors to develop a plan and identify the best way forward to mobilise funding at the scale and speed required to address the climate crisis and enable developing countries to invest in low emission growth, adaptation, and sustained resilience-building.

A roadmap to 1.3T

Towards this end, COP29 launched the “Baku to Belém Roadmap to 1.3T,” which aims to scale up climate finance in line with the decision and the needs identified from nationally determined contributions and national adaptation plans. Until the next United Nations Climate Change Conference (COP30)—which will take place in November 2025 in Belém, Brazil—, countries will work to develop this roadmap and identify effective approaches for funding, including through grants, concessional and non-debt-creating instruments, innovative financial instruments, and measures to create fiscal space.

As of yet, the exact modalities for this work are unclear, and the decision only states that results will be summarised and presented at COP30. However, there is an expectation to gain more clarity in the next weeks, as countries have begun to engage and make suggestions on the modalities. In any case, 2025 is set to become another “year of climate finance,” as considerable work remains to be done for elaborating the roadmap and the different elements of the goal.

This includes mobilisation of finance, but also considerations related to access, distribution, reporting, and transparency, as well as the role of different actors at global, regional, and national level. The decision also underscores the importance of “reducing existing constraints, challenges, systemic inequities, and barriers to access to climate finance, such as high cost of capital, co-financing requirements, and burdensome application processes.” Furthermore, the debate extends beyond the climate negotiation space, as it also concerns the broader international financial architecture and the work of international financial institutions, including multilateral development banks.

One thing is certain: if collective as well as national goals for climate action are to be achieved, it is critical that significantly scaled-up finance becomes available as quickly as possible and in ways that do not further exacerbate the challenges faced by developing countries. The new goal provides a starting point for this accelerated mobilisation of funds, but it needs to be further elaborated by all actors working together within and beyond the climate space.

(The writer works as Director: Research & Knowledge Management at SLYCAN Trust, a non-profit think tank. His work focuses on climate change, adaptation, resilience, ecosystem conservation, just transition, human mobility, and a range of related issues. He holds a Master’s degree in Education from the University of Cologne, Germany and is a regular contributor to several international and local media outlets.)