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Rethinking global climate finance for SDGs

The Sustainable Development Goals (SDGs), adopted in 2015 by all UN member states, represent a shared commitment to protect the planet, eradicate poverty, and ensure prosperity for all by 2030. Climate action, captured in SDG 13, is essential, but it also requires progress on other SDGs such as those on energy, sustainable cities, ecosystems, and inequality. At the same time, climate risks directly threaten advances in poverty reduction, food and water security, health, and economic growth. Mobilising climate finance is therefore central to turning commitments into action and supporting the wider development agenda.

Under the Paris Agreement, the developed countries jointly agreed to deploy US $100 billion annually to tackle the needs of developing countries in achieving climate resilience. In 2024, COP29 set a new collective quantified goal (NCQG) of US $300 billion per year by 2035. Even so, the NCQG commitment falls short of the US $1.3 trillion requested by the developing economies.

Climate finance flows have grown from US $653 billion in 2019–20 to an annual average of US $1.3 trillion in 2021–22. Yet, they remain a fraction of the US $5 to US $12 trillion required annually through 2050. Emerging markets and developing economies (excluding China) will require US $2.4 trillion per year by 2030 for climate investments, with an additional US $3 trillion needed to achieve the other SDGs.

Beyond SDG13

Climate finance advances multiple SDGs, from clean energy and jobs (SDG 7 and 8) to resilient infrastructure and sustainable cities (SDG 9 and 11), food security and health (SDG 2 and 3), and biodiversity protection via nature-based solutions (SDG 14 and 15). Therefore, climate finance is not a siloed agenda and underfunding climate priorities risks slowing progress on multiple development goals.

Structural challenges

  • Pledge-delivery gap: The US $100 billion annual commitment, due by 2020, was reached only in 2022. Over 50% of this amount was delivered as loans, adding debt stress to low-income countries
  • Mitigation-adaptation imbalance: In 2023, 67% of investments were aimed at mitigation, with only 33% towards adaptation. While adaptation flows doubled between 2018-2022 to reach US $76 billion, the projected annual average needed by 2030 is US $212 billion
  • Fragmented access: Complex processes of multilateral development banks (MDBs), bilateral agencies, and climate funds result in higher costs and delays. The Green Climate Fund’s “direct access” sought to ease this, but only 22% of projects were from direct access entities as of 2020, due to limited technical support, incomplete coverage of costs, and burdensome approval processes
  • SDG and climate siloes: Funding is often project-specific, missing broader SDG impacts. Reports claim that had the synergies between the two been realised, investment gaps could have been reduced with lending responding to multiple objectives. Further, a lack of standardised taxonomies, disclosures, and impact measurement makes it difficult to bridge the siloes
  • Mismatch in tenor and return expectations: Private finance often prefers short-to medium-term instruments, misaligned with the long timelines of climate projects
  • Global trust erosion: Repeated unfulfilled pledges, like the US $100 billion target, have eroded trust between the Global North and South

To close the above-mentioned gaps, there is a need to rethink the climate finance landscape.

Integrating climate finance into macroeconomic structures

On the fiscal side, a higher share of grants and concessional finance is critical for LDCs and SIDS. Innovative debt-for-climate and debt-for-nature swaps can reduce sovereign debt burdens while funding sustainability. For example, Belize’s Blue Bonds for Ocean Conservation program reduced debt by 12% of GDP while securing US $4 million annually for ocean protection.

On the monetary side, central banks and regulators can incorporate climate risks into interest rate, collateral and prudential guidelines to incentivise green lending. For instance, the European Central Bank has introduced a “climate factor” into its collateral framework.

Simplifying access and strengthening measurement

Streamlining approval standards could improve access to climate funds and adaptation finance facilities, reducing delays in project funding. Aligning finance with SDGs enhances impact, while standardised KPIs can measure both emissions reductions and SDG contributions, with periodic assessments helping to identify opportunities to enhance social, economic, and environmental outcomes.

Strengthening public-private finance

Public finance can de-risk and mobilise private investments through guarantees, concessional finance, and green instruments. MDBs and DFIs can attract private investments even in fragile markets, while decentralising flows through local banks and fintech platforms supports SMEs and agriculture. Blended finance is necessary to create low-risk opportunities to close the adaptation finance gap. Philanthropy’s higher risk tolerance and SDG alignment can back climate solutions. Governments can amplify this with tax incentives and blended models.

Understanding the role of climate finance in achieving the SDG targets by 2030 is crucial to driving the necessary change. Reforms in facility design, policy coherence, blended finance, impact measurement and domestic resource mobilisation are key to ensuring synergistic impact.

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