Climate Finance

Climate Finance Landscape

While there is no universally agreed-upon definition of climate finance among various international jurisdictions, the United Nations Framework Convention on Climate Change (hereinafter referred to as “UNFCCC”) defines it as funding derived from local, national, and international sources, including public, private, and alternative financing streams, aimed at supporting mitigation and adaptation efforts to address climate change. Article 2.1(c)[1] of the Paris Agreement specifically emphasizes the need to align financial flows with the goal of limiting the global temperature increase to 1.5°C. The Convention, the Kyoto Protocol, and the Paris Agreement underscore the need for Parties with greater financial capacity to provide support to those that are less resourced and more vulnerable. Additionally, the principle of “common but differentiated responsibilities and respective capabilities (CBDR)[2]” established by the Convention, recognizes the historical contributions of developed nations to climate change and helps to attribute liabilities to these countries while encouraging voluntary contributions from other Parties.

Developed countries are required to

USD 100 Billion Goal

At the COP15 in Copenhagen, developed countries pledged to mobilize USD 100 Billion (hereinafter referred to as “goal”) per year by 2020 to address developing countries’ needs against the adverse effects stemming from climate change in the context of meaningful mitigation actions and transparency.  This Accord has been formalized in at the COP16 in Cancun, hence this agreement led to establishment of the Green Climate Fund to be a key mechanism to finance developing countries. Despite the pledged deadline 2020, developed countries could not achieve to fully deliver channeling USD 100 Billion by 2020, falling short USD 20.4 billion in 2019. The OECD was tasked with analyzing the potential impacts of countries’ pledges and support the preparation of the Roadmap[3] by 2021. The resulting report confirmed that the target had not been met, despite an upward trend in mobilized climate finance. While the Roadmap was not intended as a definitive prediction, it provided a snapshot of the best available data and potential scenarios at the time.

With decision 1/CP.21[4], Parties extended the goal through 2025. In preparation for COP26, the President-Designate requested Canada and Germany to develop a Delivery Plan outlining how and when developed countries would achieve this goal. The Delivery Plan highlighted critical shortcomings in the predictability and quality of climate finance, including insufficient targeting of vulnerable communities, inadequate support for adaptation, and challenges faced by poor nations in accessing funds.

To cut the chase, recent reports suggest significant progress. OECD published data, in May 2024, indicating that the developed countries achieved the USD 100 Billion climate finance target for the first time in 2022, which is a level had been projected by OECD to be able to reach by 2025.

Source: Based on Biennial Reports to the UNFCCC, OECD DAC and Export Credit Group statistics, complementary reporting to the OECD.

Achieving the goal ultimately could not cease ongoing discussions on setting more ambitious climate finance goals and, at the COP29 in Baku, Azerbaijan, developed countries formalized a New Collective Quantified Goal on Climate Finance (hereinafter referred to as “NCQG”) and pledged to tripling finance to developing countries by determining USD 300 billion allocation annually by 2035.

Source: UNFCCC

Determination of the Needs of Developing Countries

Impacts stemming from climate change are unevenly distributed across different jurisdictions. It goes without saying that the poorest countries and vulnerable communities within and between those regions are the most adversely affected, despite having contributed the least to this change. This unfair circumstance has emerged the notion of “climate justice”. In addition, Paris Agreement requires its signatory parties to adhere to the principle of “common but differentiated responsibilities” which means that while all countries have obligations and varying capacities, the types of action will be taken differently as per national circumstances. Hence, it is crucial and underscored for all governments and stakeholders to evaluate the financial requirements of developing countries and identify effective ways to mobilize the necessary resources.

COP24 requested Standing Committee on Finance[5] to prepare a report to determine the needs of developing countries. As of 30 June 2024, the data with regards to the costed and non-costed needs have been collected across 754 national reports published by 154 Parties, including BURs, LT-LEDS, NAPs, NCs, NDCs, TAPs and TNAs for the 2nd Needs Report[6] and compared with 563 national reports considered in the first Needs Report[7]. This report is prepared based on the available data in reports at national, regional and global level, serving as a snapshot of current circumstances.

Source: UNFCCC – Second report on the determination of the needs of developing country Parties related to implementing the Convention and the Paris Agreement

Cost of Inaction

Another reputable benchmark study “The Global Landscape of Climate Finance 2024” is published by the Climate Policy Initiative (hereinafter referred to as “CPI”) annually, analyzing climate finance flow with regard to region, theme, source in order to provide a comprehensive overview of how funds are channeled and distributed across various sectors and sub-sectors. Through the goal of avoiding economic losses by limiting global warming to 1.5°C by 2100, CPI underscores that climate finance needs are estimated to save five times the amount of climate finance required by 2050 to meet this target in its latest report. Although climate finance needs are expected to decrease after 2050, economic damages under a business-as-usual (BAU) scenario will continue to rise exponentially. While intangible factors like human suffering and loss of nature cannot be fully quantified, framing climate finance in terms of the cost of inaction[8] and providing detailed estimates could encourage the investments needed to mitigate future climate risks and losses. CPI’s estimate of cost of inaction, as indicated in below visualization, USD 1,266 trillion is derived from the NGFS’ scenarios[9].

Source: Climate Policy Initiative, Cumulative climate finance needs vs. losses under 1.5°C and BAU scenarios

Sector Specific Scrutinization on Finance Flow

Aforementioned Landscape 2024 reportstresses that mitigation finance overwhelmingly dominates climate finance flows, accounting for 90 percent of the total, reaching USD 1.3 trillion in 2022. Key sectors driving this growth include energy systems (USD 557 billion), low-carbon transport (25 percent of total flows), and buildings and infrastructure (22 percent). Investments in renewable energy and electrification technologies, such as heat pumps and electric vehicles, have been particularly significant. In contrast, sectors with high mitigation potential—like agriculture, forestry, and other land use (AFOLU), industry, and waste management—remain starkly underfunded, collectively receiving only 3% of mitigation finance between 2018 and 2022, despite their significant contributions to global emissions. Adaptation finance, while growing to USD 76 billion in 2022, lags far behind the estimated annual needs of USD 212 billion in emerging markets and developing economies (EMDEs) through 2030. Water and wastewater management dominated adaptation finance, accounting for 44 percent of flows from 2018 to 2022, followed by cross-sectoral projects (36 percent) and AFOLU. Dual-benefit finance, addressing both emissions reductions and resilience, grew rapidly at a compound annual growth rate of 59 percent during the same period, particularly in the AFOLU sector, supported primarily by public funding. However, adaptation and resilience investments remain insufficient, particularly in vulnerable regions.


[1] Paris Agreement, Article 2.1(c) Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

[2] “Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC)” is a principle in international law recognizing that all countries share a responsibility to address global issues like climate change, but their obligations differ based on historical contributions and current capacities. Developed nations are expected to take greater accountability while supporting developing nations.

[3] As part of the Paris outcome, developed countries worked together to develop a Roadmap on key components and pathways in 2016. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/562317/Roadmap_for_UK_website.pdf

[4] Available at: COP 21 – Decisions | UNFCCC

[5] The Standing Committee on Finance (SCF) was established under the Cancun Agreement at COP16 to support the COP in managing the Financial Mechanism of the Convention. Its role includes improving the coherence and coordination of climate finance, rationalizing the Financial Mechanism, mobilizing financial resources, and ensuring measurement, reporting, and verification (MRV) of support provided to developing countries.

[6] For more information: https://unfccc.int/topics/climate-finance/workstreams/needs-determination-report

[7] For more information: https://unfccc.int/topics/climate-finance/workstreams/determination-of-the-needs-of-developing-country-parties/first-report-on-the-determination-of-the-needs-of-developing-country-parties-related-to-implementing

[8] Cost of inaction basically refers to the financial and economic losses that occur from failing to invest in climate mitigation, adaptation and loss & damage measures, and possibly leading to more severe climate impacts, increased future costs, and missed opportunities for sustainable growth.

[9] For more information: https://www.ngfs.net/ngfs-scenarios-portal/