Nations set a new climate finance goal last year, committing to deliver at least $300 billion annually for developing countries’ climate action by 2035. Developed nations agreed to take the lead in meeting this target.
The goal, known as the new collective quantified goal, or NCQG, also includes a much larger target. It calls on all actors to work toward mobilizing $1.3 trillion in international climate finance over the same timeframe; much closer to the amount developing countries truly need.
This finance, alongside their domestic finance, is essential for developing countries to adopt low-carbon technologies, protect themselves from climate threats and unleash green development. But it doesn’t benefit only them: Stronger action in the developing world is needed to halt climate change and invest in sustainable growth globally. It’s about building a safer and more prosperous future for everyone.
We delved into the new finance goal, including what it will take to reach the $300 billion threshold — and what moving beyond it, toward $1.3 trillion, could look like.
Is the New Climate Finance Goal Enough?
The NCQG’s $300 billion target is the largest climate finance commitment countries have ever agreed to and represents an important down payment for climate action. Meeting it will be a critical milestone. But finance cannot stop there.
The High Level Expert Group on Climate Finance (IHLEG) estimates developing countries (excluding China) need to spend $2.7 trillion annually by 2030 to meet climate and nature-related goals. $1.4 trillion of this would come from domestic sources and $1.3 trillion from abroad.
$1.3 trillion is therefore a more accurate reflection of developing countries’ needs by 2035, and so the more important target. But of course, it is the much larger hill to climb. Important, too, is understanding how and where funds are likely to flow.
Is $300 Billion Achievable?
In short, yes. Though current political headwinds make it more difficult, achieving the goal remains possible.
In 2022, the latest data available, developed countries delivered around $116 billion to developing countries for climate action. This exceeded the previous climate finance goal of $100 billion annually, which the NCQG replaces. We reviewed the sources of this finance, looking at how funding trends are likely to grow over the next decade, and found that $300 billion by 2035 is very much in reach.
How this money is raised, though, could have implications for the type of finance made available and who can access it most easily.
Where Would the Money Come From?
We can generally assume that similar types of finance will be counted toward the $300 billion goal as were counted toward the $100 billion goal. This would include bilateral finance (country to country), multilateral finance (such as from multilateral development banks (MDBs) and multilateral climate funds), and private finance mobilized by public funds. Under the NCQG, there’s also a possibility to count “alternative sources” of climate finance, such as international taxes or rechanneled IMF “special drawing rights” (a type of international reserve asset).
Moving beyond $300 billion, toward $1.3 trillion, will require much more private investment in climate action than we’ve seen to date in addition to increases from the sources above.
Public multilateral finance is the biggest source
Public multilateral finance involves public funds going from one country to another through a multilateral entity, like a development bank. This category represents the highest share of international climate finance so far — $51 billion of the $116 billion delivered in 2022 — and will likely continue to do so.
Multilateral development banks
MDBs like the World Bank provide a significant portion of international climate finance, and there are many ideas on the table for how to further supercharge their efforts.
At COP29, MDBs committed to providing $120 billion in climate finance to low- and middle-income countries by 2030; roughly double what they provided in 2022. Part of this growth is likely intended to come from an increase in the percentage of their funding going to climate action. And part will come from continued growth in total MDB finance, largely as a result of reforms to free up capital.
Additional growth is possible — especially if countries pay in more capital, increasing the base amount against which MDBs can lend. While such increases may be unlikely today with current political dynamics, they could feasibly happen before 2035. The IHLEG estimates that $60 billion in capital increases over a ten-year period could bring MDB climate and nature-related finance up to around $240 billion per year. This figure refers to growth across the entire MDB system, encompassing a range of banks and funds with varied shareholder structures.
Some of the increase in MDB climate finance will also come from a change in the way their contributions are counted. Under the $100 billion goal, only 70% of MDB’s total climate finance was included in the tally. This is because not all countries channeling climate finance through MDBs were considered contributors to the goal. But any country can voluntarily contribute to the $300 billion — meaning potentially all climate finance flowing from MDBs to low- and middle-income countries could be counted.
If MDBs meet their 2030 target of $120 billion, this would comprise 40% of the $300 billion goal. This is around the same percentage the MDBs provided toward the $100 billion goal in 2022 (41%). If they could reach $240 billion, per the IHLEG’s estimate, this would cover 80%.
Private finance mobilized by MDBs
MDBs also announced that they would leverage $65 billion in private finance for climate action in developing countries by 2030, up from around $15 billion in 2022. There are a variety of ways they can do this, such as offering guarantees or insurance on climate projects to lower risks and attract private investors.
The $65 billion assumes that MDBs can leverage 54 cents in private finance for every $1 they spend (a mobilization ratio of 1:0.54) and meet their $120 billion goal. For comparison, they mobilized 38 cents per dollar spent in 2023 (a 1:0.38 ratio).
If MDBs deliver $240 billion in climate finance by 2030, they could mobilize as much as $91-$130 billion annually in private funds (reflecting a 1:0.38 and 1:0.54 ratio, respectively).
Multilateral climate funds
Multilateral climate funds, such as the Green Climate Fund and Adaptation Fund, are specifically dedicated to providing climate finance in developing nations and are financed primarily through governments pledges. Historically they’ve made up a very small proportion of international climate finance: just $3.4 billion (3%) in 2022, down from $4.2 billion in 2021.
Despite their modest size, the climate funds are valued by many for allowing direct access to developing country institutions. They also provide a higher rate of grants and highly concessional financing (loans with more favorable terms) than other sources. Between 2016 and 2022, 54% of finance from the climate funds came in the form of grants, compared to 39% of bilateral finance and 9% for the MDBs.
At the 2024 UN climate summit (COP29), countries agreed to at least triple the amount these funds disburse by 2030. This would require wealthy countries to significantly increase their contributions. If tripled, the funds would provide around $10 billion annually by 2030, or less than 4% of the $300 billion, with additional growth possible by 2035.
Public bilateral finance has grown, but faces political headwinds
Bilateral finance involves public funds directed from one country to another. In 2022, bilateral finance accounted for $41 billion (35%) of the $116 billion provided and mobilized.
The amount of bilateral finance needed will hinge on what other sources deliver:
- If MDBs reach their stated target of $120 billion and mobilize $65 billion in private finance, and if the multilateral climate funds cover $10 billion, this leaves a gap of $105 billion for bilateral institutions to fill.
- If MDB finance instead reaches the higher estimate of $240 billion, at current private sector mobilization rates, we could exceed the $300 billion target without any bilateral funds.
Bilateral climate finance doubled between 2013 and 2022, from $22.5 billion to $41 billion. If another doubling occurs by 2035, as called for by the IHLEG, bilateral finance would reach around $80 billion. But there’s no guarantee of this: With strong political headwinds against international climate and development finance in many developed nations, significant growth in bilateral finance may be challenging — though the ten-year window leaves room for political cycles to turn.
Economic growth can help increase overseas development assistance to a degree, especially in countries like Denmark, where it is tied to gross national income (GNI). If we assume increases in bilateral finances of just 2% to follow an estimated 2% annual growth in GNI, it will reach a relatively modest $53 billion by 2035. It is also possible that some developing nations will increase and voluntarily report finance as part of the efforts to reach $300 billion.
Private finance mobilized by bilateral public finance
In 2022, developed countries reported that they mobilized $9.2 billion in private finance for climate action in developing countries. With bilateral finance reaching $41 billion that year, this implies a mobilization ratio of 22 cents per dollar spent.
Unlike the MDBs, countries have not stated a new target for mobilized private finance. If we assume bilateral finance reaches $53 billion in 2035 (a 2% annual growth rate), the same rate of mobilization as in 2022 would result in $11.7 billion by 2035. If bilateral finance were to double to $80 billion by 2035, the same mobilization rate could leverage $17.6 billion in private finance.
Alternative sources can now be counted, too
In addition to multilateral and bilateral finance, the NCQG recognizes “alternative sources” — such as international taxes or solidarity levies — as a potential option for raising finance toward the $300 billion goal.
Some experts have suggested a tax on international flights, applied to airlines based on greenhouse gas emissions, or wealth taxes as ways to raise finance for climate action. These measures are attractive in part because they could introduce entirely new funding streams. The IMF estimates that a carbon tax on international transportation emissions could bring in up to $200 billion per year, which could then in theory be disbursed as international climate finance.
Another option is rechanneling the IMF’s special drawing rights, which are a type of international reserve. In 2022, nations with larger economies agreed to reallocate special drawing rights to developing countries. So far, this has resulted in around $40 billion in finance being distributed through the Resilience and Sustainability Trust, which mainly helps low-income and vulnerable middle-income countries tackle climate risks. Countries have also agreed to re-channel special drawing rights through MDBs and use them as hybrid capital. Moving forward, countries could agree to reallocate additional special drawing rights and modernize the framework to allow for more regular issuances — though governments currently appear reluctant to take this step.
High integrity, well-managed carbon markets also channel funds for developing nations’ climate action, in theory. But the idea of counting these investments toward the NCQG is highly controversial, since any emissions reductions are claimed by the buyer (meaning they don’t count toward the developing country’s own climate goals). Governments have agreed that the Adaptation Fund (one of the climate funds) will receive a 5% share of proceeds under the Paris Agreement’s international carbon crediting mechanism. But it remains to be seen whether this will count toward the $300 billion goal.
How Will Finance Be Delivered?
The NCQG is not just about the amount of finance developing countries receive, but also the type.
How finance is delivered matters immensely. Many of the poorest countries are already struggling with unsustainably high debt levels and cannot afford to take on new, high-interest-rate loans, even for climate projects which can aid their growth and reduce risks. They may require a higher proportion of grants or highly concessional funding — meaning loans with, for example, low interest rates and/or longer repayment periods. (This can be useful in the context of a more systematic approach to debt restructuring and relief.) In other countries, and in sectors where an economic or financial return is expected, loans and private finance can be a more appropriate investment type.
While the NCQG noted that grant-based and highly concessional finance is particularly important “for adaptation and responding to loss and damage in developing countries,” it fell short of setting concrete targets for this.
In 2022, around 39% of bilateral and 9% of multilateral climate finance came in the form of grants, which mainly went to low-income countries. Between 2016 and 2022 these countries received 64% of their climate finance in grants, compared to around 12% for middle-income countries.
Going forward, even maintaining the current percentage of climate finance that is provided as grants or highly concessional finance will require concerted effort. Much of the growth in MDB finance, for example, is likely to come from reforms and capital increases that tend to boost lending to middle-income countries, not grants to low-income countries.
Similarly, if a larger portion of the $300 billion comes from mobilized private finance — as predicted by the MDBs — this will tend to flow through private loans or equity investments, not grants or highly concessional finance.
Who Will Receive the Funds?
International climate finance is meant exclusively for developing countries, but this is a broad and diverse group of nations. Who exactly will receive finance, and how much, was not laid out in the NCQG — though the final text did recognize that small island developing states and least developed countries are particularly in need of assistance, especially for adaptation and loss and damage.
In 2022, lower-middle income countries received 46.5% of reported climate finance, upper middle-income countries received 34.5%, and low-income countries received just 11.1%. A small number of high-income countries received 3.4% of the financing, and 20.4% of the funds were not allocated by income group. (Some developing countries classified as high-income may receive investments because they are highly vulnerable to the effects of climate change, such as small island states like Antigua and Barbuda and Barbados.)
Although climate finance approximately doubled between 2016 and 2022, its distribution across these income groups has stayed relatively constant. But major shifts in funding sources could potentially upend precedent. For example, if the growth in MDB finance is largely through non-concessional loans, this will tend to favor middle income rather than low-income countries. The same is true of mobilized private finance if it ends up playing a larger role. Only 3% of mobilized private finance counted in 2022 went to low-income countries.
Ultimately, the overall percentage of finance received is less important than how favorable the rates and terms are — or the share of finance on “grant equivalent” terms (meaning the amount that would have been provided if the finance was a grant, before taxes or other charges). Middle income countries will likely continue to receive the most finance overall, given the size and relative strength of their economies and the larger ticket sizes of low carbon investments there. What is important is that the lowest income and most vulnerable countries receive a good share of the grant and highly concessional finance, especially for adaptation and loss and damage.
How Do We Move from $300 Billion to $1.3 Trillion — the Real Target?
While $300 billion should be within reach, the real challenge will be how to scale up finance “from all public and private sources to at least $1.3 trillion per year by 2035” — the truer measure of what developing countries need.
Clearly, meeting the $1.3 trillion target will be a steep climb. Funding will need to come from the same sources listed above, as well as private financial flows not mobilized by public funds. The latest IHLEG report suggests that around half of the $1.3 trillion, or $650 billion, will come from cross-border private finance and the other half from international public funds.
Raising that amount of public funding will require much more ambition from wealthy nations and significant capital increases at the MDBs. In addition, countries will likely need to forge new international actions and agreements to leverage “alternative” sources of finance like international taxes, with a significant proportion of the funds dedicated to climate action in developing nations.
Growing private finance will also be a challenging — but vital — feat. While current data on cross-border climate investment in developing countries is limited, and estimates vary, $650 billion is almost certainly a massive leap from the present. Climate Policy Initiative (CPI) estimates that private climate finance to developing nations (excluding China) reached around $15 billion in 2022. UN Trade and Development (UNCTAD) estimates that foreign private investments just in renewable energy in least-developed countries reached $16 billion that same year.
Substantially increasing private finance for developing nations will require efforts from high-, middle-, and low-income countries alike. Governments wanting to attract private sector investment need to set ambitious targets and transition plans, enhance investment environments, and work together with the private sector to develop investment opportunities and shift risk perceptions. From the financier side, it will be important to drive forward measures such as scaling up and replicating effective risk sharing and credit enhancement mechanisms, tapping into long term institutional investment, and increasing the role of national development banks and local currency.
“Country platforms” which bring public, private, domestic and international finance together behind green transition plans and policies, can play a role in mobilizing private finance and ensuring an efficient capital stack.
How Will Progress Be Measured?
Countries have decided to adopt the enhanced transparency framework under the UN Framework Convention on Climate Change (UNFCCC) as the transparency system for the new finance goal. Through this system, countries will report on the finance they provide and receive and what it’s used for. In addition, the UNFCCC’s Standing Committee on Finance will prepare a “collective progress” report biennially to reflect on progress to date, drawing on a variety of sources.
But questions remain; particularly around how the $1.3 trillion target will be monitored, as it covers an array of funding sources that will not be reported through the UNFCCC system. Additional reporting and review of this — particularly in fora such as the G20, where Finance Ministers and Financial Institutions are present — will be important.
Charting a Path Forward
The NCQG represents an important — possibly transformative — step toward a safer and more sustainable future. But this hinges on how it’s executed.
$300 billion is within arm’s reach, as long as MDBs continue along their reform path and countries maintain contributions. The important remaining questions are how to ensure the right funds are matched to resource needs and that finance reaches those who need it most.
But where countries should truly be setting their sights is the full $1.3 trillion. This should be a guiding star as we head toward 2035, as it’s not only the better measure of need, but also the true ambition the climate crisis demands.
While we have until 2035 to reach the finance targets agreed to in Baku, several international summits this year present critical opportunities to build momentum:
- At the Finance in Common Summit in February, public development banks, especially national development banks, can demonstrate how they are working as a system to mobilize more climate finance.
- In June, many leaders from governments, development finance institutions, civil society organizations and elsewhere will gather at the International Conference for Finance for Development, held once a decade. This is a prime opportunity for these players to recommit to bolstering financing for sustainable development, with a more integrated approach to development and climate action.
- At the BRICS summit this July, Brazil, China and India have an opportunity to outline how they will step into a greater leadership role on climate action, including in finance, in the global arena.
- At the 2025 UN climate summit (COP30) in November, Brazil and Azerbaijan (the 2024 and 2025 COP hosts) will present a roadmap for reaching the $1.3 trillion target. Other actors could help build confidence that this roadmap is achievable by announcing new efforts such as country platforms, finance commitments from the private sector and progress toward establishing solidarity levies.
- Leaders at the G20 summit, held immediately after COP30, could use this opportunity to lay out how to overcome economic hurdles faced by developing nations, including unsustainable debt and high costs of capital, that put the brakes on climate investments.
Leaders should seize these opportunities to chart a path forward, overcome headwinds and ultimately deliver the finance the world needs to confront the climate crisis.
