The deadly destruction around the globe from increased floods, scorching temperatures and other extreme weather events exacerbated by climate change is setting back progress on economic development in developing nations.
These events contribute to a vicious cycle of deepening poverty and worsening vulnerability to climate change. This means that investing in adaptation and resilience — helping nations and communities not just prepare for and recover from climate impacts but have the infrastructure in place to stand up to future climate-related challenges — is crucial to boosting their development and well-being. Investing more on adaptation also generates a stream of fiscal and economic savings by avoiding future losses.
Yet investments in developing countries seriously lag behind growing adaptation needs. Among developing countries, financing for adaptation and resilience remains far below the $215 billion to $387 billion needed annually by 2030. In Africa, for example, increased spending on resilience is critical for food security, improving livelihoods, protecting supply chains and avoiding health crises from heat and drought. Also, until recently, global financing for loss and damage has received little attention despite major climate related disasters impacting communities.
The Role Foundations Play in Climate Action
The 2024 report of the Independent High Level Expert Group on Climate Finance (IHLEG) stressed the urgency of bridging the large financing gaps that impede spending on both mitigation actions and building resilience to climate change. Beyond private finance, it particularly emphasized the need to mobilize funding that won’t contribute to a nation’s debt, including grant financing or financing at well-below market rates. Given large-scale reductions in early 2025 in the United States and much of Europe, foreseeable levels of Official Development Assistance will help developing countries, but will not meet their growing needs. Alternative sources of concessional and grant financing will be needed to help fill the growing finance gap.
To help close financing gaps, philanthropy can and should step up. In 2023, philanthropic giving for climate change is estimated to be between $9.9 billion and $16.4 billion annually, of which only about $600 million (3.6% to 6.1% of the total) is for adaptation, according to the ClimateWorks Foundation. Philanthropic giving for climate change is only 1.1% to 1.8% of total giving, which was an estimated $885 billion in 2023 — suggesting ample scope for scaling up.
Foundations’ climate-related support to developing countries has been increasing, albeit from a low base. Their funding for Africa, for example, tripled over the last five years, reaching $112 million in 2022. Still, the overall level, at 6% of total foundation funding, is not enough. Funding has been directed mainly to climate mitigation, primarily to sustainable energy but also to cross-sectoral approaches such as low-carbon cities, methane carbon dioxide removal and climate-related capacity-building. Foundations have not publicly tracked their funding for climate adaptation but a new survey shows that foundations are paying more attention to adaptation investments. This shift is overdue.
In late 2023 at the annual United Nations climate summit (COP28), a coalition of 21 leading philanthropy organizations, including the Rockefeller Foundation, Aga Khan Development Network, Temasek Trust and the Shockwave Foundation, began calling for greater action by governments and private stakeholders toward transformational change on climate adaptation. The Adaptation and Resilience Funders Collaborative now includes 60 foundations working together to learn, coordinate, and invest in climate adaptation and resilience. Separately, the World Economic Forum’s Giving to Amplify Earth Action (GAEA) is building public and private partnerships in order to multiply financial contributions for adaptation and nature.
However, considering the rate at which the adaptation finance gap is growing, more still needs to be done to boost the scale of philanthropic resilience financing. Even if foundations increased their grant-making for climate change in Africa nine times over — by 900% — the total would still only reach $1 billion. While a significant amount, that would still be only 2% of the estimated annual adaptation finance needs in Africa up to 2030.
Key questions to ask are: “How can philanthropy dramatically increase its giving in new and different ways?” and “What are ways in which its contributions can better leverage the strengths of other development partners?” Several of the ideas presented below are tied to efforts by multilateral development banks (MDBs) to lend ever more with their limited capital. Leveraging MDB financing presents mutually beneficial results.
5 Ways Philanthropy Can Scale Climate Financing
There are many opportunities for philanthropy to increase their contributions to adaptation finance, from giving at the local level for specific community-based adaptation projects to more broad-based giving for sectoral, national or even global approaches. Common areas of foundation support for climate change include supporting financing options and access to climate finance, helping integrate adaptation planning into national and sectoral development plans, and providing finance at the community level for local investments, disaster risk management and “build back better” programs. Many foundations already have long-standing close ties and partnerships across Africa and other developing regions and countries, creating vital opportunities for direct giving. In Africa, for example, important country-specific needs include improved information for project planning and supporting governments to understand their climate risks/impacts and prioritize and sequence the most cost-effective interventions.
But foundations need new ideas for ways to invest in adaptation if they are to increase their giving. Here are five avenues for philanthropy to work proactively and innovatively with developing country governments and donors to scale up concessional climate financing. These proposals represent opportunities for expanding the quantity and improving the quality of MDB adaptation financing by crowding in, ideally, billions of dollars from large foundations seeking to achieve significantly larger impacts at a time when developing countries are facing increasing financial stress.
1) Co-Finance Projects with Multilateral Development Banks
Philanthropic organizations and each interested MDB can co-finance projects on climate adaptation, nature restoration and resilience-building, especially in low-income and climate vulnerable countries. Historically, philanthropists have contributed to numerous trust funds that MDBs manage for specific purposes, such as policy research and capacity-building. For example, at the World Bank, private non-profits are important contributors to its financial intermediary funds where partnerships combine resources to support global initiatives. But these funds have not been designed to co-finance large MDB projects with greater impacts than foundations could achieve on their own. By pooling philanthropic capital, such facilities could provide greater financing over a longer period, which many adaptation investments require.
Advocacy for this proposal is not new: It was proposed by the Center for Global Development as one argument for a large replenishment for the African Development Fund. By supporting MDBs’ country programs and projects through project-level co-financing arrangements, philanthropies can extend the scope and scale of their impact. Furthermore, in the case of adaptation, philanthropic grants are especially valuable because many adaptation actions reduce future climate risks but may not generate the financial returns required to repay MDB loans.
2) Provide Grant Financing for the Fund for Responding to Loss and Damage
In addition to providing grant financing for adaptation, philanthropies could support the new Fund for Responding to Loss and Damage operationalized at COP28. The fund was created to help developing countries that are particularly vulnerable to the adverse effects of climate change. Global financing of loss and damage has been largely neglected despite the major setbacks to economic growth and development caused by climate related disasters.
Even though developed countries should take the lead in financing loss and damage, there is also room for alternative sources of finance to help countries bear inevitable economic and social damages. In fact, the Fund for Responding to Loss and Damage says it plans to look at non-donor and private financing, although it has yet to broadly act on those intentions. Philanthropies already played a notable role in early awareness on the need for loss and damage financing at COP26 in 2021, contributing $3 million at that time. They could also help increase public pressure on developed country governments and catalyze support for the fund and support the development of innovative ways for non-donors to contribute to the Fund.
Philanthropy organizations are well-placed to provide some urgently needed early grant financing to augment the very limited funds pledged by countries so far to the Fund for Responding to Loss and Damage. The benefits of doing so would allow developing country governments to meet growing explicit and implicit government liabilities related to climate loss and damage without incurring greater debt. However, it is not realistic for philanthropies to cover a major portion of the total projected needs. In fact, the negotiating bodies (and governments generally) are nowhere near to an understanding of what those total needs might be, or even agreeing on a methodology for estimating them. By becoming financial partners, early philanthropic support could help inform open discussions over funding issues.
3) Create Global Funding Mechanisms to Leverage MDB Core Capital
The G20 Triple Agenda Report has the innovative proposal for non-government investors — including philanthropy — to expand MDBs’ financing capacity by creating global funding mechanisms. Philanthropists and other stakeholders could finance a mechanism that would allow MDBs to leverage their core capital and increase the impact of their financing in two ways. First, the facility could use grant contributions to lower the cost of MDB lending by buying down the interest rate. Second, MDBs could use the grant contribution to leverage four to five times the amount of philanthropic giving. This multiplier effect is due to MDBs sharing the risk of MDB loans, thereby allowing the MDBs to lend more with a given amount of core capital. Contributions of several billion dollars by philanthropies could stimulate additional MDB lending of $10 billion to $20 billion.
In this context, the International Financing Facility for Education (IFFED) has been cited as a promising model, including by the G20 Expert Group. Through the IFFED, guarantees by willing countries enhance philanthropy’s cash contributions to create a financial base that MDBs can use to leverage up to 4 times and thus boost lending. In addition, philanthropists can provide grant contributions that lower the MDBs’ lending rates (such as down to the lower terms offered by the highly concessional International Development Agency). A climate financing facility could be designed using this model. It is estimated, for example, that a $2 billion grant from philanthropists channeled through an IFFED-like climate financing facility could increase MDBs’ concessional lending by as much as $10 billion, and by even more if it catalyzed private financing. This promises to significantly leverage philanthropic funding in the form of boosted levels of multilateral concessional climate financing.
A mechanism that either improves the terms of MDB lending or leverages their core capital in new ways will require a governance structure that provides appropriate voice and representation to philanthropy. As new mechanisms emerge to bring in significant non-government participation within the MDBs space — such as this and the previous two proposals — shaping inclusive governance arrangements will inevitably be an important issue to resolve.
4) Contribute to Disaster Risk Insurance Premiums
Countries are increasingly seeking disaster risk insurance due to their high exposure to the economic and fiscal shocks caused by major disasters. While it is true that countries cannot insure themselves out of climate risk, the opposite is also true — that even countries with robust climate adaptation programs face unforeseeable risks with macroeconomic and fiscal impacts. Sovereign disaster risk finance increases the financial response capacity of national and subnational governments to meet post-disaster funding needs without compromising fiscal balances and development objectives. While some risk management approaches are contingent financing which defers obligations, sovereign insurance products transfer risk to others.
International financial institutions and the private sector are active in finding contingent financing adaptation insurance products. For example, the IMF’s Catastrophe Containment and Relief Trust has provided direct debt relief to poorer countries hit by disasters, including climate shocks; the World Bank Treasury Disaster Risk Insurance Platform offers risk transfer solutions such as insurance, derivatives and catastrophe bonds; and private insurance companies participate in sovereign insurance, weather derivatives and macro-level risk pooling offerings.
For insurance products, philanthropies could step up to help developing countries pay for the premiums. The potential benefits to poor or climate vulnerable countries could be, on average, about 100 times the cost (although actual premiums depend, of course, on country-specific climate risks). This is not a new idea: In the past, bilateral donors have contributed that cost on behalf of low-income countries, such as when the European Union subsidized the premiums associated with parametric insurance under the Caribbean Catastrophic Risk Insurance Facility. This idea of involving philanthropies in risk-pooling not only provides potential benefits many times greater than the cost: it would also give philanthropies leverage to help convince countries to take important climate adaptation measures before a disaster hits.
5) Develop Better Climate Adaptation Metrics
As philanthropies scale up their partnerships with the MDBs, the need for better metrics of climate risk reduction, resilience-building and loss and damage financing needs will continue to grow. All stakeholders and financiers need better metrics on how much risk reduction can be purchased through specific actions. For example, WRI is working with the Gates Foundation and ClimateWorks on improved economic analysis and metrics of the costs of reducing climate vulnerability. In fact, a wide range of analytical approaches are being tested — everything from tracking inputs (expenditures) to outputs (project deliverables) to outcomes (net risk reduction). Some are geared to the project level and others at the national level; some support donor priorities and others try to incentivize private sector investment.
Foundations, as informed partners to donors, governments and communities, should continue supporting the research and technical assistance required for all parties to converge on commonly accepted metrics. As vested partners, philanthropy can and should play an important role in debates over how adaptation and resilience financing — and loss and damage financing — gets measured, monitored and evaluated in the years to come. In short, improved metrics would, according to the World Bank, “create incentives for countries, donors, and the private sector to engage in more and better adaptation; to more effectively report on what the MDBs and clients are doing; and to establish a global standard for financial markets and public procurement.”
Scaling Up Climate Adaption Finance with Help from Philanthropies
Poverty is a chief driver of vulnerability, and in the absence of improved adaptation, climate change will worsen both vulnerability and poverty. Therefore, the task of building climate adaptation and resilience falls on all countries and donors alike. Every government will need to understand how to better manage climate impacts from the macroeconomic level of sovereign risk down to the local level of affected communities and impoverished households. Philanthropies can scale up their valuable work in their more traditional areas such as:
- Supporting developing country governments to build knowledge and capacity to better understand the economic and social implications of their physical climate risks, and to prioritize and sequence the most cost-effective interventions.
- Providing finance at the community level and/or providing support mechanisms that allow central government funding to reach the local level, whether for local adaptation investments, disaster risk management or build back better programs.
- Helping to cover the cost of sovereign disaster risk insurance, an important yet under-implemented option to help low-income manage unforeseeable risks with macroeconomic and fiscal impacts.
In addition, philanthropies can dramatically help step up the level of climate adaptation finance by proactively engaging with donors and governments in new ways. The first four proposals, above, represent significant changes in the role and scale of philanthropy — none of which are impossible given the growing number of large foundations in the 21st century. To the extent that foundations can join together and speak with a common voice, their voice would be stronger and facilitate progress more efficiently. The unprecedented challenge of climate change adaptation itself requires a higher level of philanthropic engagement.
An earlier version of this article first appeared in the e-Book “Pathways to Unlocking Climate Finance for Africa,” published by the Climate High-Level Champions Team under the UNFCCC.
