As global climate finance falling woefully short, India may need to start charting its own course to sustainability—leveraging domestic resources, financial innovation, and strategic investments to bridge the funding gap

The year 2024, the warmest year on record, marked a turning point in the global climate crisis.

The world officially breached the 1.5°C temperature threshold. Climate systems are now closer than ever to irreversible tipping points. At a time when the world needed to show renewed urgency, the year ended with a double setback. Negotiations at COP29 in Baku, Azerbaijan, resulted in a paltry $300 billion commitment from the rich countries, which came laden with caveats. On the other side of the world, former US president and climate denier Donald Trump was reelected to power.

For India, an emerging economy that is already facing the worst impact of climate change, these developments confirm what it had already known for a while now—it has to start looking inwards to fund its climate battle. India’s annual Economic Survey presented earlier this year in Parliament clearly says that the shortfall in climate finance “may lead to a reworking of the climate targets.” Beyond phasing out fossil fuels, climate finance is critical for India to build resilient infrastructure, accelerate clean energy adoption, and safeguard vulnerable communities.

With international climate finance falling short, what are some of the alternate strategies that India can adopt to generate climate finance? Experts suggest tapping into multilateral development banks (MDBs), sovereign wealth funds, pension funds, and private equity investments, while simultaneously mobilising domestic resources through commercial banks, non-banking financial corporations (NBFCs), and institutional investors. According to them, addressing high capital costs and improving credit access is essential, as is reforming MDB mechanisms to provide affordable concessional funding instead of high-interest loans.

India’s response to this funding crisis will not only help set its own climate trajectory, it will also establish its role in global climate leadership. Experts believe India has a chance to turn its financial constraints into an opportunity for innovation and resilience, thereby securing its climate future.

Climate crisis at its peak

The planet is heating up at an alarming rate and Earth is fast approaching a tipping point. The past decade has seen record-breaking temperatures, with 2024 being the warmest on record. Despite being a La Niña year, India recorded its warmest January this year. The Himalayan glaciers are melting at twice the previous rate and ocean temperatures are rising four times faster than in the 1980s. These shifts have led to increased floods, landslides, droughts, and cyclones, causing economic devastation and loss of life.

According to a report by the World Meteorological Organisation (WMO), “Economic losses from drought, floods and landslides have rocketed in Asia.” The report says that in 2021 alone, weather- and water-related hazards caused total damage of $35.6 billion, affecting nearly 50 million people. There were more than 100 natural hazards events in Asia that year which caused almost 4,000 deaths.

A report by CEEW predicts that production losses in rice, wheat, and maize alone could go up to $208 billion and $366 billion in 2050 and 2100, respectively. An ADB report says 300 million Indians could face coastal inundation, leading to a 24.7% GDP loss by 2070.

The developing world and a country like India needs urgent climate finance to fight the impacts of global warming. But there are various estimates about how much climate finance India will need to deal with the challenges of rising temperature.

India’s climate finance needs: A growing gap

The Indian government estimates $2.5 trillion will be needed by 2030 or $170 billion annually to achieve its Nationally Determined Contribution (NDC) under the Paris Agreement in 2015. India has since updated its NDC, therefore even this figure may fall short.

A report of an independent high level expert group on climate finance released at COP29 last year said emerging markets and developing countries (EMDC) other than China need $2.3-2.5 trillion per year of investment in climate action by 2030.

“[T]he projected investment needs of around $2.4 trillion per year in 2030 for EMDCs other than China, around $1.6 trillion is for the clean energy transition, $0.25 trillion for adaptation and resilience, $0.25 trillion for loss and damage, $0.3 trillion for natural capital and sustainable agriculture, and $0.04 trillion for fostering a just transition,” the report said.

While the Global South demanded $1.3 trillion at COP29, they got just $300 billion, which will be given by 2035. This massive shortfall was strongly criticized by the Indian government and climate observers.

Climate finance roadmap for India: Challenges and solutions

As an emerging economy with a population of over 1.4 billion people, India needs vast funds for basic education, employment and poverty alleviation. According to a UN report published in 2019, India needed to spend 10% of its GDP to meet the sustainable development goals (SDGs) by 2030. That is an estimated $2 per person per day. Considering only half of the Indian population needs support from the government, India will still require $1.4 billion per day (considering the population 1.4 billion) which comes to more than $500 billion per year.

Experts say India’s climate goals will be impacted as the government will mostly rely on domestic funding for climate change, as indicated in the Economic Survey. “The funding shortfall may lead to a reworking of the climate targets. Considering that domestic resources will be the key to action, resources for meeting development challenges may be affected, undermining progress toward sustainable development objectives and compromising the integrity of international climate partnerships,” the survey stated.

RR Rashmi, a climate change expert and distinguished fellow at New-Delhi-based The Energy and Resources Institute (TERI) says the “decision taken in Baku is quite clearly a disappointment.” Speaking to CarbonCopy, Rashmi said that before the Baku conference, many countries were expecting that international finance will drive ambition towards the climate goals, but now it is clear that it won’t happen.

“We have already overshot the temperature barrier and quite clearly we will miss the global targets. This is due to many factors including the inadequacy of climate finance. The other major reason is the inadequacy of efforts on the part of developed countries. That inadequacy is getting reflected in their financing commitments,” Rashmi said.

Leveraging alternative financial mechanisms

Union minister for environment, forest and climate change Bhupendra Yadav told the Parliament earlier this month that India has received $1.16 billion as climate finance so far. This amounts to less than one percent of India’s annual requirement ($170 billion) for climate action. Yadav told Parliament that most of India’s climate action is financed by domestic resources.

A report published by Climate Policy Initiative (CPI) last year stated that “despite the challenges, India has made commendable progress in attracting green finance.”

As per CPI estimates in 2019-20, a total of $44 billion was raised, marking an increase of 150% on 2017-18. These strides are laudable but inadequate. Current investment represents approximately 25% of the total required across sectors just to meet the country’s NDCs. While climate-related foreign direct investment (FDI) has increased substantially, to reach $1.2 billion in FY 2020, this only accounts for ~3% of total FDI during that year.

At COP29, a new climate funding regime, the New Collective Quantified Goal (NCQG), was adopted. The NCQG replaces the annual $100 billion assistance provision from developed countries to developing nations, which was agreed upon at the Paris COP in 2015. While the climate finance target has supposedly tripled under the NCQG ($300 billion), it is considered highly insufficient given the needs of developing countries, which are running into trillions annually.

It is also anticipated that India, being a large economy, will not receive any grants under the NCQG, and the needs of Least Developed Countries and Small Island states will be prioritised. A major portion of India’s climate finance will likely be generated through domestic sources, or loans from Multilateral Development Banks (MDBs) and agencies, and bilateral mechanisms.

Avinash D. Persaud, who is the Special Advisor on Climate Change to the President of the Inter-American Development Bank, Washington DC, told CarbonCopy, “India is already financing its green transformation domestically. But that will mean the pace is not fast enough, because the size and pace of the investment required to protect the planet outstrips available domestic savings in all developing countries except China.”

The high cost of capital is a challenge for developing countries. To meet the vast demand of climate finance, India will require soft loans of long duration, equity investment and technology transfer at a faster pace.

The CPI report says: To bridge the climate finance gap, India needs to exploit the rapidly growing pool of global green capital from sovereign wealth funds, global pensions, private equity, and infrastructure funds. Ways to do so include addressing barriers to investment in transition projects, fostering a sustainable finance ecosystem, and diversifying funding sources.

Persaud says, “The domestic investment will need to be augmented by foreign investment, perhaps to buy — at high prices — those investments that have already been made and the start-up risks taken by local investors who would then have the cash from selling those investments to foreign investors, to go and invest more locally.”

Labanya Prakash Jena, a sustainable finance expert, says India has largely mobilised capital from the domestic market, although foreign investment in climate mitigation keeps rising in India.

“Commercial banks and NBFCs will continue to allocate capital to renewable energy and clean transportation. It is important India needs to look at other sources such as pension funds, insurance companies, and mutual funds to mobilise capital. These sources of capital are largely untapped,” Jena said.

The role of MDBs

The role of multilateral development banks (MDBs) is important in providing climate finance, particularly to low- and middle-income group countries. They can help these vulnerable countries to achieve their climate goals. At COP29, MDBs issued a joint statement saying that “by 2030, their annual collective climate financing for low- and middle-income countries will reach $120 billion.”

“MDBs significantly exceeded their ambitious 2025 climate finance projections set in 2019, with a 25% increase in direct climate finance and mobilization for climate efforts doubling over the past year,” the joint statement said.

The NCQG makes MDB finance legally part of agreed climate finance. Paragraph 8C of the document recognises “all climate-related outflows from and climate-related finance mobilized by multilateral development banks towards achievement of the goal”.

According to Rashmi, it is now the duty of the developed world to ensure a “concessional flow” of funds so that countries like India do not suffer high cost of capital while availing the long term longs for climate action.

“Since the requirement of climate finance is that it should be concessional by nature, it becomes an obligation on the developed countries to create mechanisms through the MDBs to allow the concessional funds to flow and rate of capital to go down. It can be through a sovereign guarantee mechanism, partial credit guarantee mechanism or by creating let’s say a hedge fund for meeting the currency cost or the fluctuation in the currencies,” Rashmi said.

There are more than 40 multilateral financial institutions and bilateral development corporations and agencies listed in the UN website, including the Asian Development Bank, European Investment Bank and World Bank. Bilateral agencies are mostly located in the US, Europe and Australia.

Jana said, “The MDBs can provide risky capital (e.g. credit enhancement), which can improve the credit profile of climate businesses. This will attract these low risk-seeking institutional investors. It is important that this risky capital must be at an affordable rate (e.g. less credit guarantee fees for partial guarantee), which will be attractive for the users of capital.”

But there are some problems as well. As highlighted by the authors in this piece of World Resources Institute (WRI), the “MDBs need to improve the quality of their climate finance and ensure sufficient concessionality to match needs.” Authors also underline the “continued financing of fossil fuels”, which is detrimental to climate actions. Also the share of climate finance going to the most vulnerable countries is decreasing.

Adaptation versus mitigation: The issue of unequal funding

India has ambitious mitigation plans with a target to achieve net-zero emissions by the year 2070. But being among the most vulnerable countries to the impacts of climate change, India needs to work on adaptation so that it can deal with loss and damage and build a climate resilient infrastructure. Extreme heat, prolonged droughts, water scarcity, sudden floods, and frequent cyclones can damage infrastructure, hamper crop yields and impact the economy.

In such a situation, a natural question also arises whether climate finance is equally available for both adaptation and mitigation projects? Although the “thumb rule”, according to experts, is that finance should be divided equally between mitigation and adaptation, the former gets financed relatively easily, while it is hard to get finance for the latter.

Jena says, “Climate adaptation is considered to be a public good, which is struggling to attract private capital. It means they will continue to rely on public capital. So, it is more problematic for developing countries than developed countries, including India where fiscal muscles of governments are limited.”

The Economic Survey declares “It [India] has to focus a lot more than it has so far on adaptation than on emission mitigation”. It clearly says that “vulnerable developing countries such as India need to undertake climate adaptation on an urgent footing as this has a direct impact on lives, livelihoods and the economy.”

However, the intentions shown in the Economic Survey to give priority to adaptation do not match the records and reality so far. The National Adaptation Fund for Climate Change (NAFCC) was established to support adaptation activities in the country. This fund, however, was transformed from scheme to non-scheme in 2022. According to an analysis by Down to Earth, NAFCC has not received any budget since 2022-23. The budget of the National Coastal Mission has been reduced, while no budget has been allocated to the programme O-SMART (Ocean services, Modelling, Application, Resources and Technology) in the past two years.

However, the government has increased the budget of the National Mission for a Green India (NMGI) from ₹160 crore in 2024-25 to ₹220 crore in 2025-26. The government has also launched some ambitious projects like ‘Mission Mausam’ (to make the country ‘Weather-ready and Climate-smart’ ) in 2024, with a budget outlay of ₹2,000 crore for two years.

Since developing countries and Least Developed Nations (LDCs) are more vulnerable to climate-induced extreme weather events, they also need finance for loss and damage, which is even more difficult.

Jana says, “Loss and damage fund is a post-event fund where capital [aid] will come after the event has occurred. Only public finance will be able to fund these, unless assets are ensured.”

Persaud says with public support, private savers can finance much of mitigation and public savers can finance much of the climate adaptation that generates future savings, such as investments in climate resilience, health and infrastructure. He says financing loss and damage generates few savings and no revenues and this must be financed by grants.

“Grants are scarce at the best of times and so new sources will have to be found, like taxes on emissions in shipping and transport more generally and a reduction in subsidies for polluting industries,” He said.

Hiding behind Trump

The return of a climate-skeptic US administration raises concerns that global climate finance commitments will weaken further. Nakul Sharma, programme coordinator of Climate Action Network South Asia warns that Trump’s policies could shift India’s climate strategy inward, prioritising agriculture, energy diversification, and urban resilience over ambitious renewable energy goals. “In the absence of fair and funded means of implementation (MoI), India in particular, which had historically committed to international climate ambition beyond its fair share, will now recalibrate its strategy from relying heavily on implementation in sectors such as renewable to an inward-looking approach where sectors such as agriculture, new and innovative energy sources and building climate resilience of its urban agglomeration will be priorities,” Sharma said.

This is India’s opportunity to drive meaningful reforms in climate finance and set a precedent for developing nations. The challenge is immense, but with adequate planning and policy innovation, India can create a model for sustainable development, experts say.

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Asia faces a massive $1.1 trillion annual investment gap for climate and nature goals – catalytic capital is essential to unlock private investment at scale.

Asia already hosts half of global emissions and several green initiatives are already gaining ground, making it uniquely positioned to lead on climate action.

Despite many promising initiatives, the region’s impact investment landscape remains fragmented, requiring a shift to a more cohesive ecosystem.

From typhoons in the Philippines to droughts in India and floods in Thailand, Asia is already facing some of the world’s most severe climate impacts.

The region also holds the key to accelerating climate progress, accounting for 51% of carbon emissions and 82% of coal generation. Yet financial responses remain far from sufficient.

Public funding and traditional finance alone won’t meet the moment. Asia needs a shift to catalytic, risk-taking investment that drives systems change.

Drawing on insights from more than 40 regional leaders, it charts a path to scale high-impact investments and redefines what “investability” means for sustainable development.

Urgent investment gap

Asia requires an estimated $1.1 trillion annually by 2030 to meet its climate and nature goals. Current investment levels stand at just a third of that, leaving a daunting gap. But this is not just a matter of numbers; it’s a matter of how capital flows are designed.

High-impact projects in nature restoration, climate resilience and community-led adaptation remain underfunded, mainly due to small ticket sizes, perceived risk and a lack of proven business models.

Simultaneously, capital providers: governments, investors, philanthropies – often work in isolation. Promising initiatives struggle to grow or even get off the ground due to a lack of the right kind of integrated platforms for collaboration or vehicles that can blend funding types.

“To meet the scale of the climate and nature crisis, we can’t keep funding safe bets in unsafe times,” says Naina Subberwal Batra, chief executive officer of AVPN, Asia’s largest network of social investors.

“Asia has both the capital and the conviction to lead a regenerative future but only if we move from fragmented pilots to a shared investment agenda that’s anchored in trust, aligned action and long-term vision.”

Catalytic capital key to unlocking systemic change

The report highlights the transformative power of catalytic capital – risk-absorbing, concessional or early-stage funding that unlocks larger private investment.

This includes financial tools such as blended finance, first-loss guarantees and outcome-based structures that align public, private and philanthropic funds around shared environmental and social outcomes.

Philanthropic capital is particularly unique and powerful. Its flexibility, mission alignment and early-stage risk tolerance make it ideal for funding enabling infrastructure, piloting models and supporting policy advocacy.

But systemic change requires more: a coordinated capital ecosystem where all finance types – philanthropic, public, commercial – work in synergy, anchored by shared goals, strong governance and a commitment to climate and nature solutions.

“ Each of us has a role to play in building an ecosystem where innovations can thrive and scale, and no one can do it alone. ” — Ng Boon Heong, Executive Director and Chief Executive Officer, Temasek Foundation

Innovative finance driving systemic change

Across Asia, dozens of promising initiatives are already deploying innovative finance models for climate and nature, although many remain fragmented or too small to shift systems. The report highlights several standout examples:

The Monetary Authority of Singapore’s FAST-P is a $5 billion blended finance initiative, anchored by $500 million in government concessional capital, to fund green and transition projects in Asia and drive decarbonization in energy, infrastructure and industry across Southeast Asia.

The Green and Sustainable Finance Cross-Agency Steering Group reinforces Hong Kong’s sustainable finance hub role by aligning regulators and agencies to improve disclosures, promote green tech and advance transition finance across the region.

The Indonesia Just Energy Transition Partnership is channelling $20 billion in public and private finance to support a low-carbon power shift, targeting 34% renewables by 2030 and net-zero emissions by 2050.

“FAST-P brings together the right partners, financial tools and strategic frameworks to unlock high-impact, low-carbon investments at scale, accelerating climate solutions where they’re needed most,” says Kitty Bu, vice president of GEAPP, a FAST-P project partner, honoured with the inaugural GAEA Award in January.

Priorities for accelerating impact investments

While the examples above demonstrate that innovation is alive and thriving in Asia, new ways of thinking, partnering, and funding are required to reach a broad-scale impact. To shift from isolated innovation to systemic transformation, the Accelerating Impact Investments for Climate and Nature in Asia report lays out key actions, including:

Build pipelines of investable climate and nature solutions: Support early-stage prep, project aggregation and technical assistance, especially for nature-based and adaptation projects, to address the shortage of bankable opportunities.

Scale catalytic capital and blended finance: Use tools such as concessional loans, guarantees and first-loss capital to de-risk investment. Support local fund managers and accelerators to boost impact at scale.

Strengthen the enabling environment: Make taxonomies, metrics and data platforms transparent to build trust, as is done by the Taskforce on Nature-related Financial Disclosures. Align policies to incentivize nature-positive investment.

Foster radical collaboration and shared governance: Foster co-financing, shared governance and knowledge exchange through multistakeholder platforms and public-private-philanthropic partnerships.

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A new era of opportunity for people and planet

With the world falling short on climate goals and traditional leadership lagging, a key question emerges. Is Asia the next frontier for clean energy, green technology, and innovative financing that will create prosperity while safeguarding the planet?

Asia faces the highest stakes but also has the appetite for innovation and collaboration. The region hosts the largest share of global emissions and the boldest shifts across finance, infrastructure, energy and nature.

“Each of us has a role to play in building an ecosystem where innovations can thrive and scale, and no one can do it alone. Partnerships will be key to delivering impact.

“That’s why events like the One Earth Summit matter, bringing leaders across sectors in Asia to accelerate the sustainable transition through bold, coordinated actions, shared knowledge and capabilities together,” says Ng Boon Heong, executive director and chief executive officer of Temasek Foundation.

The challenge – and opportunity – is to align capital with solutions, scale catalytic investments and build ecosystems that drive environmental and economic resilience.

This is more than a crisis; it’s an inflection point. With growing regional cooperation, shifting geopolitics and emerging leadership, Asia could define the next era of climate action – systemic, purposeful and collaborative.

COP29 held in Baku, Azerbaijan, offered an important opportunity for governments and other global stakeholders to put in place the mechanisms, tools and signals required for countries to continue implementing their contributions to the Paris Agreement as urgently needed. The main areas of negotiation were on:

the design and key elements of the future climate financial architecture and the next collective quantified goal (NCQG) on climate finance;

the rulebook for the future international, compliance carbon markets; and

countries’ collective signaling on mitigation ambition, as follow up to the various energy transition objectives captured in last year’s COP28 ’UAE Consensus’.

As widely reported elsewhere, while opportunities were missed to create the required clarity and determination on finance and ambition, there was some good news, even a breakthrough, on the establishment of government-backed, international carbon markets of the future.

This summary highlights the recent, impressive achievements of the UNEP FI-convened net-zero groups, progress on financing climate adaptation, and the implications for financial institutions of some of the summit’s outcomes.

Outlining the implications of COP29 outcomes for financial institutions

On climate finance: Governments reached agreement on financing for developing countries, firstly a ‘goal’ of USD 300 billion by 2035 which represents a tripling of the last goal agreed on at the Copenhagen COP in 2009, and a second wider, ‘aspiration’ of USD 1.3 trillion to be mobilized by 2035. It is not clear how these sums will be raised and who will deliver the finance, which may prove problematic.

On carbon markets: The only real breakthrough at COP29 was the finalization of rules pertaining to international, high-integrity government-backed carbon markets, after a decade of negotiations. This is good news because carbon markets reduce the cost of decarbonization and as such can increase member states’ ambition to decarbonize to the levels that we need.

Showcasing ambitious action on decarbonisation, signalling to policymakers

UNEP FI’s role at COP29 was to showcase the leadership that the finance industry is demonstrating to advance decarbonisation around the globe and sustain the ambition to keep to 1.5 degrees of warming. As the convener of the world’s largest network of banks and insurers, it is part of UNEP FI’s remit to remind governments and their delegations, as they take part in negotiations on their contributions to climate finance, of the commitments and the progress that large groups of financial institutions have already made, and to amplify the voice of financial institutions as they call on policymakers to take more effective action.

Through the UNEP FI-convened net-zero alliances, hundreds of financial institutions have committed to aligning all their financing with 1.5 °C, many having already set quantitative near-term targets, and are now reporting year on year on 1.5 °C compatible decarbonization progress.

Net-Zero Export Credit Agencies Alliance: Aligning trade finance with net zero

A key UNEP FI-led initiative at COP29 was the launch of the Net-Zero Export Credit Agencies Alliance (NZECA)’s first Target-Setting Protocol. The new tool provides guidance to export credit agencies (ECAs) and export-import banks (Exlm) on setting long-term and intermediate science-based climate targets and related disclosures, helping members to fulfil the commitments they have made.

ECAs and Exlm banks play a pivotal role in financing large-scale industrial and infrastructure projects that are critical to the global economy. While the Protocol is primarily developed for setting NZECA members on the path to net zero, it can also be used by a wide variety of ECAs and ExIm banks from around the world to accelerate the decarbonisation of international trade globally. It will be updated regularly, and members will report on their target-setting progress via an annual progress report.

The NZECA Target-Setting Protocol highlights UNEP FI’s ability to convene diverse stakeholders and develop actionable solutions that balance economic growth with climate objectives. The work of NZECA provides a model for aligning large-scale financing with the goals of the Paris Agreement.

Forum for Insurance Transition to Net Zero: Closing the gap on transition plans

The UNEP led and convened Forum for Insurance Transition to Net Zero (FIT), launched its inaugural report at COP29. “Closing the gap: The emerging global agenda of transition plans and the need for insurance-specific guidance” is the first global guide on transition plans for insurance companies and first deliverable of the FIT Transition Plan Project.

The FIT report provides a first-of-its-kind global roadmap to help insurance companies develop and disclose credible transition plans in the context of their underwriting portfolios. To better understand the need for and importance of transition plans, the report also outlines the existing typology of transition plans, the landscape of emerging policies and regulations relevant to transition plans, and the evolution of transition plan frameworks and guidance.

Insurers, in their triple role as risk managers, risk carriers and investors, play an important role in helping to support a just transition to a resilient net-zero economy. The FIT guidance provides actionable steps to help insurers turn their climate ambition into climate action.

demonstrating significant progress on their commitments ahead of COP29

In the lead-up to COP, the Net-Zero Asset Owner Alliance (NZAOA) and Net-Zero Banking Alliance (NZBA), published progress reports demonstrating that financial institutions continue to join the pioneering groups and reporting the advances they are making in setting science-based targets, publishing transition plans, and by showing increasing portfolio alignment with the Paris Agreement. NZAOA also published its updated position on governmental carbon-pricing following a call to governments to understand climate change as the largest source of systemic risk earlier in the year.

Calling on g overnments to act : over 600 financial institutions sign the Global Investor Statement on Climate Change

The final iteration of the Global Investor Statement on Climate Change was published just ahead of COP. Over 600 institutional investors representing more than USD 30 trillion in assets under management used the statement to call for policy action, asking governments to take action in several areas such as: ensuring that 2030 and 2035 targets in Nationally Determined Contributions (NDCs) align to limit global temperature rise to 1.5°C and are submitted to the UNFCCC by early 2025; implementing robust carbon pricing mechanisms, and removing fossil fuel subsidies and replacing them with clean energy subsidies or tax breaks that boost clean energy deployment and bolster low-emission fuels. This year, over 30 banks also added their name to the list, signaling to policymakers that these requests come from financial institutions across the industry and the globe.

The New Collective Quantified Goal: A blueprint for scaling climate finance

At COP29, UNEP FI played a leading role in bringing together financial experts from public and private financial communities worldwide, from developed and developing countries, to craft a set of consolidated recommendations as to how countries should design and implement the NCQG for maximum climate mitigation and adaptation investment and impact, particularly in developing countries and emerging economies.

These expert recommendations underscore the urgency of scaling climate finance to align with the magnitude of the Paris Agreement’s objectives. In fact, to set the world on a Paris-compatible path, the NCQG needs to play a catalytic role in quadrupling climate finance flows over the next two to four years, with a focus on directing resources to developing countries. UNEP FI’s contributions emphasized the need to leverage public finance to unlock private capital, particularly through concessional financing mechanisms, policy reforms, and systemic interventions that create investment-friendly environments.

Key recommendations included ensuring that public finance supports regulatory and jurisdictional interventions to make Paris-aligned investments more financially viable than non-aligned ones. This strategic approach aims to address barriers to scaling private finance, particularly in emerging markets and developing economies (EMDEs), where financing gaps remain most acute.

UNEP FI’s involvement in the NCQG framework demonstrates its commitment to bridging the gap between public and private finance. As negotiations progress, UNEP FI will continue to advocate for policies that enhance financial flows for climate mitigation, adaptation, and resilience.

Addressing adaptation finance gaps

COP29 also highlighted the urgent need to scale adaptation finance, with UNEP FI emphasizing the role of concessional finance, metrics, and taxonomies in mobilizing private investment. The Adaptation and Resilience Investors Collaborative (ARIC), supported by UNEP FI, showcased strategies for leveraging public finance to unlock private capital for resilience-building initiatives in climate-vulnerable regions.

These discussions underscored the importance of integrating adaptation finance into the broader climate finance framework, ensuring that developing countries have access to the resources needed to build resilience against escalating climate impacts.

Reflecting on COP29: A foundation for future action

COP29 served as a platform for UNEP FI to demonstrate the financial sector’s leadership in addressing climate challenges. Through initiatives like the NCQG, NZECA, and FIT, UNEP FI showcased the potential of finance to drive systemic change. However, the conference also revealed significant gaps in implementation, accountability, and ambition, underscoring the need for continued advocacy and innovation.

Looking ahead

As attention shifts to COP30 in Belém, Brazil, and we note that two member states, Brazil and the UK, did convey that their next NDCs would be of much higher ambition than their previous ones, the hope that COP29 would serve as a springboard for higher levels of country ambition ahead of the next submission round of countries’ climate plans in the first half of 2025 did not materialise, nor was there clarification on the previous agreement at COP28 in Dubai to triple global renewable energy capacity and double the average global annual rate of energy efficiency improvement by 2030 to support the transition away from fossil fuels.

However, UNEP FI’s work at COP29 and beyond does lay a solid foundation for future progress for financial institutions to play their part in growing climate finance. UNEP FI remains committed to supporting its members in aligning financial systems with global climate goals providing the tools, insights, and partnerships needed to translate ambition into action. By providing learning opportunities, developing actionable frameworks, and advocating for systemic policy changes, UNEP FI will continue to lead the charge in mobilizing finance for a sustainable, resilient future. Together, the financial sector and its stakeholders can turn today’s challenges into opportunities, ensuring a just and sustainable transition for generations to come.

To support the 2024 agenda of the G20 Sustainable Finance Working Group, this report presents case studies that have used blended finance to surpass barriers to investments in Nature-based Solutions (NbS).

The wide scope of NbS generates unique financing considerations. NbS is an overarching term for varied approaches spanning multiple sectors, such as fisheries, forestry, and agriculture. Nature—and the benefits of NbS—is considered a public good, which is often dispersed among a multitude of stakeholders and difficult to capture and monetize. As a result, financing NbS pose different considerations than other areas of climate action.

We can apply lessons from other sectors, but there is no one-size-fits-all financing approach for NbS. Blended finance has been used to mitigate various risks in mature sectors, such as renewable energy, with successful approaches being transferred from developed economies to emerging economies. While NbS-relevant sectors often face similar challenges—e.g., country, currency, and credit risks—markets for such interventions are at an early stage, requiring efforts to create and prove the viability of commercial investment at scale.

Private sector engagement in NbS is still far from mainstream, and an exclusive focus on this could divert attention from key actions required to help the market grow. Blended finance can use de-risking tools such as technical support, and concessional capital to drive private sector interest in NbS, but there are phases of implementation that should first be considered. While concessional capital providers often direct funds based on potential for private capital mobilization and capacity to achieve scale, a wider view NbS is needed.

Given their nascent stage of development, NbS require efforts on ecosystem building and fostering enabling conditions, which do not typically involve private capital. Support to build this ecosystem and thus de-risk investments is vital and can be provided through direct technical or financial assistance, with the most effectiveness coming from a combination of both approaches.

Investing in teams, educating investors, and piloting new approaches are essential to demonstrate NbS’ potential for profitability. The focus should be on proving the commercial viability of NbS investments and the capacity of certain approaches to achieve returns, even if this requires efforts at a smaller scale to later be replicated.

Given its limited availability, concessional capital must be used carefully to create the greatest impact across NbS-relevant sectors. Based on the analyzed cases, we derived the key findings below.

Although new, proven and scalable renewable-energy projects are attracting considerable investor interest, one critical part of achieving net zero continues to be neglected—namely, the accelerated phasing down of coal-fired power plants. Ninety percent of the world’s young coal-fired power plants—which have an average age of 13.5 years—are in Asia, and they need to be retired soon if climate goals are to be met. In India, coal-powered electricity accounts for more than 70% of generating capacity. Much of the global private investment community is pivoting away from coal-focused projects, preferring to invest directly into lower- or no-carbon sectors. “We are seeing investors focus a lot more on sustainable investments, not just in renewable energy but also in related sectors like storage,” explains Sharon Tay, chief executive officer of Keppel Asia Infrastructure Fund (KAIF). “Which is one of the reasons why the investment strategy for our follow-on value-add infrastructure fund, KAIF II, focuses on the sustainable urbanisation and decarbonisation agenda.”

When it comes to encouraging the transition away from fossil fuels, a blended finance model can add real value—reducing the return-on-capital investment risk for private finance (as well as the prospect of being saddled with stranded assets) by partnering with major public finance players including the World Bank and regional institutions such as ADB. Indonesia’s Energy Transition Mechanism focuses on using concessional and commercial capital to accelerate the retirement or repurposing of fossil fuel power plants and replace them with clean energy alternatives.

For example, ADB is currently working on the early retirement of a 660-megawatt coal-fired power plant in Indonesia. ‘By providing cheaper concessional finance combined with commercial money, blended together, we can ensure that the cost of financing is more attractive than the current financing,’ explains Surtani of the ADB. ‘By discounting future cash flows under a power purchase agreement, a new blended financing structure allows the retirement of the coal-fired plant earlier while keeping the existing shareholders whole. Otherwise, you are not going to convince private-sector investors to close down a plant that they have invested hundreds of millions of dollars in.’

Blending finance from public and private sources could help accelerate the shift away from coal by reducing the cost of capital, thereby shortening the payback period of a power station and hence inducing investors to accept the early retirement of their asset.