By: Gopalika Arora
The following excerpt is from Chapter 4 — Who Will Pay for Climate Action Now? of ORF Global Quarterly: Energy and Tech: Powering the Future.
Despite strong and sustained multilateral efforts, global climate finance continues to fall short of the needs of Emerging Markets and Developing Economies (EMDEs), and the gap between financing needs and actual flows continue to widen. According to the Independent High-Level Expert Group on Climate Finance (IHLEG), annual global climate finance requirements will reach US$6.7 trillion by 2030 and US$8.1 trillion by 2035. Of this, EMDEs will require some US$2.5 trillion annually by 2030 and US$3.1 trillion by 2035. However, the actual finance received by these economies has historically fallen short. In 2023, for example, EMDEs other than China mobilised only US$385 billion, which is 15 percent of the total annual requirement.
This retrenchment of finance is not merely a result of a temporary slowdown in climate finance commitments by the developed countries. It may also signal a deeper restructuring of the climate finance architecture driven by changing institutional priorities within the multilateral system that was expected to anchor the transition. Reversing this trend will require global policymakers to address three key challenges: where finance is flowing; on what terms it is being provided; and whether the institutions expected to support the transition to a renewable energy future remain available and fit for purpose.
To be sure, climate finance is just one part of a rapidly evolving global financial architecture. Traditional sources of public and private capital are becoming less predictable, while global multilateral finance institutions like the World Bank face growing political pressure to roll back climate policies and financing. At the same time, alternative sources of capital are emerging on terms that may not align with the needs of EMDEs. For these countries, the challenge is not only to mobilise more financing but also to secure financing that is affordable, accessible, better distributed across climate priorities, and aligned with development needs.
Policymakers across the globe should adopt three priorities for the 2026 climate finance agenda: 1) reorienting private finance towards underserved sectors and geographies; 2) restoring concessional finance (finance at better than market rates) and working through MDBs to de-risk project pipelines and lower the cost of capital; and 3) reinforcing South-South cooperation as a growing channel for finance, technology transfer, and knowledge sharing.
Climate finance is changing in ways that extend beyond the size of the funding gap. Who provides capital, the terms attached to it and the priorities it serves are becoming central to the debate. Learn more in ORF Global Quarterly: Energy and Tech: Powering the Future.