Why is multilateral finance important?
Recent analysis by A&O Shearman and the Climate Policy Initiative indicates a mixed message: while there is progress, there are also persisting gaps. Global climate finance reached a record USD1.9 trillion in 2023 (expected to surpass USD2tn in 2024), and if growth continues at its recent pace, the world could meet the lower bound of required annual investment between 2029 and 2032. However, the financing gap is widest in developing countries, and overall private flows have outpaced public investment—private climate finance contributions exceeded USD1tn for the first time in 2023. Elevated sovereign debt and constrained public balance sheets limit fiscal space for climate investment, with Official Development Assistance projected to fall. In theory, private capital could fill more of the gap, but in practice, only multilateral mechanisms can coordinate concessional capital at scale and deploy the risk-sharing tools needed to crowd in private investment.
This is particularly the case for adaptation financing for building resilience against existing impacts—for example, flood-resilient roads and defenses, early warning systems, and climate-resilient infrastructure. Unlike mitigation finance, where projects can present an obvious route to financial return, resiliency projects often struggle for basic commercial returns. Without government support to create revenue streams that enable resiliency projects to be commercially financed, adaptation finance is likely to remain the province of state and multilateral development bank funding and climate-focused philanthropy.
It is worth considering MDB climate financing to date. A recent joint MDB report shows that last year, MDBs’ climate finance totaled over USD136 billion, with USD85.1bn going to low- and middle-income economies (the World Bank Group remaining the single-biggest provider, supplying over 40%). Climate finance by MDBs in these countries has more than doubled over the past five years, with a 14% increase last year. Of this sum, 69%, or USD58.8bn, went to climate change mitigation, and 31%, or USD26.3bn, went to climate change adaptation. The amount of mobilized private finance for climate investments in these countries stood at USD33bn.
While the gap is widest in emerging markets and developing economies, in absolute terms advanced economies require the most investment—an additional USD2.9tn annually from 2024 to 2030 compared to 2023 levels. In 2024, MDBs’ climate finance for high-income countries totaled USD51.5bn, of which USD46.5bn (90%) supported climate change mitigation and USD5bn (10%) supported adaptation. The European Investment Bank was the single biggest provider (43%). The mobilized private finance for climate investments in these economies stood at USD101bn. This was three times the amount in low- and middle-income economies, indicating that MDB finance is able to crowd in private finance but, unsurprisingly, more effectively in developed markets.
Evaluating COP 30
Against this backdrop, did COP 30 mark a step change? Not evidently, but neither was it expected to. There was a headline-grabbing call to triple adaptation finance by 2035 compared to 2025 levels. And it emphasized the urgent need for public, grant-based and highly concessional resources—recognition that many developing countries lack the fiscal space for market-rate sustainable investment. However, a genuine breakthrough would have required decisive improvements in the enabling conditions for collective action to mobilize capital at scale, lower its cost for emerging markets and developing economies, and direct it reliably to high-impact projects. Any single COP is unlikely to deliver decisive innovation across all fronts. The path to scale is more likely to be incremental and cumulative, driven by ongoing system redesign rather than one-off pledges. In that spirit, the COP 30 presidency welcomed efforts to reform the international financial architecture, called for continued reform, and noted the need to reduce existing constraints, challenges, systemic inequities and barriers to accessing climate finance.
What to expect over the short, medium, and long term
In the short and medium term (6–18 months), continued adaptation of multilateral financing architecture and operating models is expected.
The 2023 Global Stocktake identified reform as a priority. The architecture is complex, with funds flowing through multilateral channels both within and beyond the UNFCCC and Paris Agreement financial mechanisms, as well as through bilateral, regional and national platforms. Within the UNFCCC mechanisms, replenishment of the Green Climate Fund remains essential. Similarly, key are pledges to operationalize funding arrangements for the UNFCCC’s Adaptation Fund, Least Developed Countries Fund and Special Climate Change Fund.
Over the long term (18 months–5 years), MDB reforms will be central in responding to COP 29’s invitation to financial institutions to recalibrate risk appetites for climate finance: expanding balance sheets, rotating toward catalytic instruments, and crowding in external capital.
Capital adequacy reforms in particular could ease constraints and permit greater risk-tolerant, mobilizing activity. This has been a core part of The MDB Evolution Agenda: a global reform initiative driven by the G20 to make MDBs “Better, Bigger, and More Effective” at meeting global challenges, such as climate change, around the key pillars of operational reform, financial capacity, and impact and availability. Other ways to expand MDB firepower include raising new forms of capital from wider sources through the issuance of hybrid capital instruments and more efficient use of existing capital, e.g., appropriately reflecting the value of preferred creditor status and callable capital in capital adequacy frameworks, freeing up capital through large-scale risk transfers to the private sector. The introduction of “enhanced callable capital” (capital that can be called earlier and thus potentially bear more risk) could unlock even more lending capacity, although it requires considerable effort between MDB stakeholders to agree, with each MDB having its own mandate, client countries and governance structure and with geopolitical relationships under strain.
There are many examples of the above concepts being implemented, and rating agencies have given a view that MDBs already have significant headroom for greater lending as a result. Examples of action to date include:
- The Asian Development Bank’s Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP), which uses first-loss guarantees of its sovereign loan portfolios by public, private and philanthropic financing partners to free up regulatory capital and expand its climate lending capacity.
- The World Bank Group has advanced a portfolio guarantee platform and hybrid capital and expanded climate-resilient debt clauses to cover more perils and charges, and committed to an even balance in adaptation/mitigation public-sector climate finance. In particular, it has launched an inaugural securitization of International Finance Corporation (IFC) loans, a step toward an “originate-to-distribute” model for emerging markets, and last September IFC was involved in the first closing under Singapore’s Financing Asia’s Transition Partnership for the Green Investments Partnership, a blended finance partnership supporting Asia’s green and transition financing needs.
- The Inter-American Development Bank Group has introduced flagship regional initiatives (e.g., Amazonia Forever and ONE Caribbean) along with risk mitigation instruments such as debt-for-nature swaps and currency-hedging programs, expanding access and affordability and enabling countries to release fiscal resources. Its innovative Biodiversity and Climate-Linked Mechanism for Ambition rewards borrowers with a 5% rebate on financing cost when pre-defined climate and nature KPIs are met.
- The African Development Bank’s Climate Action Window targets low-income and fragile states in Africa with grant resources and co-financing. The Bank also backs regional alliances such as the Alliance for Green Infrastructure in Africa, and has adopted climate-resilient debt clauses.
Beyond that, the toolset must continue to evolve to deliver risk mitigation at the right price and in forms responsive to constrained fiscal realities. MDBs will need to take more risk at concessional rates, expand guarantees and insurance, and further operationalize first-loss tranches, mezzanine structures, portfolio guarantees, and co-lending frameworks, particularly to catalyze first movers in hard-to-abate sectors. Last June, MDB heads collectively reaffirmed commitments to local currency lending and foreign-exchange solutions, tackling two critical barriers for private investors.
Additional instruments can complement this toolkit. For example, re-channeling IMF Special Drawing Rights through MDBs could allocate concessional resources to green projects. Debt-for-climate swaps can reallocate a portion of sovereign debt service to climate investments. Sovereign sustainability-linked instruments, as pioneered by Chile and Uruguay, can lower borrowing costs when climate KPIs are met. Facilities such as the Tropical Forests Forever Fund, managed by the World Bank and paying countries to preserve forests, suggest creative models that could be adapted to crowd in blended finance for broader climate action.
Standardization will also be pivotal. Country platform approaches, standardized blended finance instruments, scaled guarantees, and replicable documentation can cut transaction costs and lower the cost of capital where it is highest. Above all, predictable project pipelines, aggregation platforms, and simplified access will determine whether capital flows to where it is most needed.
Finally, access frictions must be addressed. Reducing high transaction costs, burdensome conditionality, limitations on direct access, and heavy application and reporting requirements have become recurrent themes in COP deliberations. Several funds could accelerate approvals by simplifying fiduciary and environmental-social safeguards—without compromising integrity—and speeding disbursements for shovel-ready mitigation projects in renewables, grids, and industrial efficiency. Recent mutual reliance agreements among MDBs, designed to streamline the preparation and implementation of co-financed projects, point to practical improvements that can scale.
Multilateral finance remains the backbone of a credible global climate action because only it can blend concessionality, standards, and risk mitigation at scale. Whether COP 30 was a breakthrough will be judged less by communiqués than by execution in the next six to 18 months, including the outcome of the high-level ministerial roundtable and the two-year work program flagged in the final COP 30 text. The decisive verdict will come over the next five to ten years, measured in lower financing costs, higher investment volumes and tangible resilience and emissions outcomes where they are most needed.