Clarity and Equity in Climate Finance

As the world grapples with the urgent and escalating challenges of climate change, one tool has emerged as indispensable in our collective response: climate finance. These financial resources are vital for enabling developing nations to mitigate the impacts of climate change and adapt to its increasing threats, particularly for countries that are disproportionately affected yet contribute the least to global emissions. However, despite its critical importance, the absence of a universally agreed-upon definition of climate finance continues to sow confusion and foster mistrust. This lack of clarity, compounded by uneven financial efforts, has hindered progress and undermined the spirit of global cooperation essential for tackling the climate crisis.

The $100 Billion Target: A Milestone with Complexities

In 2009, developed nations made a landmark commitment: to mobilize $100 billion annually by 2020 to assist developing countries in addressing climate change. This goal, initially agreed upon at the Copenhagen Accord and reaffirmed in the Paris Agreement, represented a significant acknowledgement of the collective responsibility to provide the necessary support to nations that are most vulnerable to the adverse impacts of climate change. The goal was also extended through 2025, but its achievement has been fraught with delays, missteps, and significant complexities.

Recent estimates indicate that this target was finally reached in 2022, with approximately $106.8 billion in climate finance mobilized. While this milestone may appear to be a significant achievement on paper, a closer examination reveals that much of the progress was accomplished by reallocating existing development finance rather than providing new and additional resources. This outcome raises serious concerns about the extent to which the original promise—of new and additional climate finance—has been fulfilled.

Since 2009, global public development finance has increased by $67 billion, reaching a total of $243 billion in 2022. Yet this increase did not represent a greater financial commitment from donor nations. The percentage of gross national income (GNI) dedicated to development finance remained nearly constant—at 0.44% in 2022, compared to 0.45% in 2009. Similarly, official development assistance (ODA), excluding in-donor refugee spending, has stagnated at 0.31% of GNI. This suggests that a significant portion of the $100 billion climate finance target has been met by shifting funds from existing development budgets rather than through new financial contributions.

At least one-third of the $100 billion target was achieved by rebadging or repurposing development finance flows, raising serious concerns about the sincerity of the financial commitments made by developed nations. The lack of a clear and universally accepted definition of climate finance has only added to the complexity, making it difficult to assess whether countries are truly meeting their obligations.

The Absence of a Common Definition: A Persistent Issue

The absence of a universally agreed-upon definition of climate finance remains one of the most critical and frustrating aspects of this global effort. What qualifies as climate finance? Should it include loans or only grants? What about private sector investments or export credits? These questions, fundamental to any financial mechanism, remain unresolved, leading to significant inconsistencies in how climate finance is calculated, reported, and implemented.

Since its inception, many donor countries have counted loans—often with high interest rates—toward their climate finance commitments. While this practice technically fulfills the financial obligations, it fails to address the unique needs of developing nations, which often lack the capacity to repay such loans. This has led to an increasing debt burden for some of the world’s most vulnerable countries, particularly Small Island Developing States (SIDS) and low-income economies, which are already struggling to adapt to the impacts of climate change.

From my perspective, climate finance should primarily consist of grants, which provide direct, non-repayable support to the nations most in need. Grants offer the flexibility and relief necessary to implement critical adaptation and mitigation projects without the added burden of debt. Any financial contribution that involves interest or repayment should be classified as project finance, not climate finance, as it places an unfair strain on countries that are already grappling with both economic challenges and the mounting impacts of climate change.

Project Finance: A Misfit for Vulnerable Nations

Including loans and project finance within the broader umbrella of climate finance fundamentally undermines the intent behind the $100 billion commitment. While project finance can be a valuable tool for large-scale mitigation efforts—such as renewable energy projects—it is entirely unsuited for the needs of vulnerable nations. Developing countries, particularly those with small economies or those already burdened by debt, cannot afford to take on additional financial obligations when many climate adaptation projects do not generate immediate or substantial economic returns.

For example, critical adaptation efforts—such as building coastal defenses, securing freshwater supplies, or improving agricultural resilience—are essential for protecting communities, safeguarding livelihoods, and ensuring national stability. However, these projects rarely yield the kind of financial returns needed to service loans. Grants, on the other hand, provide the necessary funding for such initiatives without exacerbating the financial vulnerabilities of the recipient nations.

By including loans in climate finance calculations, developed nations are shifting the financial burden onto the countries least equipped to bear it. This not only deepens the economic difficulties faced by these nations but also undermines the very purpose of climate finance: to support sustainable development and resilience in the face of global climate challenges.

Lessons from the $100 Billion Target for the Post-2025 Framework

As the international community prepares to negotiate the next phase of climate finance at COP29, it is essential to draw lessons from the experience of the $100 billion target. The Paris Agreement specifies that the new collective quantified goal (NCQG) for climate finance must start “from a floor of $100 billion,” offering a critical opportunity to address the shortcomings of the existing framework and establish a more effective and equitable system.

One of the key lessons is the urgent need for greater transparency and accountability in how climate finance is defined and reported. Without a clear and universally accepted definition, countries will continue to rely on different interpretations, making it nearly impossible to track genuine progress or hold donor countries accountable. To address this, negotiators must advocate for a robust and precise definition of climate finance that prioritizes grants over loans and ensures that financial contributions are truly new and additional, rather than repurposed from existing development finance.

Another critical lesson is the need to increase the total pool of resources available for both climate action and broader development objectives. Climate change and sustainable development are deeply interconnected, and addressing one without adequately supporting the other risks leaving vulnerable nations without the resources they need to thrive. The new climate finance target should reflect this, encouraging donor countries to commit to a broader set of development goals while still prioritizing climate action.

One way to achieve this is by setting future climate finance goals as a percentage of GNI, rather than a fixed dollar amount. This would ensure that the financial commitments made by donor countries are aligned with their economic capacity and would prevent inflation from eroding the real value of the finance provided. Furthermore, expressing climate finance as a share of GNI would enhance transparency by making clear the fiscal effort required from donor nations, while also fostering greater accountability.

A Path Toward Climate Justice: The Central Role of Grants

As we look toward the future of climate finance, it is essential to recognize that grants must form the foundation of the post-2025 framework. Grants offer the kind of direct, non-repayable support that is essential for enabling vulnerable nations to adapt to the impacts of climate change and mitigate its causes without incurring additional debt.

Project finance, which involves financial returns and interest, may be appropriate for wealthier nations or for specific large-scale projects that generate economic returns. However, it is fundamentally unsuitable for the world’s most vulnerable nations. Developing countries, particularly those with small economies, limited fiscal capacity, and significant climate risks, need financial support that allows them to take meaningful action without jeopardizing their economic stability.

Conclusion: A Diplomatic Call for Equity and Accountability in Climate Finance

As we approach a critical juncture in the global fight against climate change, it is clear that the international community must do more to ensure that climate finance serves its intended purpose. The current system, while a step in the right direction, has fallen short in key areas—particularly in terms of transparency, accountability, and ensuring that financial contributions are genuinely new and additional.

In my personal view, the persistent ambiguity surrounding the definition of climate finance may be seen as a strategic maneuver by developed nations to avoid fully confronting their responsibilities regarding climate justice. By allowing the concept of climate finance to remain undefined, wealthier countries can appear to meet their financial commitments through mechanisms such as loans, or by repurposing existing development aid, rather than providing the new and additional grants that are critically needed by vulnerable nations. This lack of clarity enables developed countries to sidestep the deeper moral and financial obligations they bear under the framework of the Paris Agreement. Such ambiguity, in my opinion, undermines the true intent of climate finance, which is to offer equitable and transformative support to those most affected by climate change. Ultimately, this reluctance to formalize a clear definition reflects a broader hesitation to fully embrace the principle of climate justice and the ethical responsibility to act decisively in supporting the world’s most vulnerable nations.

Moreover, the next climate finance goal must be designed with the needs of the most vulnerable nations in mind. By tying financial commitments to a percentage of GNI and focusing on grants rather than loans, the international community can create a system that fosters climate justice and supports sustainable development for all.

The time has come to move beyond nominal targets and ensure that climate finance delivers real, measurable support to those who need it most. Only by embracing transparency, accountability, and a genuine commitment to equity can we hope to build a sustainable and resilient future for all nations in the face of a rapidly changing climate.