At COP29, governments agreed to scale up climate finance into developing countries to $1.3 trillion per year by 2035. Since then, an already challenging outlook has now grown more complex, and the range of required levers more diverse. Climate capital is needed more than ever to ensure prosperity, security and resilience. Getting on the Path to $1.3 Trillion sets out E3G’s long-term vision for scaling up climate finance to developing countries. It proposes immediate actions to get on the right track, even in difficult geopolitical and economic circumstances.
The economic shift to a clean economy is already happening. However, the current political, fiscal and macroeconomic outlook cannot support the most ambitious outcomes as rapidly as we would like. Governments must find new and better ways to unlock and use public resources, as well as implementing reforms to allow private finance to flow at scale. But this is not just about money. Governments also need to deepen collaboration and reform systems and institutions quickly enough to enable rapid scale-up of investment to developing countries.
Ten building blocks for achieving $1.3 trillion
In our report, we break down the challenges and opportunities of mobilising climate finance into developing countries into ten “building blocks”. For each building block, we set out the long-term vision for reaching the 2035 goal, and provide recommendations for what can be achieved in the next 1–2 years. These building blocks are summarised below.
Freeing up fiscal space in developing countries
Reduced fiscal space in developing countries limits their capacity to undertake climate action. All involved actors can take a range of steps to improve management of sovereign debt distress.
1. Finance ministries should take concrete steps towards easing debt burdens for developing and climate-vulnerable countries.
2. Major economies should collaborate to increase fiscal space in developing countries and to protect developing countries from climate-related shocks and liquidity constraints.
Regulatory approaches to mobilising capital
All countries need to work together to adjust the rules of the financial system to unblock and facilitate private financial flows to developing countries for climate.
3. Central banks and supervisors should accelerate actions to fully recognise and address climate risks.
4. Financial regulators have a strong role to play in setting investment conditions for private investors.
Creating a more effective delivery architecture for international finance
To best attract international investment, national plans that cover mitigation and adaptation need to be supported by policies and strategies that make them operational.
5. Climate finance providers should act more coherently to support developing countries in establishing the right policy and regulatory frameworks to attract high-quality international support and investment.
6. Governments should lead a drive to radically improve collaboration and effectiveness in delivery of public development finance.
Increasing the scale of mobilisation via public levers
Any credible pathway for reaching the $1.3 trillion goal will also require an increase in absolute levels of public finance – from concessional and non-concessional sources.
7. Providers of climate finance should increase the deployment and effectiveness of public finance instruments to de-risk wider investment flows.
8. Shareholders should continue to pursue bigger, better and more effective multilateral development banks.
9. Climate finance providers should work towards restoration of international support budgets, including through the identification of new sources of concessional finance.
Multilateral engagement on climate finance
Climate finance has become an increasingly systemic issue over the last decade and expanded beyond the UNFCCC. To be most impactful, multilateral diplomacy must bring together technical experts with those able to make decisions to enact change.
10. Governments should ensure that there is an appropriate space to advance multilateral cooperation on climate finance.
Together, the recommendations of this report show that if governments work together there is a blueprint for a credible pathway to finance the transition and ensure resilience to climate change and its impacts.
E3G will subsequently be setting out more detailed explanations on the way forward for specific sub-sets of the report’s recommendations.
