Solving complex climate finance problems

Following last week's post about one of my two go-to resources on the climate finance architecture, a few people asked about the other. Here it is! The Global Landscape of Climate Finance 2025. Published in June 2025, by the Climate Policy Initiative (CPI), this amazing and comprehensive report covers both public and private sector finance flows, tracing them from source to sector. Take a long look at the Sankey diagram on page 4. A key takeaway is that the dominant flows are in developed countries and are targeted at mitigation finance. Other things that stood out for me include: 1. Stark Regional Disparities in Climate Investment A key finding is the widening gap in climate finance between regions. In 2023, 79% of global climate finance was concentrated in just three regions: East Asia and the Pacific, Western Europe, and North America. This highlights a significant challenge for developing countries. The needs-to-flows ratio underscores this disparity: to meet climate goals, Sub-Saharan Africa requires a 9.4-fold increase in mitigation finance, while Central Asia and Eastern Europe need an 8.7-fold increase. This gap is even more critical for adaptation. In 2023, developing economies received just $46 billion for adaptation, against an estimated annual need of $222 billion, leaving the most vulnerable communities dangerously exposed. 2. The Need for More Catalytic Capital in EMDEs While international climate finance to emerging and developing countries doubled to $196 billion between 2018 and 2023, it remains heavily reliant on public sources, which accounted for 78% of the total. A major barrier for these nations is the lack of affordable capital. The report stresses that developing countries need more catalytic forms of capital - such as grants, guarantees, and catalytic equity - to de-risk projects, prove commercial viability, and ultimately attract the necessary scale of private and domestic investment. 3. A Clear Roadmap to Unlock Investment The report provides a solutions-oriented framework for scaling up finance in developing countries. It moves beyond just identifying barriers to offer actionable strategies. Key recommendations include: * Creating a pipeline of bankable projects through developer platforms and preparation facilities. * Expanding the use of guarantees and risk-mitigation tools to cover risks that private financiers are unwilling to take on. * Developing local currency solutions, like green bonds and guarantee mechanisms, to address currency risks that deter foreign investment. The core message is that the challenge isn't a lack of global capital, but a need for better coordination, targeted policies, and the right financial instruments to direct funds where they can make the biggest impact. ♻️ Please share this with your networks if you feel it is relevant to them!

$1.3 trillion in annual climate investment is needed by 2030, yet we are deploying less than half of that amount. The missing ingredient isn't capital — it's bankability. A key tool that helps creates bankability — insurance — is often brought in too late to fulfil its full potential. As Barbados Prime Minister Mia Mottley stated at COP28: "What is not insurable is not investable." THE PROBLEM: Insurance is frequently treated as an afterthought, introduced after project financing is already structured, site locations are locked in, and technology choices are made. At this stage, it is too late to address fundamental risks that could have been managed cost-effectively from the outset. THE SOLUTION: Insurance needs to be integrated upstream into project feasibility studies. When insurers are involved from the beginning, influencing site selection, technology choices, monitoring systems, and risk layering, they can create deals that are both insurable and investable. This approach is not just theoretical; it is already proving effective: → Coastal resilience bonds in the Caribbean now involve insurers during engineering phases. → Climate-smart agriculture funds with embedded weather insurance achieve 30-40% lower default rates. → Sovereign risk pools like CCRIF and ARC illustrate the pathway to local capacity building. FIVE SHIFTS NEEDED: 1. TIMING: Insurers should be involved in feasibility studies, not just during execution. 2. INCENTIVES: Reward long-duration products rather than annual churn. 3. CAPACITY: Train developers to engage insurance early in the process. 4. REGULATION: Stop penalizing long-duration climate commitments. 5. COORDINATION: Development Finance Institutions (DFIs) should require insurance input as standard practice. WHAT YOU CAN DO MONDAY: - If you're a project developer → Include "Insurance Feasibility Assessment" in your budget from day one. - If you're an insurer/broker → Offer pro bono input to three DFI project teams during the feasibility

Physical climate risk data: the more we learn, the less we know? Khalid Azizuddin's recent piece in *Responsible Investor captures well what many practitioners are grappling with today: - asset-level data that remain incomplete or hard to interpret; - physical hazard exposure often disconnected from financial materiality; - little visibility on supply chains or customers; - adaptation and resilience efforts largely ignored; - and a risk of over-simplifying complex realities into a single “score.” Some three years ago, EDHEC Business School set out to address exactly these challenges, working to advance climate risk modelling and make decision-useful for investors, companies, and public authorities. In this work, we have developed: 🔹 a blueprint for a new generation of probabilistic climate scenarios; 🔹 high-resolution geospatial modeling capabilities to allow for geographic and sectoral downscaling, consistent with each scenario; 🔹 an open database of decarbonisation and resilience technologies through the #ClimaTech project, which officially launched this week. While the research is public, the new EDHEC Climate Institute has also been assisting a school-backed venture, Scientific Climate Ratings (SCR), which integrates this research to deliver forward-looking quantification of the #financialmateriality of climate risks for infrastructure companies and investors worldwide. While SCR provides a rating scale for comparability, it avoids the trap of over-simplification. Each rating is backed by probabilistic scenario modelling, analysis of physical and transition risk exposures, and explicit accounting for adaptation measures. The result is a synthesis that remains transparent, interpretable, and anchored in scientific rigour. Together, these initiatives aim to move the discussion from data abundance to decision relevance, equipping practitioners with tools that connect climate science, finance, and strategy.

The Baku to Belém Roadmap to 1.3 Trillion is a plan for action, building on COP29's finance milestone agreement, and carrying momentum into #COP30.  At its core, the Roadmap is about turning commitments into practical, inclusive climate finance action that’s effective in delivering outcomes that protect lives and strengthen economies.   For the first time, more than 200 governments, banks, businesses, and communities have joined forces to outline workable solutions for mobilizing climate finance.     The Roadmap shows how, by working together, we can scale up climate finance towards USD 1.3 trillion a year by 2035, helping developing countries meet their climate goals.     This can bring tremendous benefits for the global economy – generating jobs, protecting communities, and driving innovation.    The task is ambitious, but achievable. The tools exist; what’s been missing is coordination and shared commitment.     This Roadmap provides a guide to both, aligning public and private finance behind a common direction, and building confidence that 1.3 trillion is within reach.     Times are tough; many governments have scarce resources and hard choices. But positive tipping points are already taking hold: from dramatic declines in the cost of clean energy, to innovation in sectors of the economy we thought would take decades to decarbonise.     It's also high time for a paradigm shift. Treating climate finance purely as cost, or as charity, is misguided and self-defeating, and has held back the progress we need.    Make no mistake: scaling up climate finance hugely benefits every nation. It’s a vital investment in resilient global supply chains, supporting low-inflation growth, food security, and a stronger, more productive global economy that underpins peace and prosperity.    Getting finance flowing means expanding access to catalytic grant finance. It also means unlocking low-interest capital, creating fiscal space, managing debt pressures, and de-risking investment.     Innovative tools – such as debt swaps and private capital reinvestment – can help put money to work where it matters most: into clean energy and resilience, enabling countries to implement Nationally Determined Contributions and National Adaptation Plans more quickly and fairly.    Recent climate shocks show what’s at stake, as climate disasters like Hurricane Melissa rip through communities and economies. So, every early dollar deployed now helps avoid far greater costs later for all nations. There’s no time to waste.    The Paris Agreement is working to deliver real progress, as our three recent reports show, but not nearly fast enough.     By scaling climate finance to match the scope of the climate crisis, we can turn ambition into momentum, making climate action a driver of economic growth, stability, and shared prosperity.    From Baku to Belém, we are moving from agreement to action, focusing on solutions and alignment for people, prosperity, and the planet.

Did we get climate finance all wrong? Yes, I tell Akshat Rathi on his Bloomberg Green podcast, Zero. The core problem is that we use "climate finance" to describe many fundamentally different objectives: managing physical & transition risks, financing decarbonization, pricing & distributing risk, building resilience, ensuring fiscal stability, etc. These objectives involve different institutions, mandates, incentives & tools. Some protect/maximize financial value; others aim for climate safety & societal protection. For 10+ yrs, we have profoundly conflated these purposes, institutions and tools. When results don’t materialize, we blame accountability to, and precision of, the frameworks - spending more time refining disclosures, metrics, and methodologies, and pushing for more financial regulation. In 2015, Carney famously (correctly) warned that markets would feel climate impacts only when it was too late to self-correct. But the field drew the wrong implication, focusing on the idea that if long-term climate risk were better understood, priced, and disclosed, markets will reallocate capital to reduce that risk. That fundamentally misunderstands how finance works. Information on how climate affects markets helps institutions manage exposure. It does not make non-viable projects viable or substitute for the coordination, market design, and risk-sharing needed to make modern, integrated, decarbonized, energy systems financeable. (https://lnkd.in/enp6hqun) A related consequential confusion: we atomized the imperative of achieving global, atmospheric 'net zero' emissions into entity-level methodologies, as if the sum of individual net-zero targets would achieve systems decarbonization. But entities cannot, on their own, decarbonize their power, transport and industrial value chains, so the result has been increasingly elaborate accounting exercises that often bear little relationship to physical realities: https://lnkd.in/eN65DrGx The irony is that these confusions obscure the good news: decarbonized energy systems are eminently achievable, and often economically compelling, when the right conditions are in place. We are not constrained by capital or technology. Where clean solutions are cheaper, finance is driving deployment. Where investment stalls, it's because of unaddressed offtake risk, policy uncertainty, currency risk, system integration challenges, or missing coordination, NOT because investors don't understand climate risk. This relates to a final inversion: finance can't phase out fossil fuels; only decarbonizing the consuming sectors can. Fossil finance will end when clean alternatives are cheaper, more reliable, and more accessible -- which, as I note, is possible if we're clearheaded about the approach. 🎧 listen to the podcast here: https://lnkd.in/ecRKR4wR (I look forward to a new Zero episode every thursday as I 🚲 to work, so it was an incredible privilege and joy to meet Akshat in London for this convo.)

The energy transition in data, Q2 edition: finance is shifting from a race to zero to a race to build resilience. This week we published our latest Transition Finance Tracker, which I coordinate with Linda-Eling Lee. It translates the complexity of climate finance at large (including emissions & targets, financial flows, physical risks, resilience, nature impacts, carbon markets, regulations, etc) into easily digestible datapoints. It’s beefy but not as long as Nat Bullard's 200+ slides. It contains many updated charts, as well as new features: extreme heat days, correlations between target setting and performance, clean tech revenues and a zoom on Brazilian nature credits users. It also features the first presentation of our new “Sovereign Implied Temperature Rise” metric (p40) and how it compares to the “Corporate ITR” of issuers per country (p41). It estimates a global warming value for each country based on the extent to which it exceeds its 1.5°C carbon budget. The model incorporates a fair-share approach, allocating proportionally larger budgets to less-developed countries to account for trade offs between decarbonization and economic growth. I’m so glad this metric is finally out (indeed I hope it sells well!); it’s well designed and required two years of work for Oliver Marchand's and Richard Mattison's teams. It enables investors to finally compute the forward-looking climate dynamics of the bulk of their portfolios (corporate equity & debt + govies), using fully comparable models. We took care on page 41 to explain the different results obtained at country level between our corporate and sovereign ITR, giving examples. Have a look at those ITR pages! If the use of such metrics was more mainstream than simply looking at emissions or SBTi targets, we would have a smarter allocation of capital. There are tons of other useful findings in this report. For example how extreme heat days will impact “average temperature” cities (such as London) far more than those at either end of the current temperature spectrum. Or how the vast majority of climate-related investments originate from Europe but flow into the USA - something European policymakers are starting to wake up to, but a little late. Or how France and Germany are amongst the biggest buyers of Brazilian nature credits. We also show how transition finance funds have a far higher carbon intensity than CTBs and PABs and why this is a good thing. We have also updated our analysis of the carbon intensity of local power grids (90 days average) thanks to our collaboration with Frederik Nellemann's Electricitymaps. “Cocorico” as we say here, France comes out best amongst G20 countries, with only 23 gCO2e/kWh and 99% low carbon (renewables, hydro, nuclear; thanks Carine de Boissezon 🌏). Enjoy the read, copy (but source 😊) and share: https://lnkd.in/dNcY25UD Thanks to Linda-Eling Lee, Brian Browdie, Tanguy Séné, Mohammad Umar Ashfaq and all the other contributors named on p50.

Climate adaptation is not underfunded because solutions don’t exist. It’s underfunded because capital is still using the wrong instruments. The WRI working paper From bonds to blended finance shows that climate adaptation is already being financed — but not through a single, dominant model. Across 162 cases (2015–2025), the message is clear: adaptation finance works when instruments match risk, context and scale. So what can companies, investors and public actors actually do? Five practical directions emerging from the data: 1️⃣ Move beyond “one instrument fits all” The study documents 11 different financial instruments used across six physical climate risks. Blended finance, bonds, insurance, guarantees, equity and PES are not alternatives — they are complements, each suited to different risk profiles. 2️⃣ Prioritise ex-ante risk reduction, not only recovery 64% of cases focus on risk reduction, not post-disaster response. This reflects a simple reality: investments in resilience often deliver economic returns even when disasters do not occur. 3️⃣ Use blended finance to unlock private capital where risk is high Blended finance is the most frequently used instrument across income levels, especially in lower-income contexts. Public and concessional capital is being used strategically to de-risk projects and crowd in private investors, rather than replace them. 4️⃣ Scale through pooled and multi-country structures 75% of cases rely on pooled finance (funds, facilities, mechanisms, programs). Nearly half of all instruments now operate across multiple countries, enabling: risk pooling lower transaction costs faster replication 5️⃣ Match instruments to the type of climate risk The report shows clear patterns: insurance and disaster risk financing for rapid-onset shocks bonds, loans and blended finance for infrastructure and long-term resilience payments for ecosystem services and debt swaps for nature-based risk reduction Bottom line: The adaptation finance challenge is no longer about inventing new ideas. It is about deploying the right financial architecture at scale. For companies, investors and policymakers, climate resilience is increasingly a question of financial design, not only climate ambition. #sustainability #ClimateAdaptation #BlendedFinance #Resilience #SustainableFinance #RiskManagement #InvestmentStrategy #WRI

Agroforestry assets aren’t hard to finance because they’re weak. They’re hard to finance because they’re complex. And solving that means walking away from some of the standard conventions. The challenge isn’t just biological. It’s economic. We’ve long known that when value is distributed across time, across actors, and across conditions that are hard to measure cleanly, capital starts to struggle. That’s the real issue here. We’re still trying to finance a layered biological system with instruments built for linear ones. Traditional models want the story to resolve fast: - a narrow output, - a short feedback loop, - a clean underwriting case, - and one obvious path back to capital. Agroforestry rarely gives you that. Its strength is exactly that it doesn’t depend on one thin source of performance. Value is spread across the system, across time, and across the conditions that allow production to hold together at all. That’s harder to model. It’s also much closer to how durable assets actually behave. So the next unlock has less to do with proving agroforestry is valuable and more to do with building structures that can hold layered value without forcing it into a simpler shape. That points to a different kind of capitalization: - capital that enters in stages, - returns that come from more than one line, - downside protection that doesn’t depend on a single harvest, - and participation that reaches the people actually carrying the asset through time. Once the structure improves, the asset starts reading differently. It stops looking like a messy exception to conventional finance. It starts looking like a better fit for a world where resilience, continuity, and long-duration productivity matter more than they used to. That feels especially timely now, with climate investors still strongly bullish over the long term and Primary Agriculture moving up the priority stack. The appetite isn’t the missing piece. The model is. A lot of people have been doing thoughtful work in this space. This isn’t an attempt to flatten that work. It’s simply the lens I keep coming back to as we finance the projects in our portfolio. https://lnkd.in/gKcjeZCm

𝗕𝗿𝗶𝗱𝗴𝗶𝗻𝗴 𝗖𝗮𝗽𝗶𝘁𝗮𝗹 𝗮𝗻𝗱 𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗔𝗰𝘁𝗶𝗼𝗻 𝗶𝗻 𝗘𝗺𝗲𝗿𝗴𝗶𝗻𝗴 𝗠𝗮𝗿𝗸𝗲𝘁𝘀 I recently went through the Carbon Finance Playbook developed by USAID and CrossBoundary under the PLANETA program, and I must say: it is an incredibly valuable resource for anyone working at the intersection of climate finance, carbon markets, and sustainability. 🍃 💡 What struck me most is how clearly it demystifies the often complex world of carbon finance for nature-based projects in emerging markets. Too often, projects with strong climate and community impact remain underfunded because the investment process feels opaque or inaccessible. This playbook changes that. 𝗞𝗲𝘆 𝗶𝗻𝘀𝗶𝗴𝗵𝘁𝘀 𝗜 𝘁𝗼𝗼𝗸 𝗮𝘄𝗮𝘆: ➡️ Carbon markets, when designed with integrity, can unlock private finance for nature-based solutions that also deliver biodiversity protection and community benefits. ➡️Benefit Sharing Agreements (BSAs) are not just contracts, they’re the backbone of long-term trust and climate justice with Indigenous Peoples and Local Communities. ➡️Risk perception is as critical as actual risk—meaning insurance, governance, and transparent data are essential to attract capital. ➡️Early-stage catalytic finance plays a unique role in de-risking projects and opening the door for larger pools of commercial capital. ➡️Case studies like Mozambique highlight both the challenges and opportunities in aligning regulatory frameworks, community rights, and investor confidence. 𝗪𝗵𝗼 𝘀𝗵𝗼𝘂𝗹𝗱 𝗿𝗲𝗮𝗱 𝘁𝗵𝗶𝘀? Project developers can better structure their fundraising strategies. Investors and financiers gain a clear lens on risk, return, and impact. Policymakers and NGOs can draw lessons on building enabling environments that balance integrity, equity, and scale. For those of us working to advance planetary health and sustainability in emerging markets, this isn’t just a reference, it’s a practical toolkit to accelerate climate action where it matters most. #CarbonMarkets #ClimateFinance #NatureBasedSolutions #planetaryhealth #planetaryboundaries #sustainability #ClimateAction #carbonfootprint #NetZero #ClimateEmergency #SDG #ESG #GHG #netzero

Climate finance, simplified. The world is not short of money — it’s short of aligned, well-directed capital at scale. Here’s the system — stripped back to what matters: --- 1️⃣ Sources → where the money comes from • Public finance (governments, concessional funding) • Private finance (banks, institutional investors, corporates, equity) • International finance (DFIs, MDBs, climate funds) • Blended finance (public + private catalytic structures to crowd in capital) • Philanthropic capital (foundations, NGOs, first-loss / risk-bearing capital) 👉 Different mandates. Different risk appetites. 👉 One shared objective: mobilize and scale capital into climate solutions --- 2️⃣ Finance mobilized → how it works Capital is: • Pooled → aggregated across sources to reach scale • De-risked → through guarantees, concessional layers, policy support • Directed → toward bankable, high-impact opportunities ➡️ This is where financial engineering meets climate outcomes Success here depends on: • Policy certainty • Risk-return alignment • Strong pipelines of investable projects • Transparent data and credible metrics --- 3️⃣ Uses → where it goes • Mitigation → decarbonizing energy, industry, transport • Adaptation → building resilience to physical climate risks • Nature → protecting and restoring ecosystems & carbon sinks • Sustainable development → infrastructure, jobs, inclusive growth • Just transition → ensuring equity across regions, sectors, and communities 👉 This is where strategy translates into real-economy impact 👉 Allocation decisions here will define the pace and fairness of the transition --- 4️⃣ Outcomes • A stable climate → limiting warming and systemic risk • Resilient communities → stronger adaptive capacity and livelihoods • A thriving planet → restored ecosystems and biodiversity • Sustainable prosperity → long-term, inclusive economic growth 👉 These outcomes are interconnected — not trade-offs, but multipliers --- The takeaway Climate finance is not just about funding projects. It’s about allocating capital with precision, discipline, and intent. The real gap is not capital availability — it’s capital allocation efficiency. The winners in this space won’t just raise capital — they will: • Understand the full system • Navigate risk intelligently • Structure capital effectively • Deploy it where it drives the highest impact That’s how climate ambition turns into real-world outcomes. #ClimateFinance #SustainableFinance #GreenFinance #BlendedFinance #ClimateStrategy #EnergyTransition #NetZero #ClimateAction #ClimateInvestment #ImpactInvesting #ESG #Sustainability #TransitionFinance #ClimateRisk #Adaptation #Mitigation #NatureBasedSolutions #JustTransition #DevelopmentFinance