Barriers to unlocking climate capital

Today, the countries with the greatest growth potential and most urgent need for investment face the greatest financing gaps and the highest costs of capital. Emerging and developing economies (#EMDEs) face borrowing costs 3–5x higher than advanced economies—even when they have faster growth, lower debt, and strong fundamentals. This high #CostOfCapital — not capital scarcity—is the biggest bottleneck for climate and SDG finance in EMDEs. 📄 Our new CCSI paper, co-authored with Jeffrey Sachs, Ana Maria Camelo Vega, and Bradford M. Willis unpacks the structural forces inflating EMDE financing costs—from flawed #creditratings, outdated prudential regulations, short-term debt, underused guarantees, and misperceptions of risk. The paper lays out 10 actionable pathways to mobilize long-term, affordable capital for climate and development—at speed and scale. 📌 Key Takeaways: - High cost of capital makes capital-intensive clean energy unaffordable where it’s most needed; fossil fuels remain cheaper in many EMDEs because of the high cost of capital despite abundant renewable energy potential. - GDP per capita—not solvency indicators—is the strongest predictor of sovereign credit ratings. Low-income countries are penalized for their poverty, regardless of investment quality or growth potential. Not a single low-income country is deemed credit-worthy by S&P, Moody's or Fitch. - It’s not just a development problem—it’s a missed investment opportunity. The distorted risk-return landscape also holds back large institutional investors who want to deploy capital into the high growth EMDEs—but are blocked by structural risk ratings, regulatory requirements, capital adequacy rules, and lack of de-risking mechanisms. - Today’s dominant credit and debt sustainability frameworks focus on short-term liquidity risks, not long-term structural growth potential. This leads to pro-cyclical investment patterns that funnel capital to already-rich countries and perpetuate underinvestment in high-potential regions. This is a solvable problem! And the solutions are timely and urgent—especially as leaders gather for the #IMF–WorldBank #SpringMeetings next week, the UN #FFD4 Summit in June, and #COP30 this fall. 📘 Read the full paper: https://lnkd.in/eJYAh6WN. We welcome your feedback and engagement. Columbia Climate School Mahmoud Mohieldin Vera Songwe Daniel Cash Ivan Oliveira Tom Beloe Ben Weisman Leslie Labruto Kate Hampton Daniel Firger Lucy Kessler David McNair Rahul Rekhi KEVIN CHIKA URAMA Avinash Persaud Columbia Center on Sustainable Investment Manfred Schepers

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!

🔎𝐄𝐬𝐬𝐞𝐧𝐭𝐢𝐚𝐥 𝐫𝐞𝐚𝐝𝐢𝐧𝐠 — especially for those in finance who think the energy transition is held back by a ‘finance gap’. There’s 𝐧𝐨 shortage of capital. And no, we’re not just one blended finance scheme away from solving the climate crisis. 💡 In this sharp piece on, Lara Merling exposes the real constraints behind the energy transition — and challenges the neoclassical fallacies that dominate economic thinking. 💸 Fallacy 1: That money is a scarce resource like labour or materials. 🧮 Fallacy 2: That market prices are accurate reflections of real-world scarcities. 📉 Fallacy 3: That central banks are neutral actors outside the real economy. 👉 The truth? The actual bottlenecks are material, technological, political and institutional: 🔺 Lack of skilled labour 🔺Inadequate supply chains 🔺Technological limits 🔺Political resistance 🔺Dysfunctional governance 💰 Finance can play a role — but it’s not the limiting factor. In fact, focusing on finance as the main barrier distracts from where the real work needs to happen. 📘 Merling’s piece is a must-read for anyone working at the intersection of macro, climate and public investment: 👉 https://lnkd.in/e6p-N2tw Let’s stop treating finance as the scapegoat — and start addressing the actual constraints. 🌍⚙️ #sustainablefinance #climate Adrienne Buller

Common roadblocks to sustainability implementation 🌍 Many organizations face consistent barriers when integrating sustainability into their operations. These obstacles often go beyond strategy and require structural and cultural changes. Understanding them is the first step to unlocking meaningful progress. Capability gaps are among the most persistent challenges. Without internal expertise and technical skills across departments, sustainability efforts often stall. Addressing this requires targeted training and building internal networks of specialists. Misaligned KPIs prevent sustainability from becoming a business priority. When incentives and performance metrics do not reflect sustainability goals, progress remains superficial. Aligning evaluation systems is essential for accountability and traction. A weak business case often slows decision-making. Concerns around financial returns or unclear value creation lead to inaction. Expanding ROI models to include risk mitigation and long-term value helps strengthen internal buy-in. Risk aversion also plays a central role. Fear of failure, public scrutiny, or missed targets often discourages experimentation. Transparent goal-setting and a focus on continuous improvement can build confidence and drive action. Silos within organizations fragment implementation. Lack of coordination across departments leads to inefficiencies. Cross-functional task forces and embedded sustainability roles can help overcome internal fragmentation. Regulatory complexity adds confusion. Overlapping standards and evolving frameworks challenge compliance. Mapping relevant disclosures and centralizing oversight ensures consistent, streamlined reporting. Budget limitations are a frequent constraint. Sustainability investments often compete with immediate operational needs. Accessing green finance and aligning investments with long-term planning cycles can unlock funding. Finally, low executive engagement and greenwashing fears undermine credibility. Sustainability must be championed visibly at the highest levels and communicated with integrity. Leadership alignment and transparent reporting are critical for sustained progress. #sustainability #sustainable #business #governance #esg

Can sustainable infrastructure become the engine that drives growth across Africa? What if international finance centres played a bigger role in connecting global capital to local solutions? This week on the Unlocking Africa Podcast, I had the pleasure of speaking with Dr Rufaro Nyakatawa-Mucheka, Sustainable Finance Lead at Jersey Finance, and a leading voice in rethinking how capital, climate, and development can align across the continent. With over 25 years’ experience across financial services, impact investing, and environmental policy, Dr Rufaro brings a rare cross-disciplinary perspective to Africa’s sustainability journey. At Jersey Finance, she champions the role of international finance centres in mobilising private capital for inclusive, climate-resilient growth. Framing the urgency of the moment, she explained... “Infrastructure is the bedrock of economic transformation. Without reliable energy, goods cannot be produced. Without efficient transport, markets stay fragmented.” Throughout the episode, Dr Rufaro shared practical insights into how African nations can move from ambition to action and why energy, transport, and water infrastructure are central to achieving that shift. She spoke about real-world projects like Egypt’s Benban Solar Park, Rwanda’s Green City Kigali, and South Africa’s Rea Vaya bus system, with each offering lessons in green innovation, public-private partnerships, and policy reform. But she also challenged us to recognise the deeper systemic barriers holding back progress. “Capacity development must accompany capital, or else funds will not translate into functioning infrastructure.” So what is the way forward? Dr Rufaro outlined three essential enablers: → Clear and consistent policy frameworks to unlock investor confidence → Blended finance ecosystems that de-risk private investment → Regional integration to turn isolated assets into engines of trade, mobility, and resilience She also spotlighted the role of Jersey, where fund managers are increasingly turning for structuring solutions aligned with ESG goals and long-term development impact. Through vehicles domiciled in Jersey, investments are already flowing into renewable energy, water, and inclusive finance projects across the continent. Reflecting on her personal mission, she left us with a powerful reminder… “Africa is not a problem to be solved. It is a partner to be invested in. If we align purpose with capital, the future will not just be sustainable; it will be extraordinary.” If you are working at the intersection of finance, climate, or infrastructure development or simply care about Africa’s future this is a conversation you will not want to miss. ⬇️ Listen now — link in the comments below ⬇️ #SustainableFinance #AfricaInvestment #GreenInfrastructure #ImpactInvesting #InfrastructureDevelopment #ClimateAction #Podcast

This year’s COP revealed that the multilateral architecture of climate governance is losing its ability to coordinate systemic transitions, while the scientific clock moves at a very different pace. The negotiations exposed three structural bottlenecks: 1. The regulatory paralysis of the international system Article 6 — meant to be the most efficient mechanism for cooperation between countries — has become a diplomatic maze. The clash between environmental integrity and operational flexibility stalled progress. Countries pushing for stricter crediting rules collided with those seeking room for hybrid instruments and mitigation transfers. The result is a carbon market that never quite emerges 2. Climate finance remains far below the scale of the challenge Adaptation saw a numerical boost, yet far from the volume required for systemic resilience. Tripling funds from a very low baseline creates positive headlines but does not transform vulnerability 3. The COP exposed a shift in the geopolitics of transition As the Financial Times observed, Brazil delivered a COP with symbolic force (biodiversity, Amazon leadership) yet the global governance system still struggles. The world is operating through domestic priorities that diverge sharply, and the UN framework no longer produces structural convergence. COPs have become managers of the possible rather than architects of the necessary. This landscape creates a vacuum. And it is precisely within that vacuum that capital can assume a historic role. Finance does not solve politics, but it reacts to incentives with speed and scale, two attributes that multilateral processes can no longer guarantee. Whenever clear models appear — large-scale decarbonization with solid returns, robust metrics, risk-sharing mechanisms, and real-economy pathway. Capital mobilizes fast. The missing piece is not intention; it is a pipeline of structures that combine climate integrity with economic performance. This next stage requires maturity. Impact investing built on narrative metrics does not scale Science has already mapped the pathways, what remains is to translate them into economic viability. For this reason, the future of climate transition depends on financial innovation: models capable of reducing emissions in hard-to-abate sectors, unlocking economic value through efficiency, technology, and governance, and attracting institutional capital in volumes aligned with the mathematics of climate reality. When political momentum disperses and diplomacy fragments, the capacity for execution moves toward those who make decisions based on price signals. If we want real transitions, we need to turn decarbonization into an investment thesis, not a rhetorical aspiration. This is how impact moves from niche to mainstream. And this is how the financial sector can fulfill the role that geopolitics can no longer deliver.

The Global South holds the key to the world’s climate future, but it receives less than 20% of climate finance today. By 2030, these regions will house 70% of the world’s population and generate half of global emissions. Yet, the annual climate investment gap in the Global South stands at a staggering $2 trillion. ALTÉRRA’s new White Paper, “Bridging the Gap: Unlocking Climate Investments for the Global South”, calls this shortfall not just a crisis but a generational investment opportunity. Based in Abu Dhabi, Alterra is one of the world’s largest private climate investment funds, launched at COP28 with the UAE’s $30 billion commitment to mobilize $250 billion for climate action by 2030. What the paper reveals: 📌 $2T annual investment gap, with 37% already “investable” or near-investable today 📌 Power & mobility represent 70% of the gap (~$1.4T annually) and are ripe for scalable solutions 📌 Institutional investors are underexposed: just ~9% of climate private capital currently flows to the Global South 📌 Pragmatic near- and medium-term solutions exist: 1- Catalytic capital: deployed through standardized, fund-level structures and pooled aggregation. 2- Data transparency: building AI-enabled, live databases and dashboards to boost investor confidence. The message is clear: With the right tools, partnerships, and catalytic capital, we can turn today’s shortfall into tomorrow’s engine of sustainable growth. 👉 Read the full white paper here: https://lnkd.in/dqNCghYz 💬 I’d love to hear from you: What do you see as the biggest barrier, or opportunity, for channeling climate finance into the Global South? #ClimateFinance #GlobalSouth #EnergyTransition #ImpactInvestment #AbuDhabi #COP28

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

Last month, I talked to 40+ finance professionals working across the climate capital stack. Here are the most pressing challenges, opportunities, and insights that emerged: ⚙️ Hard Problems - Even proven tech struggles to scale: EV chargers and energy storage are mature technologies, but their merchant risk makes traditional project finance models break down. - First-of-kind (FOAK) projects remain fundamentally hard: LPO funding is likely ending, and few alternatives exist. The good news? Several new funds are targeting this gap - worth watching closely. 💬 Communication Challenges - The climate finance ecosystem speaks multiple languages: VCs talk TAM and dreams, project finance talks DSCR, insurers talk actuarial risk. Getting deals done requires translating between all of them. - Risk/reward misalignment plagues deals: Startups and VCs chase upside, but deployment partners bear downside risk. This fundamental tension delays scaling. - Climate still fights for credibility: "Senior stakeholders don't even understand Scope 1, 2, and 3," one banker shared. "Anything labeled climate gets immediately written off as concessionary." 📚 Knowledge Gaps - Deal structures remain bespoke: While startups have SAFEs and mature sectors have established project finance precedents, new climate technologies lack standardized financing models. Knowledge sharing between successful deals is almost non-existent. - The "finance-ready" paradox: Capital exists, but most projects aren't structured to receive it. Companies often start thinking about project finance years too late. 🌡️ Climate Risk - Insurance is the canary: Companies are pulling out of high-risk regions and wildly hiking rates. - Markets haven't caught up: This risk repricing isn't reflected in broader valuations...yet. - This disconnect is both terrifying and the biggest opportunity in the space. 🔥 Hot Topics - Nature & Biodiversity: Hard to quantify but drawing serious LP interest - Resilience & Adaptation: Finding new momentum as climate impacts accelerate and we prepare for a "don't-say-climate" presidency - Data Centers: Energy use + AI boom = unavoidable focus - Geothermal: Rising star for baseload power, especially post-Fervo - Global Standards: EU's CSRD and Carbon Border Adjustment Mechanism will reshape supply chains regardless of US policy, with real ramifications for manufacturers in Asia and beyond. These conversations revealed just how hard—but also how essential—it is to align incentives, build trust, and bridge knowledge gaps across the climate finance ecosystem. As Eugene Kirpichov just wrote—we need systems thinking if we're going to tackle these wider problems. Anything missing here? What's on the top of your mind for 2025?

Bridging a $200B Gap: What Each Capital Type Must Do for 285M Smallholder Farmers How do we close the $200B financing gap for the 285 million smallholder farmers (<5 Ha) globally — 200 million in South & Southeast Asia? The answer: thoughtful capital blending. Equity, debt, and catalytic capital must work in tandem with agri-tech innovators, FPOs, and ecosystem enablers to shift the viability frontier — using scarce concessional capital strategically to crowd in commercial finance. Against that backdrop, it was extremely timely for Impact Investors Council (IIC) and The Rockefeller Foundation to convene a closed-door roundtable with the full spectrum of stakeholders. After inspiring keynote remarks by Deepali Khanna, a powerful panel featuring Arindom Datta, Arvind Modi, Sonali Shahpurwala, Dheeraj Mutreja, and Srinivas Ramanujam, and case studies from Aparna Dua, I had the pleasure of moderating a candid and solution-oriented discussion among 50+ funders and practitioners. Based on these discussions, here’s what each type of capital provider needs to unlock climate-resilient agriculture at scale: 🔹 On-Ground Practitioners ➡️ Market linkages, networks & accessible capital for farmer income security 🔹 Catalytic Capital Providers ➡️ Capacity building at the FPO level + blended structures that support early risk 🔹 Debt Providers (Banks/NBFCs) ➡️ Offtake anchors, track record & first-loss guarantees to de-risk lending 🔹 Equity / Venture Investors ➡️ Credit + subsidy + equity stacks for agtech to achieve cost-effective scale 🔹 Blended Finance / Structuring Experts ➡️ Demand aggregation & FPO/CSO partnerships to build investability Bottom line: Creating commercially viable smallholder agriculture isn’t easy — but when capital is coordinated and partnerships are local, scale can come faster than we think. Grateful to Ranjna Khanna, Varun Reddy the the rest of the IIC team for convening leaders across India’s “Ag Mafia” — whose collective success will ultimately judged by the success of our farmers. #AgriFinance #BlendedFinance #ClimateResilience #SmallholderFarmers #ImpactInvesting #Agritech #FoodSystems #CatalyticCapital #FPOs #SustainableAgriculture #DevelopmentFinance #IndiaAgriculture