COP30 and the Climate Finance Crisis

In November, the United Nations’ 30th Conference of the Parties, COP30, took place in Belém, Brazil, a city located in the Amazon, a region particularly vulnerable to climate change. The annual conferences allow countries to negotiate and develop plans to cooperatively address climate change. Since 2015, these conferences have been guided by the main goal established in the Paris Agreement: to limit the global temperature rise to well below 2 degrees Celsius, ideally to 1.5 degrees. Many participants, as well as Brazilian president Lula da Silva, called for explicit plans to transition away from fossil fuels ahead of the talks, but supporters of energy transition could not find consensus, and there was no mention of fossil fuels in the final agreement. The final decision reached at COP30 on climate finance is the dominant tool currently used to address climate change. 

Climate finance broadly refers to funding that supports activities and projects that address climate change, typically through mitigation and adaptation. Mitigation focuses on reducing and eliminating emissions, and adaptation on improving resilience to climate hazards. Adaptation finance funds improvements in infrastructure like flood defences and early warning systems, as well as more sustainable farming practices, making it integral to the countries that are most vulnerable to climate change. This year, countries pledged to triple the previously established $40 billion per year in adaptation finance to a new goal of $120 billion per year by 2035. 

This is an ambitious goal, as the previous target of $40 billion per year, set in 2021 at COP26, is still not met. As the gap between current adaptation finance and the amount needed increases, raising pledges is an attempt to meet the rising projected need for climate-adapted infrastructure. A UN report found that the cost of adaptation needed by 2035 would range from $310 to $365 billion per year, almost 14 times the amount of current financing. Closing the adaptation finance gap would take considerable scaling up in the mobilization of both public and private capital investment. 

Capital is mobilized via both multilateral and bilateral institutions; through bilateral institutions, funding flows directly from one country to another, and through multilateral institutions, multiple countries cooperate to provide funding towards certain goals. Multilateral development banks (MDBs) such as the World Bank and the International Monetary Fund are central to this process; in 2024, climate financing by MDBs reached a record of $137 billion. MDBs typically finance themselves through selling bonds in international capital markets and investments from member countries to provide funds for climate adaptation and development. 

These banks are also mobilizing an increasing amount of private capital from corporations and individuals, reaching $134 billion in 2024, a 33% increase from the previous year. While this number is growing, it still lags behind public investment in adaptation, leading to a concerted effort to increase the role of private finance in climate adaptation efforts. Private investment is necessary to reach climate finance targets; however, almost all private financing goes towards mitigation efforts to reduce emissions and not towards adaptation projects. Because adaptation typically requires providing public goods like infrastructure and healthcare that require public financing, this increase in private capital is unlikely to provide assistance to the most vulnerable. 

When countries receive financial assistance, the majority of it comes in the form of loans; over 70% of adaptation finance involves loans, and this percentage has been rising. Because they need to be repaid with interest, loans place a heavy debt burden on already struggling countries by making them responsible for paying back more than they received in aid. In 2023, 59 small island states and least developed countries paid $37 billion in debts while receiving only $32 billion in climate financing. Through this system of financing, the countries most vulnerable to climate change end up paying the most while often having contributed the least to the climate crisis. Debt distress has become a greater risk for these countries, as vulnerability increases, so does borrowing and their debt levels are now at a record high. 

 With rising interest rates and the value of loan repayments exceeding disbursements, depending on the type of loan, the creditors, who are often wealthy countries, can end up making a profit. Non-concessional loans, which have market-based interest rates, place a heavier burden on the borrower compared to the more favourable below-market rates and longer repayment periods offered by concessional loans. The amount of concessional finance has been rising, but the larger portion of climate financing still comes from these non-concessional loans. Non-repayable financing, such as grants, provides the greatest support as countries do not have to repay or ensure profitability. Because of this, the public climate adaptation projects that are unlikely to provide a private return on investment rely on this type of funding. Despite the importance of grants and concessional financing, they still lag behind the market-rate financing determined by investor interest and profit. 

Because climate finance is a market-led solution, in many cases, it compounds the issues and underlying inequalities caused by climate change. Focusing on economic returns and incentives entangles climate solutions with profit-seeking, making addressing these issues through a financialized approach very difficult. To avoid this, a focus on grants and other nonrepayable assistance is needed. Grants would prevent climate-vulnerable countries from becoming further indebted, making climate finance more just and equitable. 

Edited by Kathleen Donnelly.