A report released earlier this week showed developing countries, excluding China, need $2.4 trillion annually by 2030, climbing to about $3.2 trillion by 2035. The fourth assessment from the Independent High-Level Expert Group on Climate Finance (IHLEG) at the London School of Economics arrived soon after soon after negotiators gathered in Belém for the annual UN climate summit (COP30).
It confirmed what many had suspected. The targets agreed last year fall far short of actual requirements. Last year’s climate meet set an aspirational goal of $1.3 trillion each year by 2035. Wealthy nations committed to provide $300 billion to developing countries, with the remainder expected from emerging economies and private investors. It is clear that the gap between aspiration and documented need is substantial.
Arunabha Ghosh, chief executive of the Council on Energy, Environment and Water (CEEW), argued the framing itself is flawed. Climate finance represents economic necessity, not charity, he said. Without rethinking how markets and governments approach this, climate action will likely stall. The central problem is capital allocation. Money exists in global markets. It simply refuses to flow where most needed.
Nicholas Stern of the London School of Economics, who co-authored the assessment, addressed this directly. “Private finance will not flow at scale without public risk-sharing,” he said. Public money must move first, building confidence to unlock trillions parked in capital markets.
The barriers are well documented. Projects in emerging markets carry risk perceptions that often exceed reality. International finance retains systematic biases against developing economies. Countries requiring the largest investments face the highest capital costs, creating a self-reinforcing constraint.
Indian illustration
India illustrates how this operates in practice. Research from the Centre for Social and Economic Progress estimates that India needs roughly $467 billion by 2030, concentrated in the steel, cement, power and transport sectors. Each presents distinct challenges.
India has amply demonstrated that capital moves when the conditions are right. Renewable energy, for instance, has attracted foreign investment successfully. Inflows have tripled over the past five years through fiscal 2025.
The financing structure reveals the current constraints. Equity capital flows into renewable projects where India permits full foreign ownership, but debt creates a bottleneck. Banks face sectoral exposure limits, restricting how much they can lend to specific industries.
Arjun Dutt, who leads climate finance work at CEEW, identified one mechanism that could help. “Introducing a carve out for renewable energy in the credit enhancement facility for corporate infrastructure bonds announced in the last Union Budget could help stimulate the domestic green bond market,” he said. Refinancing existing loans through bond markets would free banking capital for new projects. These tools work better when they are offered on concessional terms, Dutt said.
Heavily polluting industries present a more difficult proposition. Steel and cement account for over 80% of India’s climate investment needs by 2030 because they require expensive technologies in order to decarbonise. The investment case here demands longer timeframes and patient capital willing to accept both technology and market risk.
Pragmatic approach required
Dutt suggested that India approaches its international commitments pragmatically. The voluntary commitments should be split into two, he said. Unconditional targets would reflect what the country can achieve using domestic resources and organic foreign capital flows. Conditional targets would be more ambitious, dependent on accessing affordable international climate finance.
In all scenarios, multilateral development banks remain central to any solution. However, it is evident that they are nowhere near ready for what is required. Assessments by the G20 and the World Bank itself show these institutions must triple their climate lending capacity to meet demand. Reforms to capital frameworks and new financing instruments might help. They will not be sufficient without deeper institutional transformation and sustained political backing.
Politics shape these discussions in ways technical assessments cannot capture. Amar Bhattacharya, a Brookings Institution fellow who co-authored the IHLEG report, acknowledged reaching even the $1.3 trillion target will be difficult despite being feasible. Recent political shifts have complicated matters. The US withdrawing from the Paris Agreement has contracted available climate finance, Bhattacharya said. He argued that this should not impede progress by other nations.
Developing countries maintain that historical responsibility for greenhouse gas emissions justifies the burden falling on rich developed nations. They have been insisting at the climate conferences that finance should come without restrictive conditions that constrain development priorities. This approach reflects the principle of common but differentiated responsibilities embedded in international climate negotiations. It also reflects trust deficits accumulated over years of unfulfilled commitments.
Gap between intent and delivery
The loss and damage fund demonstrates the gap between stated intentions and actual delivery. Established at recent climate summits to support countries facing the severest climate impacts they contributed nothing to cause, the fund has collected pledges of $788.8 million as of mid-2025. For nations like Bangladesh and Pacific island states seeing significant climate losses, the sum represents a mere fraction of requirements.
Yamide Dagnet of the Natural Resources Defense Council sees potential in the fund’s structure, which focuses on country-owned solutions. The approach matters, she said. “We are at a turning point where we need to make the economic case for adaptation and loss and damage funding, as strong, if not stronger, than the business case for investment in clean energy growth pathways,” Dagnet said. The adaptation finance gap documented by the UN Environment Programme shows how little reaches the most vulnerable regions relative to demonstrated need.
Current global climate finance flows total some $190 billion annually, according to the Climate Policy Initiative's 2024 figures. Reaching the $1.3 trillion target requires increasing flows nearly sevenfold within a decade, which is tough, if not impossible, task.
The arithmetic is straightforward. Execution demands mobilizing public finance, reforming multilateral institutions, reducing investment risk, and aligning competing national interests.
As negotiations continue in Belém, the test is whether countries can move from setting targets to building mechanisms that channel trillions where required. The decisions being made will shape economic trajectories for developing nations attempting to balance growth with emission reductions. They will determine whether climate finance becomes the transformation engine it needs to be, or remains another area where commitments exceed delivery.
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