Record climate financing is not enough

Record climate finance should be a source of encouragement. According to the European Investment Bank, the world's multilateral development banks (MDBs) committed an unprecedented $162.5 billion in climate finance in 2024, with nearly $103 billion directed to developing countries. Yet, these headline grabbing figures mask growing doubts over whether such financial commitments can be sustained and even if the current global financial system can deliver a truly just transition.

The World Bank, the largest provider of MDB climate finance for developing countries, seems to have abandoned its target of allocating 45% of its annual lending to climate-related projects, arguing that it would instead prioritise broader development objectives. Since the World Bank accounts for nearly half of MDB climate finance for developing economies, this decision raises legitimate questions about whether recent momentum can be sustained.

Meanwhile, climate impacts continue to accelerate. Devastating floods, prolonged droughts, extreme heatwaves and increasingly destructive storms are already undermining economic growth, food security, public health, and political stability across much of the developing world.

MDBs increasingly portray themselves as leaders of the green transition, yet many financed fossil-fuel infrastructure, carbon intensive industries and environmentally damaging development projects for decades. Coal-fired power plants, oil and gas projects, major highways and extractive industries have all benefited from multilateral lending. Climate finance should therefore be viewed not simply as generosity, but as part of a broader institutional responsibility to help address the consequences of past development models.

Encouragingly, climate finance is paying greater attention to adaptation. While mitigation projects received roughly $68 billion, adaptation financing rose by 31% to $35 billion in 2024. This reflects a welcome recognition that reducing future emissions is no longer sufficient. Countries must also strengthen infrastructure, agriculture, water systems, disaster preparedness and public health against climate impacts that are already unavoidable.

Even so, current commitments remain far below what is required. Independent estimates suggest MDBs may need to provide around $180 billion annually by 2030 to adequately support developing countries, significantly above current levels.

Equally important is how climate finance is delivered. The international response continues to rely heavily on a neoliberal model centred on loans, market incentives, and mobilising private investment. While private capital has an important role, markets alone cannot deliver a just transition. Many essential adaptation measures – such as protecting vulnerable communities, restoring ecosystems, strengthening health systems and expanding early warning networks – generate substantial public benefits but relatively limited commercial returns, making them unattractive to private investors.

For many poorer countries, additional borrowing presents a profound dilemma. Already burdened by high debt, they are being asked to finance recovery from a crisis to which they contributed little. Climate finance that primarily takes the form of loans risks deepening rather than reducing global inequalities. A genuinely just transition therefore requires more grants, highly concessional finance, debt relief, technology transfer and reforms to the international financial architecture that expand developing countries' fiscal space. This challenge has become even more pressing as bilateral grant financing has stagnated or declined.

The record level of MDB climate financing provided this past year is significant. But real progress requires more than merely increasing lending volumes. It demands long-term political commitment, greater emphasis on grants alongside loans and recognition that historical responsibility should remain central to global climate policy. Without these reforms, record climate finance may still fall short of meeting the defining challenge of our time.