Climate Finance Is a Top Story to Watch in 2025

2025 Is the Year to Care About Finance for Climate and Nature

At last year’s UN climate summit (COP29), wealthy nations agreed for the first time in 15 years to increase the amount of money they provide for climate mitigation and adaptation in developing nations. The new target — $300 billion annually by 2035 — is better than the previous goal of $100 billion a year by 2020. But it’s still a far cry from what’s needed. That’s why leaders from all nations also agreed that all actors should work together to mobilize $1.3 trillion per year by 2035 for the countries most vulnerable to the impacts of climate change.

This $1.3 trillion recognizes the gap between what developing nations can realistically provide domestically for things like clean energy development and climate-smart agriculture, and what will be needed from external sources. It will be extremely difficult to secure the $1.3 trillion. But make no mistake: We must do it.

We know what will happen without adequate climate finance: Resource-strapped communities will suffer the most from increasingly devastating droughts, floods, wildfires and heatwaves, even though they’re least responsible for causing the problem. That’s why delivering the $1.3 trillion isn’t just about finance — it’s about justice.

We also know that without significant emissions reductions from all nations — wealthy and developing alike — the world will not meet its decarbonization goals, exposing everyone to the existential crisis that is climate change. Finance from richer countries to developing ones isn’t charity; it’s an investment in a safer world.

Finally, ambition and finance are two sides of the same coin. You can’t get ambitious nature and climate policies without the finance to execute them. Finance and ambition are a virtuous cycle — and this is the year to unlock both.

So let’s dive deep into what’s needed to achieve the $1.3 trillion goal, and what to watch this year to see if it’s coming to fruition.

1) What’s the Money For?

In short, the $1.3 trillion must support two goals: building resilience in developing nations while also securing their low-carbon growth.

The effects of climate change are growing ever-more costly and dangerous, but the risks aren’t evenly distributed. Vulnerable nations — those with the fewest resources to respond — are projected to face more than half a trillion dollars in climate-related damages every year by 2030. Meanwhile, finance for building resilience remains paltry, with a $360 billion gap between what’s needed and what’s provided every year. Of the adaptation finance that is flowing, less than one-fifth reaches the communities who need it most.

There is a sizable gap between adaptation needs vs. available finance.

That must change.

At the same time, both low-income and growing nations need support to move beyond fossil fuels while also creating jobs and improving lives. Many low-carbon shifts will come with considerable benefits, such as cleaner air and energy security. But it will take finance to make sure they happen at the speed and scale necessary and in a way that benefits all people — including those employed by the fossil fuel industry. For example, investments in the clean energy sector in developing countries need to increase by around 7 times by 2035, according to the International Energy Agency.

Answers to a few questions this year will show us whether the world is achieving these twin goals for climate finance:

Will negotiators at the next UN climate summit (COP30) commit to at least doubling adaptation finance from $40 billion to $80 billion per year?
Will the Loss and Damage Fund established in 2023 start disbursing funds?
As part of the global Paris Agreement on climate change, countries agreed to submit new national climate plans in 2025. Will they be ambitious on both mitigation and adaptation, and come with clear investment plans?

2) Where Will the Money Come From?

$1.3 trillion may sound like a lot of money, but not when you put it in perspective: Using the International Monetary Fund’s average annual GDP growth rate of 2.8%, it’s less than 1% of projected global GDP in 2035.

The $300 billion climate finance target can be met in three ways: bilaterally, where donor countries give directly to recipient nations; multilaterally, through development banks (MDBs) like the World Bank and multilateral climate funds like the Green Climate Fund; and through leveraged private finance. It’s essential that a good chunk of this finance comes in the form of grants, concessional finance and low-cost loans, so as not to add more debt to vulnerable nations, many of whom already face debt distress. Restructuring debt and debt-forgiveness are also important for the $300 billion to make the most impact.

Getting from $300 billion to $1.3 trillion will be much harder, but it is doable if many pieces of the puzzle come together. Capital increases at MDBs, which are very good at turning $1 of taxpayer money into $4-$10, are a good first step. Building on that, taxes on polluting sectors like aviation, maritime shipping or oil could add more than $200 billion. Innovative sources of finance, things like debt-for-nature swaps or carbon markets will be challenging, but essential. And at least half of the $1.3 trillion will need to come from the private sector.

How can we get $1.3T in climate finance for developing countries by 2035?

Progress this year will depend on a few factors:

Will member countries increase their funding to the MDBs, despite political headwinds?
Will the concept of international taxes gain traction? The International Maritime Organization is considering a carbon levy on shipping, while countries like Kenya, Barbados, France and Brazil have set up a task force to examine potential international taxes.
Will leaders use June’s Finance for Development Conference to advance global finance reform and bring together climate, nature and development finance?
Will the U.S. government’s new freeze on almost all foreign assistance, including all climate finance, ultimately proceed, and what repercussions will it have?

3) How to Mobilize Private Capital?

Even if experts agree that half of the $1.3 trillion needs to come from private capital, it will be difficult to make this amount flow to the right places. Low-carbon investments in developing nations are still considered to be risky and expensive. For example, a solar project in Germany would require 8% in equity returns; the same project in Zambia would require 51%. While institutions like the World Bank use financial instruments like guarantees to “de-risk” these investments, they simply cannot be deployed to upwards of $700 billion in private climate finance per year by 2035.

The key, then, is to use smart public policies to unlock the levels of private investment needed.

We’ve seen some examples of this, with China’s green industrial policy, the U.S. Inflation Reduction Act, and India’s expansion of clean energy. India set ambitious renewable energy targets and a clear roadmap, subsidized electric transport and charging infrastructure, invested significant public resources into renewables, and advanced innovative financial instruments like green bonds, all of which boosted the private sector’s confidence in low-carbon investments. These kinds of measures, as well as public-private partnerships, are essential for de-risking investments and attracting private capital.

Signals to watch for this year include:

Will we see the emergence of more “country platforms,” country-driven initiatives that aim to align public and private capital behind priority investments that benefit climate and nature? Colombia is the latest country to launch such a platform—will other nations follow suit?
Will backlash against ESG initiatives like the Net-Zero Banking Alliance slow climate investments, or will a growing number of national net-zero targets and corporate climate risk disclosure mandates drive green investment?
Will we see progress at upcoming conferences like Finance for Development and the Finance in Common Summit? Welcomed outcomes would be a reassessment of how investment risks are calculated, as well as development banks embracing climate- and nature-related investments as their central mission.

4) What Will Fund Nature’s Future?

We can’t fight climate change without safeguarding nature. Trees, healthy soils and the ocean sequester vast amounts of carbon dioxide. Healthy forests regulate rainfall, reduce erosion, provide clean water and support many other ecosystem services. Some estimate that a whopping 55% of global GDP depends on nature.

Nature provides a myriad of benefits for people and nature.

And yet economic incentives continue to drive ecosystem destruction. According to WRI’s Global Forest Watch initiative, the world loses 10 football fields of tropical primary rainforest every minute.

This is where the financial innovation mentioned earlier can play a role.

Yes, economies currently value nature’s destruction more than its preservation. But creative finance can change that. For example, the proposed Tropical Forest Forever Facility, or TFFF, would pay countries $4 for every hectare of forest conserved while taxing them $400 for every hectare destroyed. Conceived of by the Brazilian government and World Bank, the initiative would use an initial $25 billion from wealthy nations and philanthropies to attract an additional $100 billion in private finance. All investors would see a return after 20 years that’s slightly higher than a government bond.

And that’s just one example. Innovations like land banks, debt-for-nature swaps, carbon markets — all paired with better policies, standards and regulation — can bring much-needed finance toward nature conservation that’s good for people and the climate.

Areas of progress to watch for this year include:

Will the TFFF initiative move from idea to reality?
Will national leaders return to the UN biodiversity conference in February and hammer out a global nature finance deal?
Will new integrity standards and increasing government support boost investor confidence in high-quality carbon markets?
Will debt-for-nature swaps, where wealthy nations and institutions forgive nations’ debt in exchange for conservation, become more common? Ecuador is currently using one-such measure to protect Galapagos National Park, promising to spend $17 million in conservation over the next 18 years in exchange for debt forgiveness.
Will more governments redirect harmful agricultural subsidies toward nature-friendly practices, as Denmark and the UK have recently done?

Getting Climate and Nature Finance Flowing

I hope by now I’ve made it clear why mobilizing $1.3 trillion for climate action in developing nations is essential. But it is hardly a done deal. While one element of the $1.3 trillion can leverage and mobilize another, today, the different pieces are governed by entirely different regimes. Getting them to come together as one cohesive puzzle will be hard.

That’s why the biggest thing to watch in 2025 is how the world brings all these components together —especially at key forums like the UN climate summit and G20 meetings. For maximum leverage and efficiency, we need to draw on all sources of finance and make them work together as a system. That will require the deep involvement of finance ministers —and even heads of state — from countries across the world.

As we step into 2025, it’s clear that our financial systems must be reimagined to tackle climate change, protect nature and improve people’s lives. This transformation won’t be easy, but there are many tools to get us there. By demanding bold steps from our leaders, leveraging limited resources to make maximum impact and harnessing innovation, we have the power to unlock financial flows to some of the world’s most pressing challenges.

Will we see the beginning of this transformation this year? I, for one, will be watching.