15/01/2025
Climate finance deal invests in the blue planet at COP29
(KDPT) - The 29th United Nations Climate Change Conference (COP29), taking place in Baku, Azerbaijan, from November 11 to 24, 2024, has created an important milestone in global efforts to deal with climate change.
In historic financial commitments, developed countries agreed to contribute $300 billion annually by 2030, while aiming to increase global climate finance to at least $1.3 trillion by 2035. This is a significant step forward in securing the resources needed to support developing countries in implementing plans to reduce greenhouse gas emissions, adapt to the impacts of climate change and build more sustainable economies. While welcomed, the climate finance pledges at COP29 were controversial and fell short of the expectations of many countries most vulnerable to climate change.
Historic climate finance deal at COP29
In a context of geopolitical uncertainty and division, the outcome of COP29 was hailed by UN Secretary-General António Guterres as a necessary step to keep the goal of limiting global temperature rise to below 1.5°C above pre-industrial levels. While the financial agreement is an “insurance policy for humanity”, the world needs more ambitious commitments to effectively respond to the greatest climate challenge ever. Developed countries must honour their financial commitments and translate them into real action in a timely manner. The European Union representative said that mobilizing climate finance from the private sector, in particular through instruments such as a global carbon tax and a financial transaction tax, is essential to achieving the goal of mobilizing $1.3 trillion by 2035.
COP29 reached an important agreement on the development of rules for a global carbon market. This market will allow carbon credits to be traded between countries, incentivize investment in low-emission projects and provide financial support to developing countries. This is an initiative that is expected to create strong incentives for large-scale emissions reductions and promote innovation in green industries. Establishing transparent, fair and effective governance mechanisms for this market will be a major challenge going forward. The conference also focused on issues related to gender and climate change, expanding programs to support women in communities affected by climate change, along with supporting least developed countries to implement national adaptation plans.
With the Earth already 1.3°C warmer than pre-industrial levels, and with more extreme weather events such as droughts, floods and storms on the rise, delaying action will only increase the future cost of tackling climate change. The Independent High-Level Expert Group on Climate Finance (IHLEG) report, released at COP29, warned that the world must act now to avoid more dire consequences. The report said that without increased investment by 2030, the cost of achieving climate stability will be much higher in the future, with the poorest countries bearing the brunt of the damage.
Not all countries were satisfied with the results. Many delegations from developing countries expressed disappointment that the new financial commitments fell far short of what was needed to tackle climate change. Sierra Leone’s representative pointed out that $300 billion a year was less than a quarter of what was needed to avert a climate catastrophe, while small island states warned that they were “sinking” under the pressure of rising sea levels and extreme weather. India condemned developed countries for their lack of accountability and called for more ambitious commitments, which would be meaningless if not fully and timely implemented.
COP29 faces other challenges, notably a lack of consensus on how to establish a mechanism to manage the Loss and Damage Fund. This is an initiative to support countries most vulnerable to the impacts of climate change, funded by innovative sources such as a global carbon tax and a financial transaction tax. The design and operation of this fund remains difficult, with major emitters yet to agree on the necessary level of contribution.
COP29 also saw notable progress, particularly in mobilizing climate finance from innovative sources. A group of 10 major companies pledged to increase climate finance by 60%, reaching $120 billion per year by 2030, with the private sector contributing at least $65 billion. Meanwhile, Azerbaijan made its mark at the conference with a commitment from 22 domestic banks to finance nearly $1.2 billion for projects transitioning to a low-carbon economy. These are positive signs of the ability to mobilize new resources to tackle the global climate crisis.
COP29 concludes with great expectations and challenges ahead. The conference laid the foundations for a new, higher and more ambitious climate finance target, but the implementation of these commitments will be a long and difficult journey. With time running out, the world needs to accelerate action, not only to keep the climate goals but also to build a sustainable future for all. COP29 is not just a conference, but a strong call to action from all countries, from policymakers to the business community and every individual on this planet.
Diversifying climate finance, the role of multilateral development banks and innovative finance
Diversifying climate finance sources was a key issue at the 29th Conference of the Parties (COP29), reflecting the urgent need to change approaches to meet today's global economic realities. The concept of "developed countries," defined in the 1994 Kyoto Protocol based on the United Nations classification from the late 20th century, is now outdated as emerging economies such as China and India, or resource-rich countries such as Saudi Arabia have become economic powerhouses, creating inadequacies in the allocation of climate finance responsibilities, putting increasing pressure on developed countries to shoulder global financial responsibilities, requiring a more equitable and comprehensive mechanism for responsibility sharing.
China, the world’s second-largest economy and largest emitter of greenhouse gases, is at the center of the controversy. Under international pressure, China took the historic step of announcing $3.1 billion in climate finance. It has insisted that this is a voluntary contribution, not a mandatory commitment like that of developed countries. This stance reflects the complexity of China’s position: Despite its economic clout, it still considers itself a developing country, citing challenges to social development and reducing economic inequality at home. Saudi Arabia, with its vast financial muscle from its oil and gas industry, also faces growing pressure to become more involved in climate finance. It has traditionally played a more observer role than a doer. At COP29, they were pushed to take on a leadership role that was not only symbolic but also represented a substantive shift in the global structure of responsibility for climate change.
The redefinition of the concept of "developed country" has become a key issue, not only technical but also deeply affecting the rights and responsibilities of countries. Developed countries, such as the United States, the European Union, and Japan, have repeatedly called on emerging countries to shoulder more responsibility, based on their economic strength and emission levels. Countries such as China and India assert that they are still facing fundamental development challenges, such as poverty reduction and infrastructure construction, and therefore cannot bear equal responsibility with countries that have long been industrialized. This conflict has prompted the proposal to adopt a "differential contribution" mechanism, based on a series of factors such as GDP, emission levels, and financial capacity, to ensure fairness and encourage large emerging economies to participate more actively and responsibly.
Diversifying climate finance is not only an urgent requirement in the global fight against climate change, but also requires renewed and active participation from multilateral development banks (MDBs) and international financial institutions. Institutions such as the World Bank (WB) and the Asian Development Bank (ADB) play a central role in providing large-scale finance, especially to low- and middle-income countries, which need significant investments in climate projects to reduce emissions, enhance resilience and improve livelihoods. MDBs are facing major funding challenges, as the financial needs to address climate change far exceed current commitments. Pressure to maintain their AAA credit ratings has made these banks more cautious in expanding their lending capacity, creating a large gap between their actual funding capacity and the real needs of developing countries.
The Bridgetown Initiative, proposed by Barbados Prime Minister Mia Mottley, has received strong international support, calling for reforms to the way MDBs operate, requiring them to make better use of their balance sheets to increase their lending capacity without undermining credit quality. Instead of focusing too much on maintaining high credit ratings, MDBs are encouraged to be more flexible in raising capital and managing risk, allowing developing countries to access much-needed capital at lower costs. The Bridgetown Initiative proposes the development of innovative financial instruments such as “Special Drawing Rights” (SDRs), a financial mechanism that can provide international capital to vulnerable countries without increasing their debt burden. This helps countries not only increase their access to finance but also reduce long-term financial risks, making it easier for them to invest in sustainable climate projects.
The initiative also encourages the establishment of MDB-backed sovereign wealth funds to build local capacity to manage and implement climate projects. These funds not only ensure transparency and efficiency in the use of funds, but also promote coordination between governments, MDBs, and the private sector, creating a strong and interconnected financial network. Another highlight of the Bridgetown Initiative is the integration of debt relief programs with climate finance, such as debt-for-climate swaps, which help developing countries reduce their public debt burden while still being able to invest in sustainable development goals. This is an important step, especially when these countries are facing great pressure from global financial markets, while the need to invest in climate solutions is increasingly urgent.
Scaling up climate finance from MDBs is economically important and strategically important in addressing the severe impacts of climate change. MDBs could triple their financing capacity from the current US$120 billion to US$480 billion per year by 2030, without jeopardizing their credit ratings. This would not only meet the huge capital needs of vulnerable countries, but would also strengthen the international community’s confidence in the central role of MDBs in climate finance. Realizing this potential requires strong consensus from major MDB shareholders, including developed countries and the private sector. Developed countries should increase their capital commitments, while the private sector can contribute through public-private partnerships (PPPs) or investments in green funds to generate additional resources for climate initiatives.
Close coordination between MDBs, governments and the private sector is crucial to ensuring that climate finance is allocated equitably and efficiently. At the same time, developing countries need to improve their financial management and project implementation capacities to make the most of the funds provided. MDBs are not only sources of finance but also catalysts for global cooperation to tackle the climate crisis. The reforms needed will help these banks scale up climate finance, promote sustainable development and reduce global inequality, while laying the foundations for a sustainable and inclusive future. As the climate crisis becomes more complex, a reformed and optimized global financial system will be key to building trust, strengthening collective responsibility and ensuring that no country is left behind.
The climate crisis requires massive financial resources to meet emissions reduction and adaptation targets, while traditional financial sources are not yet sufficient to meet the demand. Innovative financial sources are an important solution, providing new tools and strategies to fill the funding gap and accelerate the global green transition. From green bonds, climate insurance to public-private partnership (PPP) funds, these initiatives not only provide sustainable capital but also attract strong participation from the private sector and the international community. Green bonds serve as a breakthrough tool to mobilize capital for sustainable projects such as renewable energy development, forest management, and green infrastructure, while climate insurance supports disaster risk reduction and protection of vulnerable communities. Blockchain technology is also being applied to increase transparency and efficiency in monitoring financial flows, helping to optimize capital allocation and minimize waste.
At the international level, large financial institutions such as Saudi Arabia’s Public Investment Fund (PIF) and the Bill & Melinda Gates Foundation have pioneered large-scale climate financing projects, from green hydrogen development to cleantech innovation. Meanwhile, at the local level, community climate funds and energy cooperatives have empowered communities, increased ownership and responsibility for green projects, and reduced financial pressure on national budgets. Combining innovative finance with supportive government policies not only increases climate resilience but also drives a far-reaching transformation of the global economic and social system, underscoring the pivotal role that innovative finance plays in fostering a more sustainable and inclusive future.
With global assets under management exceeding $210 trillion, the private sector is increasingly asserting its central role in addressing climate change challenges. The huge resources of the private sector have not been effectively exploited, with only a small portion invested in climate projects due to the lack of attractive mechanisms and a favorable investment environment. Mobilizing private finance is not only necessary but also strategic, opening up opportunities to generate hundreds of billions of dollars each year to meet the urgent need for emissions reduction and climate change adaptation.
Governments and international organizations play a key role in facilitating private sector participation in climate finance. Instruments such as tax incentives, credit guarantees, and transparent regulatory frameworks are effective solutions to reduce investment risks. At the same time, risk-sharing mechanisms such as public-private partnerships (PPPs) allow the private sector to participate in large climate projects without having to shoulder the full financial burden, promoting private capital flows into green projects while also increasing investor confidence in sustainable profitability.
Innovative financial instruments such as green bonds, climate investment funds, and concessional loans have proven effective in mobilizing private resources. Green bonds not only support the financing of renewable energy and sustainable infrastructure projects but also bring long-term economic benefits to investors. Meanwhile, private investment funds can cooperate with public institutions to implement large-scale climate projects, bringing benefits to both communities and investors. Mobilizing private finance faces many challenges, from uncertainty about investment returns to a lack of transparency and standardization in financial instruments. There is a need to increase transparency, unify assessment standards, and build close coordination mechanisms between governments, the private sector, and international organizations. At COP29, a strong message was sent: the private sector cannot be a mere bystander but must become an active player in the fight against climate change. With the support of appropriate mechanisms and strong commitments, private finance can become an important driving force to help the world move closer to a green, sustainable and inclusive future. Effectively mobilizing this resource will not only create superior financial strength but also contribute significantly to achieving global climate goals.
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19/11/2025