The World Meteorological Organization (WMO) has recently confirmed that 2024 registered a new record in the ongoing series of global average temperatures, that has been registered since 2015. In particular, last year peaked at about 1.55°C above pre-industrial levels. During the same period, 27 individual weather calamities occured, for an estimated cost of at least 568 direct or indirect fatalities and $182,7 billion. One of the cardinal problems is the lack of finance that slows down the response to climate change. For instance, even if in 2023 we would have needed $8 trillion, only $1,5/1,6 trillion were invested, while now the amount should arrive at $10 trillion.
How to enlarge global financial capabilities to address climate change?

Public international finance
To close the financial gap between what we need and what we have, we should improve the use of public international finance, of course accompanied by private sources. To do so there are various, and sometimes complicated, ways.
One of them is the Official Development Assistance (ODA), and to broaden the range of its providers. For instance, a solution may be the integration of China or the UAE to this aid mechanism. However, it is unlikely that they will help as much as needed, especially given the geopolitical environment of nowadays. Another example is the Special Drawing Rights, whose surplus has been used as an additional source for the Resilience and Sustainability trust since 2022, yet not all countries seem to be willing to contribute, and the World Bank would like to invest this money in the African Development Bank Group and the Inter-American Development Bank. Apart from the additional idea of enlarging the Multilateral Development Banks’ (MDBs) financial help, the last two are a sovereign debt restructuring (debt relief in return for environmental commitments) and new global taxes as a mean to increase public finance. However, if the latter is not really applicable due to the present geopolitical environment, the first one would be just a way to postpone the debt obligation of these countries and hence not a sustainable solution.
These are the ways through which we could obtain more public international finance for the climate crisis, but, as an International Monetary Fund (IMF) research states, private finance will need to account for 90% of mitigation finance alone going to Emerging markets and developing economies (without counting China). At this moment however, the resources from the private sector are really low due to different factors. To begin with, private investors are not keen to initiate an investment in an EMDEs country because of their market failures. Moreover, they are not willing to engage for green investments because of the distorting fossil fuel subsidies, the lack of information on climate risks and the lack of well-developed investor base in advanced countries for green projects in the EMDEs. Plus, there is the problem that the risk perceived may be higher than the real one because of the lack of experience of asset managers in these scenarios or because of inadequate data.
Public finance could make a difference by improving and strengthening the general business environment, which would likely take too much time, or by mitigating financial risk in specific projects with a blended finance. Indeed, the public sector could take on some of the risk that the private sector
would have or subsidies their returns. However, even if it would be a faster way, it is not used on many occasions because of its uncertainty about how big the risk is and who would take it.
There is an urgent need for improvement in clarity. First of all, by conducting a comparative assessment of public international finance on mitigation, adaptation and loss and damage, plus, assess for each one, the optimality of use of public finance directly or to mobilize the private (by both blended finance and improve business environment). Then it is important to rethink institutional architecture, even if it’s expensive and time-consuming. Finally, we need to develop a decision framework and accountability mechanism by crystallizing the clearest set of decisions. All of this would be obviously a product of political negotiations.

Reducing the flow of private finance to carbon-intensive investments
Another solution for sustainable finance is increasing the demand for green projects, thereby addressing the persistent flow of private capital into hydrocarbon-intensive sectors. Despite global efforts, private investors continue to favor carbon-intensive industries due to factors such as subsidies, the perceived stability of fossil fuel investments, and weak regulatory frameworks that fail to incentivize cleaner alternatives. Projects aimed at climate adaptation face challenges in attracting private investment because their benefits are often harder to monetize. For example, renewable energy projects require substantial upfront investments compared to hydrocarbon ventures. To counter these trends, fossil fuels subsidies should be eliminated while green investments should be made more appealing. Public institutions should release guarantees to de-risk climate projects or expand the issuance of green bonds backed by MDBs.
Bridging the climate finance gap requires both immediate and long-term actions. In the short term, the focus should be on maximizing the effective use of existing public international finance to catalyze private investments. Risk-sharing mechanisms and targeted financial instruments must be scaled up, and distortions like fossil fuel subsidies must be removed to redirect investments towards sustainable sectors. In the long term, innovative solutions call for revising capital adequacy frameworks for MDBs, addressing the growing burden of sovereign debt in developing countries, and creating a political environment conducive to sustained action. While the challenges are significant, strategic use of existing resources, coupled with multilateral cooperation and strong political commitment, can help support global climate action.
To close the climate finance gap, a political process becomes necessary. On the one side innovative solutions need strong international cooperation and a clear political mandate to address the challenges identified earlier. On the other hand, local governance is often the primary financiary of Nature-based-Solutions (NbS) as well as in implementing policies, addressing community needs, and driving local development. Local communities matter for many reasons: they can identify the most effective and cost-efficient nature-based solutions, locally tested solutions can reduce the risk of failure and thus lower financial risk for investors, Social Impact Bonds (SIBs) or Development Impact Bonds (DIBs) can be used to fund NbS. The effectiveness of these efforts depends on the coordination between different levels of governance and across sectors. Solutions should be tailored to regional and sectoral needs, with a particular focus on concessional loans, guarantees, and blended finance options that share the risks of high-priority projects.

An example: the Great Green Wall
The Great Green Wall (GGW) in Africa is an effective example of what international cooperation can do in the fight against climate change. This initiative takes place in the specific region of Sahel, from the Senegal coast to Sudan, because of its vulnerability to the temperatures’ rise, which are causing a growing number of extreme weather events that not only threaten locals, but are also enlarging the desert. In particular, the African Union decided to create a 15 km vegetation barrier across the region to reduce the detrimental effects of climate change. With time, it became an enormous plan that aims to expand to 8,000 km, to restore 100 million hectares, to sequester 250 million metric tons of carbon dioxide and even to create 10 million green jobs in 11 different countries..
This project started thanks to public investments issued by the Green Climate Fund (GCF), one of the Financial Mechanism of the UNFCCC, and is proof that coordination between public funds and local governance is necessary to start a revolutionary project, yet it is not enough: an integration of private investors in the project is required. Moreover, it is important to increase the coordination and to have a more comprehensive analysis of the region’s carbon potential and of the solutions to some of the investment challenges.
Despite these difficulties, we can also take from this initiative another important teaching: to achieve effective results in the fight against climate change, local voices must be taken into account. For instance, the opinions of the inhabitants of the touched states were collected during the building of the GGW in order to truly understand the needs of their region – such as the kind of plants that could survive with that soil and climate, and which ones could help the population to obtain more food and products. Cooperation is not meant to be just between investors and governments, but also with the community who lives in the affected area.

The authors

Camilla Bianchedi and Margherita Ceserani are part of the editorial team of the student association HIKMA.