Emerging markets and developing economies (EMDEs) are at the forefront of climate vulnerability and opportunity. As these nations grapple with urbanization, energy demand, and extreme weather, unlocking capital becomes imperative.
This article navigates the scale of finance needs, evolving global architecture, key trends, institutional roles, and pathways to accelerate investments in EMDE climate action.
According to the World Economic Forum, EMDEs will require about USD 2.4 trillion per year in climate finance by 2030, with USD 1 trillion expected from international private sources. Yet in 2023, actual inflows fell far short: EMDEs received only USD 332 billion in total, including USD 36 billion of private climate finance from abroad.
The Climate Policy Initiative estimates that these economies collectively need almost USD 4 trillion in annual climate finance to meet mitigation and adaptation goals. Of this, mitigation alone demands roughly USD 3.9 trillion each year. With 157 countries representing nearly 90% of the global population and over 40% of global GDP, the funding gap poses a critical barrier to sustainable growth and resilience.
For over a decade, the USD 100 billion annual goal from developed to developing countries dominated climate negotiations. As discussions evolve under the UNFCCC, a New Collective Quantified Goal (NCQG) aims to surpass this benchmark, encompassing mitigation, adaptation, and loss and damage.
Leaders have tentatively endorsed mobilizing USD 300 billion by 2035, with aspirations toward USD 1.3 trillion. Multilateral development banks (MDBs) have pledged to leverage USD 65 billion in private finance for climate action by 2030, up from USD 15 billion in 2022. This increase relies on guarantees, insurance, and risk-sharing instruments to crowd in capital.
Despite progress, domestic resources remain the primary source of climate finance in EMDEs. Around 80% of finance was raised locally in 2023, highlighting hard limits to fiscal space and underscoring the urgent need to bridge the international funding shortfall.
Climate finance has transformed from isolated green projects to integrated, portfolio-level strategies that align with Paris Agreement goals. Across diverse sectors, from tourism to urban regeneration, stakeholders now screen operations for climate risks and set targets to phase out harmful investments.
Adaptation finance has historically lagged mitigation, yet private institutions could provide USD 50 billion per year by 2030 if barriers fall and robust pipelines emerge. Nature-based solutions—like mangrove restoration and wetland conservation—are gaining traction, especially in island and coastal EMDEs, feeding emerging blue carbon markets.
Multilateral development banks and development finance institutions (DFIs) are central to de-risking investments. They deploy guarantees, political risk insurance, and credit enhancements to attract private capital. The OPEC Fund, for instance, approved a record USD 863.7 million in climate finance in 2024, representing nearly 40% of its total disbursements.
Blended finance has matured, with concessional funds required to demonstrate additionality by unlocking projects that would not proceed otherwise. Tailored mechanisms—such as first-loss tranches, subordinated debt, and resilience bonds—tie pricing and support to explicit climate and development outcomes.
Mobilizing the USD 1 trillion per year needed from international private sources demands concerted action across policy, finance, and project development. Key strategies include:
By aligning incentives, reducing perceived risks, and supporting early-stage project development, stakeholders can close financing gaps and drive transformational change.
Ensuring climate finance reaches small businesses and local communities is vital for equitable transition. Digital entrepreneurship, creative industries, and climate-smart agriculture are emerging as focal points, where micro-, small, and medium enterprises (MSMEs) drive innovation and resilience.
By building stronger local ecosystems, EMDEs can tap into global capital flows and ensure that investments foster inclusive, low-carbon growth.
The journey beyond the horizon of current climate finance flows demands innovative partnerships and unwavering commitment. Bridging the trillion-dollar gap requires policy reforms, enhanced risk mitigation, and targeted blended solutions.
By championing mobilize private capital at scale and embracing nature-based, resilience-focused investments, we can empower EMDEs to build sustainable, equitable futures. The time to act is now—together, we can transform ambition into impact.
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