Scaling Climate Finance Through Strategic Partnerships
As the climate crisis continues to escalate, the need for effective and scalable climate finance has never been more urgent. At COP29 in Baku, countries agreed to a new framework—the New Collective Quantified Goal (NCQG)—to guide climate finance. With COP30 in Belém on the horizon, the international community is turning its focus to how collaboration can help deliver on this promise. A new report commissioned by the G20 Sustainable Finance Working Group under the 2025 South African presidency offers insight into how vertical climate and environmental funds (VCEFs), multilateral development banks (MDBs), and national development banks (NDBs) can work together to scale climate and development finance.
The Role of Public Finance Institutions
Public finance institutions are central to bridging the climate finance gap. VCEFs, like the Green Climate Fund and the Global Environment Facility, primarily offer grant-based concessional finance. MDBs, including entities like the World Bank and the European Investment Bank, provided a record USD 125 billion in climate finance in 2023. Meanwhile, NDBs, which are closely aligned with national policies, committed USD 268 billion in 2022. These institutions have unique strengths but differ in structure, mandates, and operational capacities.
Unlocking the Power of Financial Collaboration
The report emphasizes the importance of financial collaboration among VCEFs, MDBs, and NDBs. Such collaboration can de-risk investments and attract private finance. Instruments like guarantees and catalytic equity are highlighted as effective tools. MDBs have led in offering guarantees, but strategic partnerships with VCEFs and NDBs could greatly expand their impact. Similarly, the deployment of equity investments, especially catalytic equity, can help unlock additional private funding for early-stage climate projects.
Co-financing is another key mechanism. Projects co-financed by multiple institutions tend to be larger and more efficient. For example, VCEF-funded projects with co-financing average USD 100 million, compared to USD 7 million without. However, challenges remain due to inconsistent standards, approval delays, and data gaps. Harmonizing definitions and improving reporting practices are essential for optimizing co-financing outcomes.
Addressing Institutional Barriers
Despite shared goals, institutional fragmentation continues to hinder collaboration. The accreditation process for accessing VCEF resources is often complex and time-consuming. Standardizing accreditation and due diligence processes across institutions could streamline project implementation and reduce costs. The report recommends digital platforms for data sharing and more robust feedback mechanisms to capture lessons learned and improve coordination.
Enhancing Non-Financial Collaboration
Beyond finance, the report identifies three non-financial areas where collaboration can drive impact: country platforms, technical assistance (TA), and enabling policy environments. Country platforms align international finance with national priorities and facilitate long-term investment planning. TA, particularly for countries with limited institutional capacity, can accelerate project readiness and policy development. In creating enabling environments, MDBs, VCEFs, and NDBs play complementary roles—offering policy guidance, grants, and local insights respectively.
Improving Data and Knowledge Sharing
Robust data is essential for informed decision-making. The report urges VCEFs, MDBs, and NDBs to collaborate on tracking and monitoring climate finance flows. Standardized measurement and reporting practices can improve transparency and accountability, ultimately enhancing the effectiveness of climate finance programs.
Strategic Recommendations for the Future
To realize the full potential of collaborative climate finance, the report outlines several key recommendations:
- Enhance country platforms by aligning support with national priorities and maximizing the impact of concessional capital.
- Harmonize due diligence and accreditation procedures to simplify private sector engagement.
- Empower NDBs by providing dedicated funding and integrating them into broader development finance systems.
- Promote knowledge-sharing initiatives, including staff exchanges and lessons-learned workshops.
- Continue improving VCEF processes to speed up project approvals and disbursements.
- Develop financial instruments that leverage private investment, such as guarantees and hybrid capital structures.
- Establish long-term TA programs to build institutional capacity within NDBs and other local entities.
- Create streamlined pathways from project preparation to financing, using joint VCEF-MDB-NDB frameworks.
Conclusion
As the world prepares for COP30, strengthening collaboration among climate finance institutions is critical to meeting global climate and development goals. The complementary strengths of VCEFs, MDBs, and NDBs offer a unique opportunity to scale up resources, build resilient systems, and catalyze private investment. With coordinated action, these institutions can help ensure that climate finance flows where it’s needed most—supporting a sustainable and equitable future.
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