2024 was the hottest year on record. all over the world, 151 Unprecedented extreme weather phenomenon Devastated countries around the globe, including heatwaves in Japan and Iran, floods of typhoons in Italy, Pakistan, Poland, Brazil, Vietnam and the Philippines. It takes a lot of money to mitigate these and other climate disasters and prepare for what is on the horizon.
Climate funding is important. In order for developing countries to adapt to climate impacts and reduce carbon emissions, the public and private sectors and other financial institutions will need to work together to utilize the funds needed for such enormous promises.
To address this need, the Columbia Climate School has introduced a new one Master of Science in Climate Finance Programwill start in autumn 2025 in collaboration with Columbia Business School. Columbia Centre for Sustainable Investmentit is a one-year professional degree program for both early careers and experienced professionals. The program allows students to understand the science and impact of climate change, assess risks and opportunities, understand funding orders, and consider impacts for both policy and financial institutions. In addition to the increased cost of adaptation, the climate finance sector will become increasingly important over the next few years as it is estimated that around $5-10 trillion per year will be needed to decarbonize the global economy.
Good news? There’s enough money to resolve the crisis. “With around $30 trillion in global savings per year, we have enough capital to fund the global transition,” says Sachs, an expert on how global investments in law, policy and business formation flow.
And is it bad? Finance is enriched in developed markets and flows in the wrong direction in which much of the global South is inaccessible. “The amount of financial capital is very low whether it leads to climate mitigation or adaptation in the majority of developing countries, whether it comes from multilateral, from the country’s own government or from the private sector,” said Bruce Usher, co-director of the Tamer Center for Social Enterprise Center, Colombia’s Social Enterprise Center. Governments in developing countries “have limited resources, the World Bank and other multilateral institutions aren’t that big, and the private sector finds it very difficult to invest in those countries,” he said.
https://www.youtube.com/watch?v=5fbp_z5cazi
Moral orders
Why should wealthy countries pay to solve the problems of other countries? Many stakeholders feel that countries that primarily create the climate crisis should take the utmost responsibility to deal with it. Developing countries contribute far less to climate change than developed countries, but in many cases they are the most vulnerable to its effects and tend to rely on the natural world for their livelihoods. According to the United Nations, Half of the world’s population lives in climates.“Here they are 15 times more likely to die from climate impacts than people in wealthy countries.
However, developing countries Need trillions of dollars Every year until 2050 to achieve their adaptation and mitigation goals; Independent, high-level expert group on climate finance. At COP 29 last year’s UN Climate Summit, wealthy countries promised to mobilize $300 billion per year by 2035has a broad desire to mobilize $1.3 trillion in private capital per year. However, the pledge is voluntary, non-legal binding, and no framework has been agreed on how to mobilize private capital.
“The catastrophic consequences of not solving this problem we created and knowing how to solve it seems to me the deepest moral failure,” Sachs said. “What makes that worse is the one who contributed the most is [to climate change] It will certainly be affected, but it will not be as quickly or completely as a nation that has wiped out countries facing livelihoods, economic upheavals and submerged coastlines. ”
Follow the money
Most climate finance comes from domestic public budgets and private investment, but from multilateral development banks (an international financial institution established by more than two countries). Bilateral donors and Vertical funds Like Green Climate Fund (GCF) contributes less share that can jump additional funds. Often, they eliminate risks and take advantage of larger flows in the form of government financial support.
The GCF distributes its money to local development banks and organizations to fund adaptation and mitigation projects in developing countries. The fund initially raised a $10 billion pledge. Total pledge to GCF for 2024-2027 The programming cycle is currently at US$13.6 billion from 34 countries and one region.
A major failure in debt
Under the Paris Agreement, half of the Climate Fund Fund will be spent on adaptation and half on mitigation. However, more than 90% of climate funds are now directed towards easing, with most of them being directed in the form of loans.
“Developing countries are trapped in a vicious circle as credit rating agencies rate them as risky and sub-investment performance, primarily as a result of poverty,” Sachs said. “The terms of borrowing are very high, and short maturation increases the risk of default and worsens the risk profile.” 60% of undeveloped countries are in debt, spending five times more on debt each year than climate adaptation. One analysis I discovered it in 202159 countries paid $33 billion in debt repayments and received only $20 billion in climate finance.
Developing countries need long-term patient funding to build critical infrastructure, Sachs said. Climate projects can take years to recover costs. “Solar projects are very low-risk investments and are attractive to investors as long as they make their 20-30 year commitment comfortable,” Usher said. “However, in many developing countries, the cost of capital for 20 or 30 years is very high. There is no capital that is willing to go that long due to the risks inherent in these countries.” For example, since developing countries’ currencies can be volatile and rapidly lose value, investors will ultimately lose money. Developing countries are responsible for their currency risk.
Investing in adaptation and mitigation strategies
The most common mitigation strategies include investing in renewable energy, carbon capture and storage, electrification of transportation, improving building energy efficiency, and improving water management; Adaptation Project It aims to restore infrastructure to climate impacts, develop efficient and sustainable agricultural practices, shift in aid to more sustainable livelihoods, and restore biodiversity.
Adaptation efforts can also reduce the cost of damage caused by climate impacts. For example, the $1 billion invested to prevent coastal flooding could reduce damages by $14 billion. According to UNEP Adaptation Gap Report 2023. However, there is often no clear profit on investment, so there is less money directed towards adaptation, losses and damages than mitigation. “There are very few cases where the private sector funds projects that are unlikely to have no return,” Sachs said.
Climate impacts cannot be addressed to support vulnerable countries. Loss and Damage Fund It was established during COP27. As of March 2025, $765 million has been pledged to the fund Up to 26 countries and the EU. (Now there are no countries obligated to pay the fund.) The US initially pledged $17.5 million for the fund, but the Trump administration has withdrawn the country from the fund.
In Ethiopia, for example, the World Bank is purchasing emissions reductions from the distribution of 2.8 million solar lanterns and over 200,000 home solar systems to replace kerosene lamps and diesel generators. This switch reduces CO2 by approximately 24,000 meters each year.
Climate funding status
Funding for adaptation Increased from 2021 to 2022 there is still a large gap between the estimated amount needed for adaptation ($21.5-387 billion) and the actual amount of money that came to $28 billion (as of 2022) (as of 2022). The longer the gap, the more the developing countries suffer from losses and climate change damage. The funding gap also undermines trust between developing and wealthy countries. an Oxfam experts pointed out When developing countries see rich countries that have not fulfilled their financial pledge, they begin to doubt the promises they make on other issues of climate consultations.
Sachs believes a complete overhaul of the climate finance system is needed. The cost of capital for investment in developing countries needs to be lowered and the valuation of developing countries needs to be improved, she said. Additionally, private capital is important for climate finance, so development finance institutions need to catalyze private investment more effectively by providing enhanced credit to related projects and sovereign finance. “Private finance could be more affordable if we can unlock risky projects, provide guarantees, and take advantage of private finance more,” Sachs said.
“It’s really important for the World Bank and other multilateral institutions to strengthen funding in developing countries,” Usher said. While the World Bank offers Climate funding record for 2024– $42 billion – The actual needs are trillions. However, in order for development financial institutions to be able to lend more, they need to get more payroll capital from rich countries. However, rich countries were reluctant to utilize development financial institutions. Development financial institutions may lend more or undertake increased risk with capital that has capital without additional paying stocks. “But they hesitate because they don’t want to risk the Triple A credit rating,” Sachs said. “Both more capital and more leverage should be part of the solution.”
Countries and regions need to have a master plan with a roadmap that lays out what energy conversion looks like. “Each region or country needs to identify what the mix of solar, wind, geothermal and hydropower is,” Sachs said. “Where should these be located? Which infrastructure do they need for transmission and distribution?” Beyond technical scenarios, the master plan should also identify the required investments and investments suitable for public or private finance.
Some master plans are already in progress. The Council of Engineers for the Energy Transition, an advisory committee to the Secretary-General, is developing technical roadmaps in each region of the United Nations region, but Columbia Centre for Sustainable Investment We are working on the financial aspect. They’re studying assignmentfunding institutions, funding and financial possibilities in each region.
Regarding the future of climate financing, Usher said: “It’s very important that capital flows increase because they are not very polluted and cannot really reduce emissions in developing countries. And they can’t increase citizens’ prosperity because they don’t have foreign investment. The private sector is essentially working together.”
Please see more details on Climate finance MSa professional degree program offered by Columbia Creemate School in close collaboration with Columbia Business School; here.
