Climate Finance and Feeding the Multitude of Climate Needs
The Biblical story of feeding the multitude with five loaves of bread and two fish teaches us that great achievements can result from limited resources when used wisely. In finance, this mirrors the concept of leveraging small public funds to attract substantial private capital goal – central to the New Collective Quantified Goal (NCQG) on climate finance.
The Draft Decision -/CMA.6 on the NCQG sets an annual target of US$ 300 billion by 2035, with the ambition to scale it up to at least US$ 1.3 trillion per year by 2035. This exemplifies the principle of multiplying resources, akin to the Biblical lesson. Adapting the steps taken in the Biblical case, achieving such a monumental target requires a focused approach: (1) taking stock of available resources and identifying the needs to be addressed, (2) getting organized by establishing robust structures to manage the expected scale of work and results, and (3) rolling out a well-thought-out and fail-proof plan.
The emphasis should not merely be on meeting the numerical target of US$ 300 billion per year but on how effectively these funds can be leveraged to attract additional capital. As highlighted in our article on COP28 deliberations on the NCQG, we reaffirm that equity-based financing, rather than grants, will serve as the transformative mechanism. Equity financing enables developing countries to mobilize significant capital for climate-resilient projects without exacerbating their debt burden, fostering long-term sustainability.
Climate Finance Trends
Fifteen years ago, the Copenhagen Accord, a product of COP15 held in Copenhagen from December 7 to 19, 2009, set a historic collective goal: developed countries would mobilize US$ 100 billion per year by 2020 to support developing countries’ climate needs, particularly regarding mitigation. The Accord emphasized that this funding would come from a broad range of sources, including public, private, bilateral, and multilateral funds, along with alternative sources of finance. It also underscored the importance of addressing adaptation needs, which were to be supported through mechanisms like the Copenhagen Green Climate Fund, though no specific financial targets for adaptation were established at that time.
Fast forward to COP21 in Paris in 2015, and the Paris Agreement reiterated the US$ 100 billion per year target through 2025, reaffirming the commitment to the goal of supporting climate action in developing countries. Article 9 of the Agreement highlighted that a new collective quantified goal (NCQG) would be set before 2025, with the US$ 100 billion per year serving as the floor for this new target. It was clear that the Paris Agreement was aiming to build upon the initial Copenhagen goal and address the evolving financial needs of developing countries, ensuring that future climate finance would be even more robust.
Then came COP29 in 2024, which set a new target: US$ 300 billion per year by 2035 for developing countries’ climate action. This goal builds on the previous commitment but introduces a major shift—combining mitigation and adaptation financing into a single target. The decision echoes earlier commitments, stating that funds would come from a wide range of sources, both public and private, and stresses the importance of meaningful and ambitious mitigation and adaptation actions. However, it introduces a key concern: by combining the two financial needs into one figure, there is a risk that the actual financial needs of adaptation —which are often more urgent and historically underfunded—could be overshadowed by the large sums needed for mitigation.
While the US$ 300 billion target appears to be a significant increase compared to the US$ 100 billion goal, it raises the question: Does this new target merely create the illusion of an increase by combining both funding areas? The previous approach, which treated mitigation and adaptation separately, allowed for more tailored solutions, but COP29’s new goal could blur the lines between these distinct financing needs.
Has COP29 truly delivered a better deal?
Debates surrounding climate finance have often highlighted significant concerns, notably the lack of consideration for inflation. For example, the US$ 300 billion goal set for 2026 may not hold the same value in 2028 due to inflationary pressures. This undermines the long-term stability of the goal. Furthermore, this target falls significantly short of estimates provided by UN reports and other authoritative bodies, which project that far more will be needed to achieve the ambitious 1.5 degrees Celsius climate target. When considering the New Collective Quantified Goal (NCQG), which combines both mitigation and adaptation efforts, a critical question arises: Has COP29 truly delivered a better deal? Combining two separate climate finance categories may make the target appear larger, but it is essential to evaluate whether the funds are sufficient to address the distinct needs of mitigation (emissions reduction) and adaptation (climate resilience). To ensure equitable and effective financing, perhaps mitigation should have received a separate, higher target, such as US$ 300 billion, with adaptation also allocated an equally substantial figure.
Another critical area of concern arises from Article 8c, which states: “Recognizing the voluntary intention of Parties to count all climate-related outflows from and climate-related finance mobilized by multilateral development banks towards achievement of the goal set forth in this paragraph.” While this provision aims to widen the scope of finance mobilization, it raises a fundamental question: considering that developing countries also contribute to the financing pools of multilateral development banks (MDBs), does counting “all climate-related” mobilized funds truly align with the collective goal of capital flowing from developed to developing countries? Or does this create a scenario where developing countries themselves inadvertently contribute to meeting the target, diluting the intended redistribution of resources?
This concern highlights a critical gap in how climate finance is being tracked and allocated. The reliance on broad definitions of mobilized funds may obscure whether developed countries are genuinely leading efforts to meet their financial commitments. Furthermore, it challenges the integrity of the NCQG in addressing the historic responsibility of developed nations to provide adequate and dedicated funding for developing countries’ climate needs.
Dethroning Debt
It is also critical to recognize that climate finance has largely been debt-based, a trend that remains heavily contested at COP. According to the Climate Policy Initiative’s Global Landscape of Climate Finance: A Decade of Data (2011–2020), concessional finance made up only 16% of the total climate finance, with debt being the dominant instrument. In contrast, grants accounted for just 5%. Looking ahead, projections such as those in the IEA World Energy Investment Special Report indicate that debt will continue to dominate as the primary instrument used to finance clean energy projects, a trend that poses serious challenges for developing nations already burdened with significant debt loads.
This trend illustrates that we are far from witnessing a global climate finance era where funding is abundant, accessible, and appropriately structured to meet the urgent demands of developing countries. In light of these challenges, developing countries must reconsider the focus of their negotiations. It is no longer enough to simply demand more money; instead, there must be a targeted push for alternative financing instruments, such as equity capital, which can provide long-term, non-repayable support and allow countries to grow their climate-resilient economies without accruing additional debt.
Recalibrating How We Finance Climate
On 28 November, the ECOWAS Centre for Renewable Energy and Energy Efficiency (ECREEE) hosted a fundraising luncheon on green finance as a side event of its annual ECOWAS Sustainable Energy Forum (ESEF 2024). The luncheon showcased the newly developed ECOWAS Facility for Renewable Energy and Energy Efficiency (EREEEF), a financing initiative created in partnership with the ECOWAS Bank for Investment and Development (EBID). The facility aims to enhance access to concessional financing for clean energy projects in West Africa by establishing credit lines in commercial banks for on-lending to end-users and providing guarantees.
During the event, a critical discussion emerged around the preference for debt as the dominant financing instrument. Speakers emphasized that this trend largely reflects market demand: project developers often seek debt over equity. This preference highlights a potential disconnect between the broader calls at climate negotiations, where developing countries advocate for diverse financing options, and the realities on the ground, where developers prioritize simpler, faster, and less risky financial instruments.
Debt financing has undeniable advantages—it is easier to access, requires shorter gestation periods, and poses less risk for both developers and financiers. However, this does not eliminate the need for equity, particularly for large-scale projects that often rely on special purpose vehicles (SPVs) to blend equity and debt effectively. For smaller projects, the preference for debt stems from its straightforward nature and suitability for modest capital mobilization needs.
The limited volume of equity financing, however, reveals a broader issue: a shortage of large-scale project development in the region. Such projects typically require extended preparation periods, thorough feasibility studies, and higher upfront risks, making them less appealing for immediate financing options. This trend is reinforced by the Climate Policy Initiative’s Global Landscape of Climate Finance report, which highlights that much of the climate finance provided by the private sector comes from balance sheet investments —resources directly drawn from investors’ own reserves. The reliance on internal resources rather than external equity capital may explain why project developers gravitate towards debt—it offers immediate liquidity without the complexities of equity negotiations.
Given the scale of ambition and the transformative projects required to meet global climate goals, relying predominantly on debt financing risks perpetuating incremental progress. More complex financial mechanisms, such as project financing through SPVs, must be embraced to enable the realization of significant projects. While these instruments require more effort and entail higher risks, they are essential for achieving meaningful climate action.
For the proposed US$ 300 billion annual NCQG to genuinely attract additional financing, the barriers that hinder the appeal and accessibility of these complex mechanisms must be addressed. Developers and financiers must adopt a bold approach, shifting beyond the comfort zone of debt-only strategies. If we are to meet the scale of the climate crisis head-on, the international community must recalibrate its financing approach, balancing immediate practicality with the transformative potential of diversified financial instruments.
Going bigger with equity capital
The international community faces an urgent challenge: how to maximize limited financial resources to meet the growing demands of climate action. For understandable reasons, debt has remained the primary instrument of choice—favored by both public sector financiers and private sector project developers. However, the relative ease and accessibility of debt capital should not blind us to its limitations, nor should it cause us to prioritize short-term gains over the long-term, transformative potential of equity financing.
Earlier discussions highlighted a critical disconnect: while developing countries increasingly advocate for non-debt solutions to meet their climate financing needs, project developers often lean towards debt due to its simplicity and immediate applicability. This divergence reveals a deeper issue—the lack of large-scale project development and the necessary derisking mechanisms to support equity-based financing. Addressing this gap is imperative to scaling climate finance effectively and sustainably.
Equity financing, particularly through Special Purpose Vehicles (SPVs) and other innovative structures, has the capacity to mobilize the vast resources required to meet the global climate finance goal of $1.3 trillion annually by 2035. To achieve this, the international community must embrace a more proactive, equity-driven approach, similar to the Biblical lesson of feeding the multitude: identifying available resources, organizing them strategically, and deploying them effectively.
The Path Forward: Lessons for Nigeria
For Nigeria, achieving success with equity financing would involve three clear steps:
- Taking Stock of Available Resources and Identifying Needs
Nigeria’s National Integrated Infrastructure Master Plan (NIIMP) provides a comprehensive framework for infrastructure development, with many projects aligned with climate mitigation and adaptation goals. A review of the NIIMP reveals opportunities to reframe these projects as SPV initiatives, designed to attract private equity capital and other financial instruments. By leveraging its master plan, Nigeria can pinpoint high-impact, climate-resilient projects that are ripe for equity financing. - Establishing Robust Structures to Manage Scale and Results
The NIIMP emphasizes the importance of public-private partnerships (PPPs) in executing infrastructure projects. Political support exists for creating SPVs to drive climate finance mobilization. However, as the NIIMP notes, a significant barrier is the insufficient public sector capacity to design and implement PPP projects. While efforts to address these gaps are underway, the government can outsource project development to capable private sector entities to avoid delaying progress. This approach ensures infrastructure development continues without being hindered by current capacity gaps. - Rolling Out a Thoughtful and Actionable Plan
With the necessary projects identified and structures in place, the final step is implementing a clear and actionable strategy. Nigeria already has the foundational elements for success: a well-defined pipeline of projects, political support for private sector participation, and an urgent need for climate-resilient infrastructure. The focus must now shift to execution—delivering on identified opportunities without waiting for perfection in public sector capacity. The time for action is now.
A Call for Equity-Driven Climate Finance
As the climate finance landscape grows increasingly constrained, particularly with new directions outlined in the Draft Decision of COP29 on the NCQG on climate finance, developing countries must shift their focus. The emphasis should not solely be on securing more funds but on maximizing the use of available resources to attract additional financing. SPVs, by reducing reliance on balance-sheet financing, offer a critical pathway to unlock equity capital at scale.
While equity-based solutions are inherently more complex, the international community cannot afford to continue taking the easier route. If climate action is indeed a global priority, stakeholders must embrace the challenges of equity financing as an opportunity for transformational impact.
For developing countries like Nigeria, advocating for equity-driven climate finance is not just about accessing more funds—it’s about building the institutional frameworks necessary to deploy these resources effectively. The shift from debt to equity is not merely a diversification of instruments; it is the key to unlocking climate finance’s full potential, driving both mitigation and adaptation goals.
If the global community is serious about tackling climate change, it must rise to the challenge: go bigger and bolder with equity capital.
