As the climate crisis intensifies and public budgets tighten, the world's ability to finance a just, low-carbon transition increasingly hinges on the mobilisation of private capital. Yet current climate finance instruments are not delivering at the scale or equity required. To close the 2.4 trillion annual financing gap for climate-related needs in emerging and developing economies , we must re-examine the financial instruments at the heart of the global climate finance architecture.
Concessional finance is declining from 57 to 47 of public climate finance between 2018 and 2022 yet the shift toward private capital is lagging. In 2021, private finance accounted for just 14.4bn of the 89.6bn in total climate finance flows . Worse, in Africa, private investment in adaptation was just 3 of total climate finance - a glaring mismatch given the scale of need.
Among the most underused yet highly efficient instruments in climate finance are project-based guarantees. Unlike concessional loans or grants that require immediate budgetary outlays, guarantees function as contingent liabilities preserving scarce public capital while mobilising significantly larger volumes of private finance.