Climate finance has become one of the hottest topics of discussion as diplomats prepare for COP29, the upcoming UN climate summit set to take place in Baku, Azerbaijan. This year’s conference, dubbed the “finance COP”, aims to address the pressing need for substantial monetary commitments to confront the ever-increasing climate crisis. Significant portions of this discussion will revolve around how rich nations will commit to financing efforts to help developing countries cope with climate change.
The backdrop for COP29 is alarming. According to the Climate Policy Initiative, the world is on track to need at least five times more climate financing than is currently provided to limit global warming to 1.5 degrees Celsius above pre-industrial levels. With global temperatures already about 1.3 degrees Celsius higher, the pressure is on for nations to explore viable financial solutions. Indeed, many stakeholders are hoping for ambitious new targets for climate financing, with the G77 plus China group estimating at least $1.3 trillion is needed per year by 2030 for developing nations.
Enter multilateral development banks (MDBs), such as the World Bank, which have emerged as pivotal players in climate financing for developing countries. Funded by taxpayer dollars from various nations, these banks are often the most reliable source of funding for climate projects, especially when private lenders may impose steep interest rates. For example, Kenya might face 10% interest rates from private lenders due to its credit rating, whereas MDBs can lend at much lower rates, often secured by their more favorable ratings. Illinois State University’s Hirschel-Burns emphasized how MDBs are uniquely poised to fill the financial gaps faced by less affluent nations.
But opposition remains. Activists and leaders from vulnerable regions, especially Pacific nations, have criticized wealthy nations for not honoring their previous commitments, including the 2009 pledge to provide $100 billion annually to developing countries for climate action—a target which was only achieved after significant delay. They argue for increased transparency and accountability from high-emission countries, especially with respect to past unrealistic funding promises.
A major point of contention among policymakers is how climate financing is distributed. Currently, approximately 69% of public financial assistance is offered as loans rather than grants. This presents significant challenges for poorer nations, which are already reeling from the impacts of natural disasters intensified by climate change. Nafkote Dabi, Oxfam's Climate Policy lead, argues this approach is “profoundly unfair,” stating, “instead of supporting countries facing worsening droughts and cyclones, rich countries are crippling their ability to cope with the next shock.”
Another discussion point at the summit centers around how and where the funding will come from. Countries like the US have historically been held responsible for providing the majority of climate financing due to their significant historical emissions. Yet, the economic rise of countries such as China has led to calls for these nations to take more responsibility. There is significant anxiety over how shifts in US leadership—particularly the first term of former President Donald Trump which saw the country withdraw from the Paris Agreement—could impact climate finance commitments during this COP.
The return of Trump is causing concern among negotiators from Pacific nations, who fear his administration could again jeopardize international climate commitments. Academic Salā George Carter expressed the challenges faced by Pacific negotiators, stating, “We will continue to look for other ways to work with the U.S., if not with the government then maybe with businesses.”
Meanwhile, smaller island nations are increasing their advocacy efforts, demanding not just more money, but also direct access to funds to recover from devastating weather events. At COP29, the Pacific Islands Forum’s Secretary General emphasized the need for outcomes to focus on preserving the 1.5-degree target, calling it “a lifeline of survival for communities and people” within those regions.
Alongside the financial negotiations, there is growing momentum behind innovative funding mechanisms such as fossil fuel levies, which advocate redirecting wealth from high-emission countries to help developing countries adapt to climate change. There is recognition among advocates and policymakers alike of the necessity for change, with climate activists gathering globally to raise awareness and demand accountability.
At the same time, delegates attending COP29 have voiced frustration over the slow progress historically made at such conferences. Many from Pacific Island nations have indicated their disillusionment, arguing past talks have delivered little more than empty promises. This year, they are insisting COP29 not simply reaffirm previous commitments but develop concrete funding mechanisms for loss and damage financing for regions already experiencing severe climate impacts.
Despite the worries about insufficient funds, there are signs of cautious optimism as innovative approaches to climate finance begin to emerge. The narrative is shifting, with developing nations actively seeking new paths to engage wealthier nations for meaningful financial assistance. If successful, COP29 can potentially open the door to more significant climate actions, allowing nations to adapt, mitigate, and recover from climate-induced disasters moving forward.
Consider the words of leaders attending the summit: the goal for COP29 is clear—turn climate commitments from mere words on paper to real, actionable plans before time runs out on this pressing global crisis.
