2024 was the hottest year on record. Worldwide, 151 extreme weather events around the world have destroyed countries on Earth, including heat waves in Japan and Iran, floods in Italy, Pakistan, Poland and Brazil, and Typhoins in Vietnam and the Philippines. A lot of money is needed to mitigate these and other climate disasters and prepare for what is coming.
Climate finance is key: To help developing countries adapt to climate impacts and reduce carbon emissions, the public and private sectors, as well as other financial institutions, must work together to leverage the funds needed for this huge commitment.
To meet this need, Columbia Climate School has partnered with Columbia Business School to launch a new Master of Climate Finance Sciences, starting in fall 2025. Leaded by Lisa Sachs, director of the Columbia Center for Sustainable Investment, this is a one-year professional degree program that lasts one-year professional degree program. The program will enable students to understand the science and impact of climate change, assess its risks and opportunities, understand financing requirements, and consider the impact on policies and financial institutions. Because it is estimated that in addition to the growing costs of adaptation, it will take about $5 to $100 trillion per year to decarbonize the global economy, the climate financing industry will become increasingly important in the coming years.
Good news? Have enough money to resolve the crisis. “With about $300 trillion in global savings every year, there is enough money to fund the global transition,” Sachs said.
Still bad? Finance flows in the wrong direction – in developed markets, much of the global southern part is inaccessible – within the scope of adaptation and innovation and still supporting high-carbon investments. “The amount of financial capital – the amount of financial capital from governments from multiple countries or from the private sector will flow into climate mitigation or adaptation in the vast majority of developing countries, which are very low,” said Bruce Usher, co-director of the Center for Social Enterprises at Columbia Business School. He said the governments in developing countries “have limited resources, the World Bank and other multilateral institutions have little resources, and the private sector finds it very challenging to invest in these countries.”
Moral urgent
Why do wealthy countries pay to solve other countries’ problems? Many stakeholders believe that countries that cause a large extent of climate crisis should assume the greatest responsibility for solving the problem. Developing countries contribute much less to climate change than developed countries, but they are usually most vulnerable to it and they tend to rely more on the livelihoods of the natural world. According to the United Nations, half of the world’s population lives in climate “hazardous zones”, where they are 15 times more likely to die from climate effects than people in wealthy countries.
However, according to the independent group of senior climate finance experts, developing countries need trillions of dollars each year to achieve their adaptation and mitigation goals. At COP 29 of the UN Climate Summit last year, wealthy countries pledged to mobilize $300 billion by 2035 and were even more eager to mobilize $1.3 trillion in private capital each year. However, these commitments are voluntary, not legally binding, and there is no consensus on how to mobilize private capital.
“In my opinion, the devastating consequences of not solving the problem we created look like the deepest moral failure in my opinion,” Sax said. “What’s worse is that those who contribute the most [to climate change] It will certainly be affected, but not immediately as it is in the face of annihilated livelihoods, economic turmoil or flooded coastlines. ”
Follow the money
Most climate financing comes from domestic public budgets and private investments, while the multilateral development banks (international financial institutions established by two or more countries), bilateral donors and vertical funds such as the Green Climate Fund (GCF) contribute smaller shares, which can promote additional funds – usually in the form of government assistance to evict larger funds and a larger scope.
The GCF allocates its funds to local development banks and organizations to fund adaptation and mitigation projects in developing countries. The fund initially raised a $10 billion commitment. The total commitment to the 2024-2027 programming cycle with GCF is now $13.6 billion, from 34 countries and one region.
Debt crash
Under the Paris Agreement, half of climate finance funds are used for adaptation and half of mitigation measures. However, more than 90% of climate financing is currently used for mitigation, most of which are in the form of loans, which are very expensive to repay in developing countries.
“Developing countries are locked in a vicious cycle because credit rating agencies see it as risk and sub-investment ratings, which is mainly due to their poverty,” Sax said. “The terms of borrowing are very high, with short maturity, increasing the risk of default, which exacerbates their risk profile.” This leads to debt in 60% of underdeveloped countries, spending five times the annual debt rather than climate adaptation. An analysis found that in 2021, 59 countries paid $33 billion in debt and received only $20 billion in climate financing.
Sax said developing countries need long-term financing for patients to build critical infrastructure. Climate projects may take years to cover their costs. “Solar projects are very low-risk investments that are attractive to investors as long as you are willing to make a commitment of 20 to 30 years,” Usher said. “But in many developing economies, the cost of capital is high for 20 or 30 years. Capital is willing to last for a long time due to the specific risks in these countries.” For example, the currencies in developing countries can be unstable and quickly lose value, so investors who pay off their money in depreciated local currencies will eventually lose money. Developing countries bear the burden of this monetary risk.
Investment adaptation and mitigation strategies
While the most common mitigation strategies include investing in renewable energy, carbon capture and storage, electrification of transportation, making buildings more energy-efficient and improved water management, adaptation projects are designed to make infrastructure resilient, keep infrastructure in line with climate impacts, develop effective and sustainable agricultural practices, helping to transition to more sustainable liveliabal Liveliionagys and Restore and Restore and Restore and Restore and Restore and Restore vivers.
Adaptation efforts can also reduce the damage costs of climate impacts. For example, according to the UNEP Adapted Gap Report 2023, the $1 billion invested in preventing coastal flooding could reduce $14 billion. However, less funds are used for adaptation, loss and damage than mitigation measures because they usually have no clear return on investment. “There are almost no projects in the private sector that may not be able to return,” Sax said.
To help vulnerable countries cope with unadapted or avoidable climate impacts, losses and damage funds were established during COP27. As of March 2025, 26 countries and the EU have committed US$765 million to the fund. (At present, no country is obliged to pay the fund.) The United States initially promised $17.5 million to the fund, but the Trump administration has withdrawn the country from the fund.
In Ethiopia, for example, the World Bank is buying emissions from 2.8 million solar lanterns and over 200,000 household solar systems to replace kerosene lamps and diesel generators. The switch reduces nearly 24,000 tons of carbon dioxide each year.
The status of climate financing
Although adaptation funds have increased from 2021 to 2022, the gap between the estimated amount of adaptation ($215 to $387 billion) for the decade and the actual amount of $28 billion (as of 2022). The longer the gap lasts, the more losses and damages the developing countries suffer from climate change. The financing gap has also eroded the differences between developing countries and wealthier ones. Oxfa experts noted that when developing countries see wealthy countries fail to meet their financial commitments, they begin to doubt commitments made to other issues in climate negotiations.
Sax believes that comprehensive reform of the climate financial system must be carried out. She said the cost of capital investment in developing countries needs to decline and the ratings of developing countries need to be improved. Moreover, because private capital is crucial to climate finance, development financial institutions should catalyse private investment more effectively by enhancing credit for related projects and sovereign finance. “If they can get rid of risk projects or provide assurances or otherwise further exploit private finance, then private finance will become more affordable,” Sax said.
“It is very important for the World Bank and other multilateral institutions to strengthen financing in developing countries,” Usher said. Although the World Bank provided record climate financing in 2024, the actual demand is trillions of dollars. But to enable development finance institutions to provide more loans, they must get more salary capital from wealthy countries. But wealthy countries have been reluctant to use development financial institutions. Development financial institutions may add more capital risks even if they do not have additional paid equity. “But they’re hesitant because they don’t want to harm three times the credit rating,” Sachs said. “More capital and more leverage should be part of the solution.”
The country and region should have a master plan – listing the appearance of energy conversion to them. “Every region or country needs to determine the mix of solar, wind, and geothermal and hydraulics,” Sax said. “Where should these be placed? What infrastructure is needed for transmission and allocation?” In addition to the technical scheme, the master plan should also determine which investments are needed and which are suitable for public or private finance.
Some main plans are already in progress. The Board of Engineers for Energy Transition is the Advisory Committee of the Secretary-General of the United Nations, developing a technology roadmap in each United Nations region, while the Saxophone and Colombia Center for Sustainable Investment are working in finance. They are studying challenges, financing institutions, funding and financial possibilities in each region.
As for the future of climate financing, Uther said: “Because we really can’t reduce emissions from developing countries, it’s very important to increase capital flows because they are not very polluted because they can’t continue to develop the economy. And without foreign investment, capital exists. The private sector is essentially working together.”
Learn more about the MS of the Professional Degree Program offered by Columbia Climate School in close collaboration with Columbia Business School, a professional degree program.
