By setting out national commitments and targets, NDCs can offer clear short- to medium-term signals to help guide financing efforts. Complementing NDCs with additional information to enhance their investability – such as clear pathways for financing and investment – can help governments and investors move forward with confidence, and international providers to support developing countries more effectively. This chapter explores strategies and approaches that governments can adopt to unlock and ensure funding for NDC implementation. It begins by discussing why dedicated financing or investment strategies are essential for turning NDCs into actionable and investable plans, and outlines four key components that can help countries build a strong foundation for resource mobilisation. The chapter then goes on to explore concrete policies and measures that governments can take to unlock and mobilise financing to deliver NDCs.
Investing in Climate for Growth and Development

8. Structuring NDC financing or investment strategies
Copy link to 8. Structuring NDC financing or investment strategiesAbstract
8.1. Structuring NDC financing or investment strategies
Copy link to 8.1. Structuring NDC financing or investment strategiesNDCs can play a pivotal role in shifting financing flows by incentivising both governments and the private sector to align investments with climate objectives. As discussed in Chapter 6, the successful implementation of NDCs hinges on mobilising substantial financial resources, both domestically and internationally. While the required level of investments is sizable, the financial resources already exist within the global economy. In 2022, gross fixed capital formation flows amounted to USD 26.43 trillion, yet only USD 1.65 trillion were invested in renewables and other mitigation activities, while USD 1.09 trillion were invested in fossil fuels (OECD, 2024[1]). This reflects a broader challenge identified in the IPCC Sixth Assessment Synthesis Report, which highlights that sufficient global capital and liquidity exist to close investment gaps, but persistent barriers – both within and outside the financial sector – continue to hinder the redirection of capital toward climate action, particularly in the context of economic vulnerabilities and rising debt burdens in developing countries (IPCC, 2023[2]).
Financing or investment strategies1 are critical tools for translating NDCs into actionable and investable pathways. They help provide clear signals to private sector investors and can incentivise broader government action by outlining how climate objectives will be delivered in practice (see Chapter 6). Resources provided by organisations such as the NDC Partnership, the Green Climate Fund (GCF) and the World Resources Institute (WRI) can support countries in developing these strategies.2 Complementary adaptation investment processes, such as the Asian Development Bank’s Climate Adaptation Investment Planning (CAIP) programme, are being used to achieve the same goal for adaptation-related investments (ADB, 2023[3]). The timing of strategy development (i.e., before, during, or after finalising the NDC) can be adjusted depending on national processes and circumstances. Exchanges with MDBs and private sector stakeholders confirm that financing strategies are crucial for countries aiming to attract international climate finance and investment, even in more advanced economies.
Financing or investment strategies can take various forms. They may be standalone documents specifically designed to provide a roadmap for mobilising resources needed for NDC implementation, or they can be integrated within broader national development strategies, climate policies, economic recovery plans, or sector-specific investment strategies. Regardless of the format, it is important that countries clearly identify specific projects and measures required to achieve their NDC targets and explicitly detail how these investments will be financed. Importantly, the credibility and effectiveness of such strategies depend not only on temporal coherence but also on cross-sectoral policy alignment. NDCs and related documents must be consistent with existing national, sectoral, and local plans such as infrastructure and fiscal policies to ensure investability (Chapter 6). The absence of such coherence can undermine investor confidence and erode the feasibility of implementation. Robust finance tracking, reporting, and review systems are also essential for all countries to support iterative learning and enable updates to financing strategies based on evolving needs. A well-structured NDC financing strategy rests on four interrelated components:
1. Assessment of financing needs and identification of gaps, providing a clear estimate of the resources required to implement the NDC.
2. Mapping of the financial landscape, including potential sources of finance across public and private, domestic and international channels.
3. Analysis of the enabling environment, highlighting the regulatory, institutional, and policy conditions needed to unlock finance, mitigate risks, and identify areas for improvement.
4. Development of pipelines of bankable projects, aligned with NDC priorities and capable of attracting investment.
However, developing comprehensive financing or investment strategies demands substantial capacities and resources, which many developing countries currently lack. Tailored support is therefore essential, based on a stepwise and context-specific approach that reflects national circumstances and existing institutional capacities. This allows countries to progressively enhance their financing frameworks while fostering continuous learning, adaptation, and improvement over time. Countries with NDC financing or investment strategies have often developed these in partnership with organisations such as the NDC Partnership or the Africa NDC Hub, leveraging specific expertise and lessons from other countries. At the time of writing this report, the NDC Partnership was supporting 18 countries in the development of upcoming NDC investment plans (NDC Partnership, 2025[4]). Other international initiatives that support countries with limited capacities in this area are further explored in section 8.2.3.
Despite their importance, few countries have developed NDC financing and/or investment strategies, and those that do rarely cover all four components outlined above. Based on internet searches, reviews of NDC documents, and resources from related organisations including the NDC Partnership, only 16 countries were identified as having publicly available, economy-wide financing or investment strategies currently in place to support their NDC. Box 8.1Developing NDC financing and/or investment strategies is more common among low- and middle-income countries or small island developing states (SIDS), which typically face significant financing challenges. Of the 16 strategies identified, only one came from a high-income country. The scope and depth of existing financing or investment strategies vary widely, with differing emphasis placed on each of the four essential components outlined above (see Box 8.1).
A significant issue is the difficulty in locating and retrieving existing financing strategies, limiting their visibility to investors, development partners, and other stakeholders. It is important that financing strategies are clearly signposted in NDCs and made publicly accessible, e.g. through platforms such as the NDC Partnership, in order to enhance their visibility and impact. As of now, most NDCs do not reference investment or financing strategies. A review of current NDCs showed that only 15 countries explicitly reference such strategies, and even when they do, they are often referring to limited finance or investment-related information within the NDC rather than detailed, separate strategies. Similarly, a review of 102 first BTRs indicated that only 12 countries specifically referenced active financing or investment strategies in their first BTR. Exchanges with practitioners, including the NDC Partnership, also reveal that in some instances, countries develop financing or investment strategies for internal government use only, precluding their use by national and international stakeholders. Improving accessibility of NDC financing and investment strategies through references in NDCs and centralised repositories can support coordination across actors, enable more targeted support from development partners, and help crowd in private investment by demonstrating how financing needs will be met.
Box 8.1. Insights from current practices on developing financing or investment strategies
Copy link to Box 8.1. Insights from current practices on developing financing or investment strategiesOf 16 financing and investment strategies reviewed for this report, almost all provide an indication of financing needs for the NDC. While total NDC financing needs are often provided in the NDC itself, strategy documents tend to provide more granular detail, with 11 countries offering detailed sectoral or sub-sectoral breakdowns of financing needs. A few, including Colombia and Fiji, further outline specific projects or programmes and their associated investment requirements (Government of Fiji, 2022[5]; Government of Colombia, 2020[6]).
Most strategies also provide an overview of planned financing sources, indicating which actors and instruments governments plan to leverage to meet financing needs for the NDC. Only five strategies take the further step of mapping specific sources, financing approaches, or instruments to individual projects or priority action areas. Ghana, for instance, describes different blended finance models and their applicability to sector-specific programmes of action (Government of Ghana, 2021[7]).
Some countries use their financing strategy to lay out plans for actions they intend to take to improve enabling environments for investments, including the development of policies that foster a strong investment environment and strengthening capacity building for mobilising finance. For example, Belize’s 2021 Climate Finance Strategy outlined plans for establishing a comprehensive MRV system as well as the prioritisation of adaptation financing through Belize Blue Bonds, both actions that contribute to building the enabling environment for NDC financing (Government of Belize, 2021[8]).
High-income countries rarely provide financing strategies for their NDCs, although elements of such plans may be embedded in broader national policies or strategies not directly linked to NDCs. For instance, the EU’s Strategy for Financing the Transition to a Sustainable Economy, first adopted in 2018 and updated in 2021, focuses on financial sector policies for aligning finance with climate goals (European Commission, 2021[9]). Furthermore, the EU national recovery and resilience plans, submitted by countries to access funding from the Recovery and Resilience Facility in the wake of the COVID-19 pandemic, required that at least 37% of budgets be allocated to green measures. While not formally tied to the NDC process, these plans signal national climate investment priorities and provide information on budget allocations similar to a dedicated NDC financing strategy (European Commission, n.d.[10]).
8.1.1. Assessing NDC financing needs and possible gaps
Assessing financing needs for NDC implementation is a foundational step in investment planning, as it determines the scale of resources required to achieve climate targets. By clarifying costs, governments can prioritise actions, allocate resources more effectively, and identify gaps that must be addressed. A robust needs assessment further enhances credibility with international donors and private investors by demonstrating a clear, data-driven understanding of financial requirements (NDC Partnership, 2025[11]). However, accurately estimating NDC costs presents numerous challenges, particularly for developing countries with limited capacities (UNFCCC SCF, 2024[12]). NDCs often span multiple sectors and encompass both mitigation and adaptation measures, complicating cost disaggregation. Additionally, limited baseline data – on emissions, sectoral activities, or financial flows – hampers reliable estimations, while cross-sectoral dependencies (e.g. grid infrastructure for renewable energy) add further complexity. While it is useful to include high-level cost estimates directly in the NDC, a more detailed and granular cost analysis – covering specific projects or sub-sectors – can be developed separately, either in an NDC investment strategy or another relevant document. For example, Sri Lanka includes information on needs and costs in its BTR, providing a structured breakdown of financial requirements to support resource mobilisation efforts (Government of Sri Lanka, 2024[13]). To date, almost no developed country has included information on its NDC financing needs in its NDC and/or its first BTR.
While approaches to estimating NDC financing needs must adapt to different capacities and contexts, multiple methodologies are available for costing needs in different country contexts (see Table 8.1). Tools such as cost-benefit analysis (CBA), Marginal Abatement Cost Curves (MACC), scenario modelling, and sectoral benchmarking can help countries systematically assess and prioritise their financing needs. Countries with more advanced data systems and defined project pipelines may undertake a bottom-up assessment by aggregating costs for specific projects or activities (Caldwell, Alayza and Larsen, 2022[14]). In contrast, countries with fewer resources often rely on top-down methods, utilising macroeconomic models or sectoral benchmarks to derive broader-scale estimates (Caldwell, Alayza and Larsen, 2022[14]). However, many countries blend approaches creatively, tailoring them to their specific contexts and data availability. For example, Belize overcame initial data limitations by combining a climate finance landscape assessment with stakeholder consultations, scaling costs from both international and local examples to align with its national circumstances. This approach enabled Belize to estimate its financing requirements, validate cost assumptions, and identify a USD 1.4 billion gap to deliver its current NDC despite limited baseline data (NDC Partnership, 2022[15]). In general, the more granular the needs assessment is, the better. If this is not feasible, aggregating estimated needs by sector (as in Belize) provides a good indication to possible investors of what areas to focus on (Government of Belize, 2021[8]).
To enhance the accuracy and credibility of NDC financing needs assessments, governments can take several steps. First, investing in robust data systems and institutional capacity is crucial for collecting and analysing climate-related information (UNFCCC, 2024[16]). Building technical expertise through staff training or partnerships with international organisations such as the NDC Partnership and the UNFCCC’s Needs-Based Finance Project enables more advanced and context-specific methodologies (UNFCCC, 2025[17]; NDC Partnership, 2025[11]). Moreover, several MDBs offer technical and capacity-building support to help countries with limited capacities better estimate NDC financing needs (see section 8.2.3). Finally, regular updates to these assessments are essential to reflect new data, evolving technology, and changing priorities, ensuring NDC financing strategies remain both relevant and actionable over time (NDC Partnership, 2025[11]).
Table 8.1. Possible methodologies for assessing NDC financing needs based on country capacities and resources
Copy link to Table 8.1. Possible methodologies for assessing NDC financing needs based on country capacities and resources
Illustrative Country Context |
Approach |
Methodology |
Outcome |
---|---|---|---|
High data availability, strong institutional capacity, and ample financial resources |
A detailed, in-house, data-driven assessment |
Advanced tools like scenario modelling and MACC; sector-specific cost analyses using comprehensive national datasets |
Detailed, highly accurate estimate of financing needs at sectoral and project levels |
Limited data availability, moderate institutional capacity, and moderate financial resources |
A collaborative, hybrid assessment involving external technical assistance |
Combination of simplified bottom-up approaches for known projects and top-down benchmarking with external support |
Reasonably accurate estimate highlighting priority sectors and providing a basis for refinement |
Low data availability, weak institutional capacity, and limited financial resources |
A qualitative, externally led assessment |
Estimation based on global benchmarks, regional comparisons, and expert consultations with international organisations |
High-level, qualitative estimate identifying general financing gaps as a starting point |
8.1.2. Mapping the financial landscape
No single source of finance – domestic or international, public or private – can meet the full breadth of investment needs associated with NDCs. Governments need to adopt a diversified, context-specific mix of financial instruments that align with national climate priorities and are adapted to varying investment horizons, sectoral needs, and project risk profiles. Public finance often underpins high‑risk or non‑revenue‑generating activities such as climate adaptation and essential infrastructure, while private finance plays a central role in commercially viable sectors like renewable energy, energy efficiency, and green technologies. Globally, private finance is projected to contribute approximately 70% of global investment required to reach net-zero targets by 2050 (Net Zero Financing Roadmaps, 2021[18]).
However, many developing countries face constraints such as limited fiscal space and underdeveloped financial markets, which limit both public investment and private sector engagement. In these contexts, international public finance is vital, both in terms of direct funding, as well as for enabling capacity-building, technology transfer, and technical assistance. The High-Level Expert Group on Climate Finance estimates that approximately 40% (or USD 1 trillion) of the financing needed in developing countries by 2030 will have to come from external sources (Bhattacharya et al., 2024[19]). This includes around USD 300 billion from MDBs, USD 100 billion from bilateral donors, USD 50 billion from South-South co‑operation, and USD 500 billion from private finance mobilised internationally through international public finance (Bhattacharya et al., 2024[19]). According to Net Zero Financing Roadmaps, private finance contributions can range from 50% to 95% across regions, reflecting varying degrees of market maturity (Net Zero Financing Roadmaps, 2021[18]).
To identify potential sources of finance for NDC implementation, countries should begin by conducting a comprehensive financial landscape analysis. This includes:
Tagging climate-related public expenditures. Use tools like the Climate Public Expenditure and Institutional Review (CPEIR) to identify, classify, and track climate-related public expenditures (UNDP, 2015[20]). Where feasible, integrate climate-budget tagging into national budget systems (further explored in section 8.2.1).
Mapping private sector investments. Engage financial institutions and industry groups to identify key private sector actors for the country, and collect aggregated data. Combine quantitative data with qualitative insights (e.g. stakeholder consultations) to fill information gaps and highlight scalable financing models. Tools like the Net Zero Financing Roadmaps platform can help pinpoint areas of investor interest (Net Zero Financing Roadmaps, 2021[18]).
Compiling data on international support. Track grants, concessional loans, and donor funding from MDBs, climate funds, and bilateral partners. If no system is in place, use publicly available information through donor countries’ BTRs, OECD Development Assistance Committee (DAC) statistics on international aid, or individual MDB and Climate Funds’ annual reports.
Table 8.2. Roles of financial sources and actors in NDC implementation across different country contexts
Copy link to Table 8.2. Roles of financial sources and actors in NDC implementation across different country contexts
Financial Source |
Actors Involved |
Primary Role |
Examples of Actions |
Relevance by Country Context |
---|---|---|---|---|
Domestic public resources |
Ministries of Finance, national development banks, local governments, state-owned enterprises. |
Establish foundational investments and de-risk private sector engagement in high-priority areas. |
- Direct public funding for adaptation projects (e.g., flood defences, resilient agriculture). - Tax incentives for green technologies. - National climate funds to pool domestic resources. |
Developed Countries: Key for leveraging private investments and supporting large-scale mitigation. Emerging Economies: Essential for co-financing private projects and building capacity. Lower-Income Countries (LICs): Often the primary source for funding basic infrastructure and adaptation. |
Domestic private finance |
Corporations, SMEs, commercial banks, venture capital funds, institutional investors (e.g., pension funds). |
Scale up investments in commercially viable, revenue-generating projects. |
- Investment in renewable energy (e.g., wind farms, solar parks). - Issuance of green bonds by corporates. - Development of low-carbon technologies. |
Developed Countries: Central to decarbonising industry and scaling renewable energy. Emerging Economies: Growing role in energy and transport sectors. LICs: Limited role due to high risks and weak financial markets, except in donor-supported projects. |
International public finance |
Multilateral climate funds (e.g., GCF, Adaptation Fund), bilateral donors, MDBs (e.g., World Bank, ADB). |
Provide concessional finance, technical assistance, and capacity building to bridge resource gaps. |
- Grants and concessional loans for infrastructure in low-income regions. - Technical assistance for project preparation. - Capacity building for integrating NDCs into fiscal planning. |
Developed Countries: Limited need but useful for international collaboration. Emerging Economies: Critical for co-financing large-scale renewable energy projects. LDCs: Vital source for adaptation, capacity building, and initial investment capital. |
International private finance |
Institutional investors (e.g., asset managers, private equity), multinational corporations, impact investors. |
Provide large-scale capital and expertise for commercially viable climate projects. |
- Cross-border investment in renewable energy and low-carbon transport. - Foreign direct investment in clean technology sectors. - Sustainability-linked loans. |
Developed Countries: Key for financing cutting-edge technologies and high-risk innovations. Emerging Economies: Attracted by de-risking mechanisms like blended finance. LICs: Limited role without de-risking, but potential for private-public partnerships. |
8.1.3. Reviewing existing enabling environments for NDC-related investments.
Understanding both enabling and disenabling factors in the investment environment for NDC implementation is essential to identify strengths, pinpoint gaps, and highlight areas for policy improvement. A clear mapping helps governments target resources more effectively, avoid duplication of efforts, and strategically enhance investor confidence by reducing perceived investment risks (OECD, 2015[21]; OECD, 2023[22]). Moreover, aligning national policies, regulatory frameworks, and institutional arrangements with NDC targets creates a cohesive foundation for attracting and mobilising finance at scale. This exercise is particularly relevant once the NDC is in place and can be used to inform the investment strategy, as it ensures investment planning is firmly grounded in reality, identifying the current regulatory landscape relevant to climate-related investments. To enhance transparency and facilitate investment, it is important to publish the results of this exercise as part of the NDC investment strategy, providing financiers with a clear overview of the regulatory environment relevant to NDC investments.
There is a range of enabling conditions that can significantly facilitate the unlocking of financial resources for NDCs. Table 8.3 offers a simplified overview of these categories, which generally include:
Policy and regulatory frameworks: Stable and predictable policy environments featuring climate laws, NDCs anchored in national development plans, and financial incentives like tax breaks or green bonds are important for fostering a stable and predictable environment that attracts investment, facilitates and incentivises the alignment of financial flows with climate goals, and reduces risks for public and private financiers (OECD, 2015[21]; Bartz-Zuccala et al., 2022[23]).
Strong institutional frameworks: Strong, dedicated climate finance institutions, transparent governance, and effective co-ordination across government entities streamline project approvals, facilitate efficient funding channels, and ensure accountability.
Strong market conditions: Mature financial institutions, well-functioning capital markets, transparent business environments, and clear market entry conditions are essential for scaling private sector participation in climate-related projects (OECD, 2015[21]).
Technical and capacity-building frameworks: Reliable data-sharing platforms, robust MRV systems, and adequate human resources are critical for implementation and oversight (NDC Partnership, 2023[24]).
To assess their existing enabling environments, countries can start with a structured policy and institutional mapping exercise that reviews how current frameworks support or hinder NDC-related investments. This includes analysing existing policies, regulations, institutions, and capacities across the categories outlined above to identify strengths, gaps, and barriers. A useful starting point is a policy audit, which systematically reviews whether national laws and regulations align with NDC goals, and where contradictions or investment barriers exist. This can be complemented by benchmarking against international best practices or peer-country examples to identify priority reforms. Assessing institutional readiness, such as the authority, expertise, and co-ordination capacity of responsible agencies is equally important (see (NDC Partnership, 2023[24])). Private and public sector dialogues can be a critical part of this process. Engaging the private sector helps governments identify practical barriers to investment such as high transaction costs, first-mover risks, or limited pipelines of investable projects and understand what policy adjustments may be needed to improve bankability, incentivise low-carbon innovation, and redirect capital flows (OECD, 2023[22]). For example, Belize’s Policy Landscape Report demonstrates how a comprehensive policy mapping can identify both opportunities and barriers in national climate frameworks, including its NDC, national strategies, and sector-level policies (NDC Partnership, 2023[24]). The outcome of such a mapping exercise highlights gaps and obstacles, guiding the development of targeted policy actions explicitly outlined in an NDC financing strategy. Such actions ensure a focused, practical approach to enhancing the enabling environment, ultimately facilitating the mobilisation of finance for climate action.
Table 8.3. Overview of key enabling conditions for unlocking NDC investments
Copy link to Table 8.3. Overview of key enabling conditions for unlocking NDC investments
Category |
Type |
Examples |
---|---|---|
Policies and regulations |
Climate policies and laws |
- National Climate Change Acts or Climate Framework Laws that mandate GHG targets - Integration of NDC targets into national development plans and sectoral strategies |
Economic incentives and disincentives |
- Carbon pricing (carbon tax, emissions trading systems) - Subsidy reforms to phase out fossil fuel subsidies - Green tax incentives (e.g., tax credits for renewable energy) |
|
Sector-specific policies |
- Feed-in tariffs or auctions for renewable energy - Mandatory energy efficiency standards for buildings and industries - Sustainable agriculture or forestry policies (e.g., REDD+ programs) |
|
Green public procurement |
- Government purchasing programs favouring low-carbon products and services - Procurement criteria aligned with climate targets |
|
Institutional frameworks |
Dedicated climate finance institutions |
- National or sub-national Green Investment Banks - Dedicated Climate Funds or project preparation facilities |
Co-ordinating bodies and entities |
- Inter-ministerial committees on climate finance - Climate finance units within Ministries of Finance or Planning - Public-private climate investment councils |
|
Legal and governance structures |
- Clear institutional mandates for climate action - Mechanisms for transparency and accountability in climate finance flows |
|
Market conditions |
Capital markets and financial instruments |
- Green bonds issuance frameworks (e.g., ICMA Green Bond Principles) |
Risk management instruments |
- Green credit lines offered by national development banks - Specialised climate-oriented lending products |
|
Rating and certification systems |
- Green building certifications (LEED, BREEAM) - Sustainability-linked loan criteria (e.g., SLL principles) |
|
Technical and capacity-building frameworks |
Data-sharing and MRV systems |
- Centralized MRV platforms for tracking GHG emissions and climate finance flows - Standardized reporting tools for climate project performance |
Knowledge management and research |
- Climate knowledge hubs or centres of excellence (e.g., academic or research institutions) - Regular publication of national climate impact and finance reports |
Source: Authors – relevant resources include: (OECD, 2015[21]; Bartz-Zuccala et al., 2022[23]; NDC Partnership, 2023[24]; OECD, 2023[22])
Countries with an adaptation component to their NDCs will also need to consider the extent to which the enabling environment supports investments that contribute to climate resilience. As with climate mitigation, a coordinated, whole-of-government approach will be required to identify and address barriers. However, the distinctive characteristics of adaptation investments mean that there are differences in terms of emphasis and implementation when considering the range of factors outlined in Table 8.3. For example, carbon pricing is not a major driver of investment in adaptation, but reforms to water pricing can affect the incentive to invest in actions that reduce vulnerability to drought risk. The Climate Adaptation Investment Framework (CAIF) has been developed to address the specific needs of investments in adaptation (see Box 8.2).
Box 8.2. Key areas of the enabling environment for adaptation: the Climate Adaptation Investment Framework (CAIF)
Copy link to Box 8.2. Key areas of the enabling environment for adaptation: the Climate Adaptation Investment Framework (CAIF)There is a strong economic case for investment in adaptation, but this is not yet translating into investment flows at the necessary scale to meet adaptation needs. International public finance is increasing but remains insufficient to cover the scale of investment needs. Domestic public investment is critical but limited due to fiscal constraints and government systems such as procurement and budgeting that do not account for the benefits of climate resilience. Private investment will also be critical but is currently hindered by a lack of capacity and awareness, difficulty in translating resilience benefits into revenues and high perceived risks.
There is growing activity underway to address these barriers. For example, the European Union has committed to ensuring that 30% of public expenditure contributes to climate action. To support the achievement of this target, it has implemented budget tagging and developed tools and guidance to support mainstreaming of climate change across EUR 1.2 trillion of planned expenditure under the 2021-2027 Multiannual Financial Framework. However, there is a need to scale up good practice.
Building on international experience, the Climate Adaptation Investment Framework (CAIF) is designed to address barriers to public and private investment by providing a comprehensive approach to strengthening the enabling environment. It is designed to make the benefits of enhanced climate resilience visible to decision makers in the public and private sectors by identifying and addressing market failures, correcting misaligned policies and provide incentives for investments that deliver wider social benefits.
The CAIF provides non-prescriptive guidance, recognising that the appropriate responses will depend upon countries’ needs and circumstances. It can be used by governments as an input into the development of their NDCs or NAPs by identifying potential gaps and facilitating discussions about potential responses. It is structured around “six building blocks”, which are policy areas that are important for investment in adaptation. For each building block, the Framework provides diagnostic questions, examples of international good practice and signposts further resources. These components are interlinked and intended to be mutually supportive. For example, improvements in strategic planning can help private sector investors to identify potential opportunities.
Figure 8.1. Six building blocks of the CAIF
Copy link to Figure 8.1. Six building blocks of the CAIFImportantly, while many enabling conditions for NDC-related investments fall within a country’s direct control, some are shaped by external factors beyond national policy influence. International financial regulations, such as the Basel III capital requirements, can unintentionally discourage private financial institutions from making investments in climate projects by imposing stringent capital adequacy rules. These requirements often result in higher capital charges for long-term infrastructure and renewable energy investments, especially in developing economies, making climate-aligned investments comparatively less attractive and more expensive for banks and institutional investors and evolving global sustainability standards (OECD, 2022[27]; FSB, 2021[28]). Similarly, evolving global sustainability standards like the EU Taxonomy and ISSB reporting requirements can influence investment flows by creating compliance and reporting complexities, sometimes introducing onerous reporting burdens, especially for institutions operating in emerging markets or in environments with limited data availability (OECD, 2022[27]; FSB, 2021[28]). This can inadvertently raise transaction costs and compliance risks, deterring financial institutions from allocating capital to NDC-aligned projects in developing countries. As a result, countries must not only strengthen domestic financial markets and regulatory capacity but also engage in international discussions to ensure that global financial rules support rather than hinder NDC-aligned investment. The G20 Sustainable Finance Working Group and the Financial Stability Board (FSB) could play a role in assessing and mitigating such barriers, while MDBs and public finance institutions can support developing countries in structuring investment-ready projects (Falduto and Jachnik, 2024[29]).
8.1.4. Developing pipelines of bankable projects
Developing a prioritised and sequenced list of investment-ready projects (commonly referred to as a project pipeline) is essential for mobilising finance and advancing NDC implementation. Project pipelines demonstrate readiness and feasibility, helping to build investor confidence and attract support from international donors. A well-developed project pipeline aligns stakeholders around shared priorities, enhances co-ordination, and reduces fragmentation (OECD, 2018[30]). Ideally, each project entry includes details such as objectives, expected outcomes, financing needs, and implementation timelines with defined milestones, and is explicitly linked to NDC targets. In doing so, pipelines help match interventions to appropriate funding sources, directly addressing one of the main barriers to investment: the shortage of identifiable, investment-ready opportunities (OECD, 2018[30]; IIGCC, 2024[31]; PPIAF, 2022[32]). Various tools and frameworks are available to help governments develop project pipelines in different areas (see Table 8.4).
In practice, most countries have only compiled preliminary lists of proposed activities or programmes, with few presenting detailed, investor-ready pipelines aligned with their NDCs. These pipelines often outline broad thematic areas rather than specific bankable projects. A review of current NDCs found only few countries (mainly SIDS) included structured project pipelines, either within the NDC or as standalone documents. For instance, Fiji’s NDC Investment Plan outlines 31 primary mitigation opportunities in transport and energy efficiency, such as a sustainable cities programme and a bicycle financing initiative, with milestones, outcomes, investment needs, and financing strategies are outlined for each opportunity (Government of Fiji, 2022[5]). Similar efforts by Samoa and Kiribati have been supported by the Pacific Regional NDC Hub. While more advanced than most, these plans often lack the detailed financial information, such as risk assessments and return projections, needed to attract investors. Project pipelines do not need to necessarily be developed for the NDC specifically. For example, Australia’s Infrastructure Priority offers a public database of nationally significant projects, including for climate, which presents data on project impact, governance, capital costs, cost-benefit analyses, and risks, and offers a useful entry point for investors wishing to support climate action (Government of Australia, n.d.[33]). Country documents on Just Energy Transition Partnerships (JETPs) can also serve as vehicles for information on planned investment areas, often providing more granular project-level details. Indonesia’s 2023 Comprehensive Investment and Policy Plan for its JETP introduces five investment focus areas, going beyond broad targets into a list of top priority projects for each investment area, for instance in renewable energy production and transmission grid development (Government of Indonesia, 2023[34]) (see Box 7.12).
Robust project preparation is critical for converting pipeline concepts into financeable investments. A bankable project is one that has completed thorough technical, financial, legal, and environmental assessments, demonstrating clear viability, manageable risks, and reasonable prospects for returns. Consultations with MDBs underline that governments that offer well-prepared project proposals significantly enhance their chances of securing international climate finance. However, project preparation has become increasingly costly due to the increasing complexity of infrastructure projects, regulatory and compliance requirements around the world, but solutions do exist (PPIAF, 2022[32]). To address this, many countries, particularly those with limited technical or financial capacity, rely on Project Preparation Facilities, which provide targeted support for early-stage project design (NDC Partnership and GCF, 2024[35]; PPIAF, 2022[32]). Several MDBs also offer support with project preparation as part of their one-stop-shop packages for NDC financing (see section 8.2.3). (Nassiry and Dixon, 2025[36]) puts forward the idea of governments collaborating with investment banks and/or consulting firms to develop Climate Investment Prospectuses (CIPs) to attract investment (see Box 8.3).
Box 8.3. Translating climate goals into bankable opportunities: the role of climate investment prospectuses
Copy link to Box 8.3. Translating climate goals into bankable opportunities: the role of climate investment prospectusesBridging the Gap: NDCs 3.0, National Transition Plans and Climate Investment Prospectuses, proposes the idea of preparing Climate Investment Prospectuses (CIPs) as a practical tool to mobilise capital for climate priorities. In this context, CIPs would be structured documents designed to translate a country’s climate priorities, especially those in its NDCs and National Transition Plans, into investment-grade opportunities. Modelled after traditional prospectuses used in capital markets, CIPs would aim to communicate climate investment opportunities in a format that is familiar to and decision-useful for financial institutions, investors, and capital market participants.
CIPs could serve as a bridge between high-level policy commitments and the practical information investors need to allocate capital. They could take various forms, from sovereign green bond offerings and infrastructure project portfolios to investment funds and bundled pipelines under a country platform. They could include financial details (e.g. capital needs, expected returns, risk profiles) alongside climate-specific information (e.g. alignment with NDCs, transition risks, resilience plans).
Key benefits of CIPs would include:
Making climate investments more bankable and visible by packaging them with the rigour and transparency financial actors require.
Helping governments signal readiness and credibility to investors, thereby facilitating capital mobilisation at scale.
Supporting policy and institutional co-ordination by involving finance, planning, and line ministries in project prioritisation and investor engagement.
Enhancing comparability and standardisation across countries, creating a pipeline of investable climate opportunities suited to different risk/return profiles.
Effective preparation of CIPs would ideally be led by a ministry of finance, planning, or equivalent, in collaboration with sectoral ministries such as energy, transport, and environment. Countries with higher capacities could explore the establishment of a dedicated investor relations unit to engage with private investors and facilitate capital-raising. Preparation of prospectuses often involves external legal, financial, and technical advisors (e.g. investment banks, consulting firms, and law firms) who could assist with feasibility studies, deal structuring, and drafting investment-grade documents to ensure CIPs meet investor standards. These services are typically compensated by the issuing government as part of the capital-raising process. However, in the case of lower-income countries, costs may be subsidised by development partners, philanthropies, or net-zero-aligned investors, given the potential of CIPs to unlock significant climate finance.
Ultimately, CIPs can become a powerful implementation tool for NDCs by turning broad climate goals into concrete, investment-ready offerings that attract both domestic and international capital. While external advisors can provide valuable technical expertise, it is essential that governments retain ownership of investment strategies. Strategic guidance and decisions on how proposed investments align with long-term national development priorities must remain country-driven. Joint development processes that reflect national visions are key to ensuring credibility and sustained impact.
Source: (Nassiry and Dixon, 2025[36])
Table 8.4. .Examples of key tools for creating investable infrastructure project pipelines
Copy link to Table 8.4. .Examples of key tools for creating investable infrastructure project pipelines
Name of the tool |
Purpose |
Key features |
Strength |
---|---|---|---|
World Bank Infrastructure Sector Assessment Program (InfraSAP) |
Provides a roadmap for priority infrastructure sectors, detailing objectives, required investments, and pathways for mobilising commercial capital alongside public resources. |
|
Policy-oriented and comprehensive at programme or sector levels. |
Global Infrastructure Hub (GIH) Project Preparation Tool |
Supports governments in the early stages of infrastructure project preparation by addressing common challenges and operationalising the G20 Principles for the Infrastructure Project Preparation Phase. |
|
Practical for early-stage project development with a country-specific lens. |
UK Infrastructure and Projects Authority’s Five-Case Model (5CM) |
A structured framework for appraising, preparing, and implementing infrastructure investment proposals. |
|
Widely used for project governance and ensuring value for money in project planning. |
European PPP Expertise Centre (EPEC) PPP Project Preparation Status Tool (PPPrep) |
Assesses a project's readiness for public-private partnership (PPP) procurement. |
|
Helps minimise risks and ensures preparedness for PPP procurement. |
World Economic Forum High-Level Decision-Making Tool |
Guides high-level decision-makers on whether to pursue public procurement or PPP for infrastructure projects. |
|
Accessible, ideologically neutral, and suitable for early-stage decisions. |
Source: Authors – the analysis of the different tools is taken from (World Economic Forum, 2019[37])
8.2. Avenues for mobilising resources for NDC financing
Copy link to 8.2. Avenues for mobilising resources for NDC financingOnce the foundations of an NDC financing strategy are in place, including an assessment of financing needs, mapping of the financial landscape, review of the enabling environment, and identification of priority projects, the focus shifts to identifying concrete strategies for mobilising the necessary resources. As discussed in Section 10.1.2, a significant share of NDC-related investment will need to come from domestic sources, both public and private. At least 46 countries anticipate relying solely on domestic finance to meet their current NDCs (UNFCCC, 2024[38]). However, mobilising the scale of investment required will also necessitate strong private sector engagement, particularly in sectors where private capital can play a transformative role. To effectively leverage private finance, clear policy signals, risk mitigation instruments, and enabling regulatory environments will be essential. At the same time, many developing countries face even greater constraints due to limited fiscal space, capacity challenges, and competing priorities. Only 13% of NDC needs expressed by developing countries are deemed to be met through domestic public resources (“unconditional” contributions). The remaining gap, which accounts for the majority of required investment, will need to be bridged through international support (CPI, 2025[39]).
This section explores three key avenues for mobilising finance for NDC implementation. Public finance and domestic policies (8.2.1) set the foundation by directing resources to climate priorities and creating investment incentives. Private sector mobilisation (8.2.2) is crucial for scaling up funding, requiring clear policy signals and risk mitigation. International support helps bridge gaps, providing concessional finance, technical assistance, and MDB engagement (8.2.3). These avenues are deeply interconnected (Figure 8.2). Public finance and policies create conditions for private investment, while international support de-risks projects and strengthens capacity. For instance, concessional finance can crowd in private capital, while public investments in infrastructure generate pipelines of bankable projects. A co-ordinated approach across all these sources of finance is essential to ensure effective NDC financing.
Figure 8.2. Integrated pathways for NDC financing: Public, Private, and International Contributions and Actions
Copy link to Figure 8.2. Integrated pathways for NDC financing: Public, Private, and International Contributions and Actions
8.2.1. Optimising public finance for NDC implementation
As a first step in mobilising domestic finance for NDC implementation, countries must develop strategies to optimise the use of public resources. Public finance plays a foundational role in enabling NDC actions, particularly for non-revenue-generating activities such as some adaptation projects or public infrastructure or support for innovative technologies. To optimise the use of public finance for NDCs and building on the financial landscape analysis discussed in section 8.1.2, governments can focus on three key action areas:
First, aligning national budgets with NDC targets ensures climate priorities are integrated into fiscal planning and expenditure.
Second, raising additional public resources through selected mechanisms, such as sovereign climate bonds or carbon pricing, can generate new revenue streams to support NDC delivery.
Third, leveraging public procurement as a strategic tool enables governments to drive investments in low-carbon and climate-resilient projects and incentivise private sector mobilisation.
Aligning national budgets with NDC objectives
National budgets are central to public resource allocation and, by extension, play a pivotal role in advancing NDC objectives. Historically, however, budget processes have paid limited attention to environmental and climate implications, prioritising economic and social targets instead (OECD, 2021[40]). Yet, as discussed in Chapter 5, embedding climate considerations into public spending – even when aimed at broader societal objectives – can yield clear economic and social benefits. Integrating climate considerations into budgeting processes can be effectively aligned with broader fiscal, economic, and social policy goals, for example by selecting projects and expenditure areas that simultaneously contribute to job creation, public health improvements, infrastructure development, poverty reduction, and economic resilience. Such alignment ensures that climate priorities do not remain isolated, but rather become embedded within comprehensive national development strategies, allowing governments to leverage climate action as a driver of broader socio-economic progress (OECD, 2021[40]). Climate-smart budgeting can enhance long-term fiscal stability, reduce climate-related economic risks, and create co-benefits such as improved public health, job creation, and infrastructure resilience.
To systematically embed climate considerations, governments must strengthen the capacity of Ministries of Finance (MoF), which typically lead budget preparation, and integrate climate risks, forecasting, and NDC targets into fiscal planning from the outset. This involves including climate risk assessments – such as the economic impacts of extreme weather and potential mitigation costs - alongside standard macroeconomic and revenue forecasts (UNDP, 2021[41]). Equipping MoF personnel with the requisite skills, for example through targeted training or dedicated climate finance units, is critical to ensure effective integration of climate factors into budgetary decision-making (Chapter 7.1). Mainstreaming climate action in sectoral budgets constitutes another essential step. Once a draft budget is compiled by the MoF, line ministries and agencies submit funding requests for incorporation. Ensuring these proposals are aligned with NDC targets is key to avoiding contradictory spending. Mexico offers a strong example: building on its 2012 General Climate Change Law, the country’s National Climate Change Strategy outlines specific sectoral actions and mandates the allocation of budgetary resources towards their realisation (OECD, 2021[40]; Government of Mexico, 2013[42]). Although this strategy predates Mexico’s current NDC, it has established durable mechanisms for integrating climate objectives into budgeting processes. Similarly, Bangladesh provides another excellent example of a country where the MoF has played an important role in the NDC implementation process, aligning public budgets and mid-term expenditure frameworks with the NDC (see Box 8.4). Despite the strong case for aligning NDC targets or national climate strategies with annual budgets, evidence shows that to date only few countries do so (OECD, 2024[43]).
Box 8.4. Ministry of Finance leadership in NDC financing: The case of Bangladesh
Copy link to Box 8.4. Ministry of Finance leadership in NDC financing: The case of BangladeshThe public sector has sought to unlock finance and align it with the Sustainable Development Goals (SDGs) through their Integrated National Financing Frameworks (INFFs). Government budgets and mid-term expenditure frameworks linked to national development plans not only provide a means of financing SDG and NDC priorities but also offer clear signals about the government’s policy priorities and strategic orientation for prospective investment opportunities.
In Bangladesh, climate change is now a core part of budget documentation from the initial budget call circular to Key Performance Indicators (KPIs) for budget programmes and expenditure reports to parliament. Since these changes were introduced, climate relevant allocations have increased 1.5 times with 78 percent of the climate-related budget allocated in 2023-24 being directed toward adaptation sectors. This comprehensive approach to integrating climate into public finance allowed the Government of Bangladesh to meet a critical condition needed to access a US$1.4 billion loan from the International Monetary Fund’s (IMF) Resilience and Sustainability Facility.
Note: Case box drafted by: Susanne Olbrisch, Christopher Marc Lilyblad, Snezana Marstijepovic and Lisa Baumgartner (UNDP)
Green budgeting and climate budget tagging have emerged as key tools for improving transparency and accountability around climate-related expenditures. The number of OECD countries employing green budgeting rose from 14 in 2020 to 24 in 2022, reflecting growing recognition of the need to align fiscal policy with climate and environmental goals, both at national and subnational levels (see Box 8.5) (OECD, 2024[43]). Countries are exploring various approaches, such as the Republic of Korea’s GHG Reduction Cognitive Budgeting System, which requires ministries to estimate emission reductions from their budget proposals and align allocations with the National Basic Plan for Carbon Neutrality and Green Growth (OECD, 2024[43]). However, recent OECD analysis shows that even advanced systems often fall short in prioritising climate-relevant spending or ensuring the efficient use of public funds. Much expenditure remains tagged as having a neutral or undetermined environmental impact. To strengthen impact, countries need to go beyond tagging by developing methodologies to assess emission outcomes, investing in tools to evaluate broader economic effects, and adopting results-oriented approaches that better link budget decisions to climate objectives (OECD, 2024[43]).
Box 8.5. Insights from subnational green budgeting
Copy link to Box 8.5. Insights from subnational green budgetingGreen budgeting is increasingly popular among subnational governments, as it helps them align their expenditure with climate and environmental objectives, better prioritise investment projects and monitor progress towards climate goals. Subnational green budgeting practices are diverse, both across countries and types of subnational governments, reflecting diverse local contexts. In Scotland (United Kingdom), the Scottish government applies a carbon assessment approach to estimate the carbon footprint of government purchases. In Oslo (Norway), the municipal government sets out annual emission caps for municipal departments to follow. In the Philippines, local governments use the Climate Change Expenditure Tagging system to identify adaptation and mitigation investments.
Many countries have set up national legal frameworks to support subnational green budgeting. For example, in France, the 2024 Finance Law required green budgeting in all regions, departments and municipalities with more than 3,500 inhabitants. In keeping with the law, financial accounts must include an annexed statement entitled “Impact of the budget for the ecological transition”. This new annex concerns investment expenditure which, within the budget, impacts ecological transition objectives of France, including mitigation and adaptation to climate change. The law also stipulates that subnational governments have the possibility of "identifying and isolating" the part of their debt devoted to financing investments contributing to environmental objectives, that is, their "green debt”.
However, subnational governments still face hurdles to implementing green budgeting. Existing green budget methodologies at higher levels of government (if they exist at all) do not always translate well to lower levels of government due to differing fiscal competencies, contexts and complexities. Green budgeting at the subnational level needs to fit local contexts – there is no one-size-fits all approach. Resource, operational and political challenges also exist in setting up new budgeting structures and relationships. To make the most out of green budgeting for driving green investment, green budgeting can and should be aligned and combined with other means of government action, such as regulation, green public procurement and environmental planning. Green budgeting should also align with regional and local climate strategies.
Aligning Regional and Local Budgets with Green Objectives: Subnational Green Budgeting Practices and Guidelines (OECD, 2022[46]) provides six guidelines, accompanied by a self-assessment tool, to help subnational governments step up green budgeting:
1. Diagnose local environmental and climate challenges before launching green budgeting.
2. Ensure strong, high-level support from administrative and elected sides of government.
3. Have robust scientific basis to facilitate public trust and adapt to changing evidence.
4. Take a stepwise approach to implementation to learn from previous steps and reinforce the alignment of the practice with local strategic priorities.
5. Integrate green budgeting into existing procedures and tools to ensure the practice endures.
6. Include revenues within green budgeting to align the entire budget with green objectives.
Source: (OECD, 2022[46])
Beyond optimising existing resources, ensuring that public spending does not contradict NDC commitments is equally important. Many governments continue to channel substantial subsidies to fossil fuels and carbon-intensive activities, which run counter to climate objectives. Research suggests that fully phasing out fossil fuel subsidies could reduce global CO2 emissions by up to 10% by 2030, playing a decisive role in maintaining global temperature increases below 2°C (IMF, 2024[47]; IPCC, 2023[48]). Removing carbon-intensive subsidies makes economic sense as they constitute a significant drain on scarce public finances and divert funding away from supporting other priorities, including NDC implementation. To provide a magnitude of the economic cost, subsidies for fossil fuels, agriculture, and fisheries exceed USD 7 trillion in explicit and implicit subsidies, representing is around 7% of global GDP (Damania et al., 2023[49]). Similarly, the most recent OECD and IEA data show that the global fiscal cost of support measures for fossil fuels in 82 economies in 2023 was USD 1.1 trillion – down from USD 1.6 trillion in 2022 as energy prices softened from the record highs seen in 2022, but still substantive (OECD, 2024[50]). For some countries, the cost of carbon-intensive subsidies represented as much as 30% of government spending (Merrill and Chung, 2015[51]). A full reform of fossil fuel subsidies would raise revenue up to USD 4.4 trillion in 2030, with some regions, including MENA and South Asia, reaping the greatest economic benefits (IMF, 2024[47]). These saved resources could be incorporated in national budgets to directly support the financing of NDC actions and provide critical support for NDC delivery. Of course, to avoid social and economic hardship subsidy reforms need to be carefully structured. This includes implementing targeted support measures such as direct cash transfers, social safety nets, and retraining programs to help affected workers transition to new employment opportunities. Rechannelling fossil fuel subsidies can ensure that the benefits of the transition are equitably shared, reducing inequality and supporting sustainable development (Horlick and Clarke, 2017[52]; World Bank, 2024[53]) (Chapter 4).
The need to phase out inefficient subsidies where relevant is increasingly recognised but needs to feature more prominently in NDCs. So far less than 30 out of 198 Parties have included references to fossil fuel subsidies in their current NDCs, and only 16 Parties have included explicit commitments to their reform; of these, none is a G7 country (see Figure 8.3) (van Asselt et al., 2023[54]). Paragraph 28 of the first GST outcome explicitly calls on Parties to accelerate efforts toward the phase-out of inefficient fossil fuel subsidies that do not address energy poverty or just transitions. In this context, the next NDC cycle offers a critical opportunity for major subsidising countries to include actionable, time-bound commitments on fossil fuel subsidy reform. Doing so could ensure increased public resources for NDC implementation and will also send strong signals to the private sector, possibly incentivising private investment in NDC‑aligned activities. There are several international fora and international institutions that support countries in phasing out carbon-intensive subsidies, including the G20, the OECD, International Monetary Fund, and World Trade Organization.
Figure 8.3. Overview of fossil fuel subsidies commitments in NDCs
Copy link to Figure 8.3. Overview of fossil fuel subsidies commitments in NDCsRaising additional public resources for financing NDC action
NDCs need to be designed with a clear understanding of where public resources will be required to close financing gaps, particularly in sectors demanding significant upfront investment, long-term financing, or high-risk interventions that are unlikely to attract private capital. In these cases, mobilising additional public resources will be essential. Most domestic public funding and financing for NDCs will come from traditional tools such as taxation, public expenditure allocations, and sovereign borrowing. Instruments such as climate bonds or carbon pricing are increasingly being used to mobilise predictable and scalable finance streams for NDC implementation. Some research even points to synergies in combining these instruments, boosting environmental effectiveness, capital accumulation, and debt sustainability (Heine et al., 2019[55]). Beyond their fundraising capacity, such instruments can also help address systemic constraints to NDC finance, including constrained fiscal space and misaligned public spending priorities. Earmarking revenue for climate action safeguards funds for NDCs and can help instil investor confidence and reinforce public trust by demonstrating resources are channelled toward climate goals (Cardenas Monar, 2024[56]). In doing so, governments establish a credible investment narrative, increasing the likelihood of co-financing from both private and international stakeholders. These instruments can also be used to mobilise resources at the local level (see Box 8.6).
Box 8.6. Mobilising financing for subnational governments could help countries meet their NDCs
Copy link to Box 8.6. Mobilising financing for subnational governments could help countries meet their NDCsMobilising funding and financing at the subnational level is crucial to support the implementation of NDCs. Subnational governments are responsible for many sectors critical to climate adaptation and mitigation, such as environmental protection, waste and water management, land use and transport. In 2019, subnational governments accounted for 63% of climate-significant public expenditure and 69% of climate-significant public investment in OECD and EU countries (OECD, 2022[57]). However, these averages hide significant differences between OECD and EU countries, and between OECD countries and less developed countries. These differences are partly due to the degree of decentralisation in each country and to differences in fiscal policies. For example, in the OECD, the top five countries have per capita investment that is over five times that of the bottom five countries. In the same vein, while subnational climate investment increased by 1.4% per annum across OECD and EU countries in real terms between 2009 and 2019, a third of countries experienced zero or negative growth.
Despite their pivotal role in the net zero transition, subnational climate-significant expenditure and investment accounted for only 1.1% and 0.4% of GDP, respectively, in 2019 in OECD and EU countries. These small shares signal overall low levels of total public climate-significant expenditure and investment and reveal significant gaps between public involvement and climate action needs at the national level (OECD, 2022[57]). This calls for more policy action to mobilise funding and financing for subnational governments so they can fulfil their role in accelerating the net zero transition. Meeting ambitious NDCs will require subnational governments to mobilise greater volumes of climate finance.
There is potential for subnational governments to further mobilise climate finance by adopting new sustainable finance instruments. In 2022, subnational governments issued USD 55.5 billion of GSS+ bonds, over four times that of 2019. Almost half of subnational GSS+ bonds were green bonds. Despite rising issuance, subnational governments make up only 27% of public GSS+ bond issuance – far below their share of climate significant expenditure and investment. Indeed, in many countries fiscal frameworks prevent subnational governments from issuing bonds. Rising climate risks could raise borrowing costs for subnational governments. ESG ratings increasingly consider climate risks, such as vulnerability against climate hazards and exposure to high-emission industries, which vary greatly across places (OECD, forthcoming[58]).
Scaling up subnational climate finance requires better mobilisation of existing funding sources and identifying new ones, as they underpin financial viability. Earmarked grants and subsidies are the most common source of climate funding for subnational governments, but these can include restrictive conditionalities and be exposed to national (or supra-national) policy changes (OECD, 2022[57]). Greater uptake of other funding instruments, such as taxes, user charges, land-value capture and asset revenue, can help boost subnational climate investment and fiscal resilience. Fiscal frameworks should allow subnational governments to access sufficient revenue sources, as insufficient funding will limit access to climate finance, likely harming mitigation and adaptation efforts. Innovative funding mechanisms, such as financial intermediaries, can help subnational governments achieve economies of scale and obtain more favourable terms (OECD, 2024[59]).
Note: Drafted by Isabelle Chatry, Justin Chen, Charlotte Lafitte (OECD)
Sovereign climate bonds exemplify how governments can secure low-cost, long-term capital specifically for NDC implementation. By tapping into a global market that reached USD 3.5 trillion in 2024, these instruments can be earmarked for mitigation and adaptation projects (Climate Bonds Initiative, 2024[60]; Kidney, 2024[61]). For example, Uruguay’s 2022 issuance of a USD 10.5 billion sustainability-linked bond (SLB) integrated Key Performance Indicators (KPIs) directly tied to its NDC, ensuring alignment between financial flows and climate targets (LSE, 2023[62]; IDB, 2022[63]). Further illustrating the role of innovative bond instruments, Box 8.7 highlights Cabo Verde’s 2023 blue bond issuance, which raised USD 3.5 million to support MSMEs in the blue economy. Despite the benefits, significant barriers can limit uptake of such instruments. For example, as a result of regulatory and mandate constraints, institutional investors are often required to prioritise low-risk, and highly liquid investments (IIGCC, 2024[31]). Moreover, countries without Eurobond issuance or investment-grade ratings, are frequently excluded due to limited investment alternatives and worries about credit quality or liquidity (LSE, 2023[62]) (IIGCC, 2024[31]). Addressing these hurdles requires stronger domestic financial sectors and targeted capacity-building, enabling a broader set of economies to benefit from green bond markets.
Carbon pricing mechanisms, including carbon taxes and emissions trading systems, can also provide stable revenue streams for NDC priorities (Chapter 2). By internalising the cost of CO₂ emissions, these tools simultaneously incentivise low-carbon practices and generate funds that can be reinvested in NDC actions. Sweden’s carbon tax, at around EUR 125 per tonne of CO₂, raised USD 2.3 billion in 2019, which was directed towards renewable energy and energy efficiency measures (Government of Sweden, 2025[64]; Jonnson, Ydstedt and Asen, 2020[65]). Similarly, the EU’s NDC highlights its Innovation Fund, fully financed by the EU ETS, as a mechanism expected to provide EUR 38 billion by 2030 for innovative low-carbon technologies (European Union, 2023[66]). Ensuring equity and public acceptance is vital: revenues should be used prudently, for instance through direct transfers to vulnerable groups or by subsidising clean energy to offset any regressive impacts (Grubb et al., 2023[67]; Pryor, 2021[68]). As discussed in Chapter 5, channelling revenues from carbon pricing back to households can cushion losses and shape distributional outcomes, reducing regressive impacts and making parts of the population better off. Predictable revenue flows and robust market stability provisions help maintain investor confidence and foster the long-term emission reductions necessary for achieving climate goals.
Box 8.7. Cabo Verde: Driving climate resilience through climate bond issuance
Copy link to Box 8.7. Cabo Verde: Driving climate resilience through climate bond issuanceAs Small Island Developing States (SIDS) face severe climate impacts, they are championing urgent global climate action, including through platforms such as the UNFCCC COP. Cabo Verde, heavily affected by hurricanes and rising sea levels, exemplifies the vulnerability of SIDS, which collectively experienced USD 153 billion in losses from extreme weather over the last 50 years. Despite setting ambitious climate goals in their NDCs, many SIDS, including Cabo Verde, face significant funding gaps. To bridge these gaps, Cabo Verde has turned to climate bonds as a key instrument for mobilising private capital and driving sustainable investments.
Cabo Verde’s climate bond journey is anchored in its Integrated National Financing Framework (INFF) and its dedicated sustainable finance platform, Blu-X, launched in 2021 through a strategic partnership between the Cabo Verde Stock Exchange (BVC) and the UNDP. Blu-X is a platform designed to facilitate the issuance of sustainable finance instruments, including climate and blue bonds, to support the country's NDC targets and promote investment in the blue economy. The country’s first foray into sustainable bonds occurred in 2021, when Blu-X facilitated a social bond issuance to finance public services in 22 municipalities. This issuance, backed by a treasury guarantee and offering interest rates comparable to public bonds, demonstrated how public support can reduce perceived risk and attract investors (Verde, 2022[69]).
The landmark came in 2023 when Blu-X facilitated Cabo Verde’s first blue bond issuance, valued at USD 3.5 million and issued by the International Investment Bank (IIB). The proceeds were directed towards supporting micro-, small-, and medium-sized enterprises (MSMEs) in coastal and maritime sectors, including fisheries, and providing affordable loans to micro-entrepreneurs in coastal communities. This issuance was made possible by Cabo Verde’s blue bond regulation, enacted in 2022, which was developed using the Atlantic Technical University’s blue taxonomy, ensuring clear standards and investor confidence.
In 2024, the blue bond achieved dual listing on the Luxembourg Green Exchange (LGX), a significant step towards increasing its visibility among international investors and expanding access to global capital markets. Since its launch, Blu-X has raised approximately USD 40 million through various bond issuances, funding projects that promote economic diversification, reduce carbon footprints, and enhance climate resilience (Integrated National Financing Frameworks, n.d.[70]). In recognition of its contributions, Blu-X received multiple Global Banking & Finance Awards in 2024, further cementing its role as a regional leader in sustainable finance.
Cabo Verde’s climate bond initiatives highlight the interconnected nature of domestic and international financial instruments. Public support and policy frameworks, such as the blue bond regulation, have created an enabling environment for private capital mobilisation. International partnerships, such as dual listings on LGX, amplified the visibility and attractiveness of these instruments. Together, these efforts demonstrate how climate bond issuance can be a powerful tool for meeting NDC targets and driving climate resilience.
Note: Case box drafted by: Susanne Olbrisch, Christopher Marc Lilyblad, Snezana Marstijepovic and Lisa Baumgartner (UNDP)
Leveraging public procurement for supporting NDC actions
Green public procurement (GPP) has become an essential policy instrument for governments seeking to meet their climate commitments including targets set out in their NDCs. Public procurement refers to the purchase by governments and state-owned enterprises of goods, services and works. In OECD countries, public procurement represented on average 13% of GDP in 2021 (OECD, 2024[71]). More specifically, green public procurement (GPP), refers to the process of purchasing goods, services, and works that meet specific environmental criteria, with the aim of reducing negative environmental impacts throughout their life cycle. GPP is increasingly seen as a strategic government tool for meeting national commitments on climate change including targets set in NDCs (OECD, 2024[71]).
Targeting high-emitting sectors maximises GPP’s impact on NDC implementation and achievement. Approximately 75% of emissions linked to public procurement globally originate from defence and security, transportation, waste management, construction, industrial products, and utilities (World Economic Forum, 2022[72]). By concentrating GPP efforts in these areas, governments can accelerate mitigation outcomes. For instance, public transport contracts can specify electric or hybrid buses, directly reducing emissions and supporting their NDC targets. For example, in Spain, Barcelona Municipal Infrastructures SA (BIMSA), a public entity under the Barcelona City Council, reduced its fleet size and shifted to electric vehicles in line with the city’s 2018 municipal targets – cutting both emissions and operational costs (European Commission, 2025[73]). In Indonesia, the government set mandatory energy efficiency standards for air conditioning units purchased by public agencies, aligning procurement with the country’s broader climate goals (Erizaputri, Bechauf and Casier, 2024[74]).
Embedding NDC targets within national GPP frameworks enhances effectiveness. Both the Barcelona and Indonesian examples demonstrate that well-defined emission reduction objectives, tied to broader national policies, drive meaningful procurement changes (European Commission, 2025[73]; Erizaputri, Bechauf and Casier, 2024[74]). Governments may also consider focusing GPP on sectors identified in their NDC as having high mitigation potential, thereby creating consistent demand for climate‑aligned solutions. Redirecting any cost savings or revenues from GPP back into NDC measures can further reinforce a positive cycle of climate investment.
GPP exerts a wider influence on private sector behaviour, shaping preferences by defining clear environmental standards and signalling long-term demand for low-carbon goods and services (OECD, 2024[71]). Notable spillover effects include clarifying what is considered “green” or “low carbon,” ultimately guiding industry practices. Moreover, GPP can mitigate financial risks for businesses by guaranteeing a stable market, thereby fostering innovation in climate-relevant products (Dalton, 2024[75]). In aggregate, global implementation of GPP could add an estimated USD 6 trillion to GDP through 2050 (World Economic Forum, 2022[72]).
8.2.2. Mobilising and redirecting NDC-aligned investments from the private sector
A large proportion of the financing required for NDCs will have to come from the private sector (NDC Partnership, 2017[76]). Private investments are especially needed to scale up investments in commercially viable, revenue-generating projects. Governments can take a range of actions to address barriers to NDC-aligned investments by the private sector and create an environment that encourages private sector investment in NDCs. Government actions may directly or indirectly incentivise different private sector actors including financial institutions such as banks, asset managers, and insurance companies, as well as real-economy actors like energy producers, technology companies, and manufacturers. To redirect private investments in alignment with NDCs, governments can focus on four key action areas:
First, using public finance instruments to catalyse private sector investments and attract capital into NDC-aligned projects.
Second, strengthening policy tools to incentivise NDC-aligned investments in the real economy.
Third, greening domestic financial policies.
Fourth, strengthening the capacity and structures of domestic financial institutions.
Using public finance instruments to catalyse private sector investments
Public finance plays a critical role in addressing risk-return imbalances that deter private sector investment in NDC-aligned projects. In developing countries, this often takes the form of blended finance, where concessional public resources are strategically deployed to de-risk investments and mobilise commercial capital that would otherwise remain on the sidelines. This includes instruments such as guarantees, subordinated debt, and technical assistance, which help improve the bankability of projects in contexts with high perceived risks (OECD, 2023[22]; OECD, 2021[77]). In advanced economies, while the term “blended finance” is less commonly used, public finance still plays a catalytic role through mechanisms such as public-private partnerships, targeted loan guarantees and innovation challenge funds. These instruments help correct market failures, support the emergence of new low-carbon sectors, and attract private capital into areas that are aligned with national climate targets but may carry significant upfront costs or policy uncertainty. In both contexts, the strategic use of public finance is essential to crowd in private investment and accelerate the implementation of ambitious NDCs.
Guarantees are a particularly powerful blended finance instrument as they allow public or concessional finance providers to take on specific risks that deter private investors, thereby helping to unlock commercial capital for NDC-aligned investments (Garbacz, Vilalta and Moller, 2021[78]). Unlike grants or direct subsidies, guarantees do not require an upfront outlay of public funds but instead involve a contingent liability, making them a relatively cost-efficient instrument. Guarantees can cover a range of risks, including credit risk (e.g. risk of borrower default), political risk (e.g. expropriation, currency inconvertibility), or market risk (e.g. price volatility) and thereby reduce the perceived and actual risks faced by private investors. By improving the creditworthiness of a transaction, guarantees can enhance project ratings, lower interest rates, and attract a broader pool of investors, including those bound by fiduciary duties such as pension funds or insurance companies. Guarantees have proven particularly effective in underdeveloped or nascent markets where perceived risk is high and market data is limited (OECD, 2023[22]). They can be deployed to mobilise local currency financing by covering foreign exchange risks or to crowd in domestic financial institutions by absorbing first-loss exposure. Importantly, guarantees can also be structured with conditionalities that drive additional development impact – for example, by requiring gender inclusion benchmarks, resilience metrics, or alignment with NDC targets as part of the coverage terms. Examples include the use of political risk insurance by MIGA (World Bank Group) to facilitate renewable energy investments in emerging markets, or partial credit guarantees provided by development banks to enhance the bankability of climate infrastructure projects (OECD, 2023[22]). As such, guarantees not only catalyse private investment at scale, but also reinforce public policy objectives by steering capital toward strategic climate outcomes.
Public-Private Partnerships (PPPs) are another tool that can help de-risk large-scale climate projects and facilitate private sector involvement in NDC implementation. PPPs can provide the capital, expertise, and innovation needed to scale up NDC-aligned projects. They allow for shared responsibility, with the public sector reducing the financial burden and risk, and the private sector bringing in capital and technical expertise (Casady, Cepparulo and Giuriato, 2024[79]). By leveraging the strengths of both types of actors, PPPs enable the implementation of large-scale, high-impact NDC-aligned projects that would be difficult for to pursue independently.
Incentivising NDC-aligned investments in the real economy
Real-economy policies are key levers to incentivise investments aligned with NDC targets. Governments may use a range of policy instruments and interventions to stimulate NDC-aligned actions by companies and households, which can influence the alignment of real-economy investments with NDC goals (OECD, 2024[1]). These policies can be grouped into five major categories: (1) economic incentives, (2) regulatory incentives, (3) government investment and consumption, (4) voluntary approaches, and (5) information policies (OECD, 2024[80]). Effective policy packages bundle different policy instruments considering specific contexts and sequencing (OECD, 2025[81]).
Economic policies, such as subsidies, taxes, and fees, can encourage investments in low-carbon solutions and discourage NDC-misaligned investments. Carbon taxes, fuel taxes, and renewable subsidies have played an important role in decarbonising the power sector (OECD, 2025[82]). As of 2023, 75 carbon taxes and emissions trading schemes are in operation worldwide, including in nearly all OECD countries (World Bank, 2024[83]). Several studies have found that carbon pricing tends to increase total investments by firms in abatement technologies such as installations of heat recovery solutions (Venmans, Ellis and Nachtigall, 2020[84]). Carbon prices raise the cost of polluting activities, thereby improving the relative cost-effectiveness of low-carbon technologies and encouraging clean innovation and investments. The effectiveness of economic policies depends on the price and demand-elasticity of the targeted products (OECD, 2025[81]). While they allow local firms to identify cost-effective measures to reduce emissions and provide incentives for innovation, they can also bring trade distortions (OECD, 2025[81]). Taxes can bring in government funds to finance further climate action aligned with NDCs, as explained in the previous section. As discussed in Chapter 8, mainstreaming NDCs in economic policies and national fiscal plans can help to drive climate action across all government departments.
Regulatory policies can directly mandate or restrict specific NDC-aligned or -misaligned activities and hence related investments. Such policies can set climate performance standards, require low‑carbon technologies, or regulate markets with NDC commitments in mind, among other things (OECD, 2025[81]). For example, subsidies for home retrofitting and rooftop solar installations increase household investments in those (OECD, 2025[82]). Policies that ban or phase out emissions-intensive technologies, such as internal combustion engine vehicles, create a clear timeline for transitioning away from emissions-intensive investments in favour of green investments. Overall, mainstreaming NDCs in relevant sectoral plans and processes could help to guide the regulatory policies needed (Chapter 7.2).
Table 8.5. Examples of policy incentives for climate investments
Copy link to Table 8.5. Examples of policy incentives for climate investments
Policy instrument |
Buildings |
Power |
Industry |
Transport |
Agriculture |
---|---|---|---|---|---|
Economic instrument |
Swiss carbon tax (CHE) |
Renewable Energy Certificates (USA) |
Carbon trading scheme (CHN) |
French Passenger vehicle registration tax (FRA) |
Programa Socio Bosque (subsidies in Ecuador) |
Regulatory instrument |
California Building Code (USA) |
Renewable Portfolio Standards (USA) |
Emission caps for factories (“Safeguard Mechanism”) (AUS) |
Vehicle emission standards (California) |
Deforestation bans (BRA) |
Government investment and consumption |
Canada Greener Home Initiative (CAN) |
Investments in solar farms (IND) |
Grants for clean tech R&D (JPN) |
Electric vehicle infrastructure (NOR) |
Carbon Farming Outreach Program (AUS) |
Information instruments |
Energy labelling programs (GBR) |
Public awareness campaigns on renewables (EU) |
South Africa’s Industrial Energy Efficiency Project (ZAF) |
Eco-driving campaigns (NDL) |
Climate Information Services for farmers (GHA) |
Voluntary approaches |
PV-promoting information campaign (2017, SWE) |
Green Power Partnership (USA) |
Viet Nam Climate Business Index (VNM) |
Corporate EV adoption goals |
Climate action partnership He Waka Eke Noa (NZL) |
Source: Authors based on examples included in (OECD, 2025[82]) and literature review.
Government investment can play an important role in driving down investment barriers and providing the necessary infrastructure to unlock NDC-aligned private investments (see also Box 8.8). Direct government funding for research, development and demonstration (RD&D) in clean technologies can help overcome initial cost barriers and accelerate technological innovation (OECD, 2025[81]). Loan guarantees or insurance provided by governments can reduce financial risks for private investors in NDC-aligned projects. Moreover, government investments in infrastructure can provide an ecosystem supportive for NDC-aligned technologies and activities. For example, public investments in electric vehicle charging infrastructure in Norway drove more households to invest in electric vehicles (OECD, 2025[82]). In the Republic of Korea, the share of electric vehicles in stock in Jeju Island grew faster than in other Korean large region because its regional government expanded the public charging infrastructure and offered additional incentives to those provided by the national government (Kwon, Son and Jang, 2018[85]).
Information policies and voluntary approaches can provide many other avenues to develop an enabling environment for NDC-aligned investments by private sector. Information policies allow firms and households to make better informed choices. Another example is reporting standards for companies, which is further discussed in the next subsection. Voluntary policy instruments could include voluntary targets, voluntary trading systems, or voluntary information policies (OECD, 2025[81]). Further engaging private sector actors on their CSR strategies and promoting the alignment of their own corporate strategies with NDC objectives can further drive investment in NDC-aligned projects. The private sector can also inform the public sector about investment opportunities and priorities across different sectors and subsectors. Active engagement between all parties can be a mutually reinforcing cycle where the private sector’s involvement supports the government’s climate targets, and the government’s policies create a predictable, stable environment for private sector NDC-aligned investments.
Reforming policies incentivising investments misaligned with NDC goals. As discussed in 8.2.1 a set of domestic real-economy policies incentivising emission-intensive activities and investments remains in place. This notably includes fossil fuel subsidies, which negatively affect the relative risk-return profile of climate-aligned investments such as in renewable energy (Ang, Röttgers and Burli, 2017[86]). Revising these policies requires policymakers with portfolios situated outside the traditional climate agenda to revisit the most NDC-misaligned policy instruments in their domains (OECD, 2015[87]).
Box 8.8. Promoting climate-aligned FDI
Copy link to Box 8.8. Promoting climate-aligned FDIBased on existing regulatory frameworks and historic actions of governments, potential foreign direct investors may have low confidence that they will encounter the transparency, predictability, and non‑discriminatory enforcement of the rule of law that is required to commit capital (OECD, 2015[88]). Particularly in the rapidly evolving context of climate policy, potential investors need strong evidence that they will be treated fairly. As such, ambitious NDCs that are embedded into a coherent policy framework provide investors with clear signals regarding governments’ commitment to combat climate change and to support low-carbon growth. National investment promotion strategies should allow to translate national and sectoral emissions targets embedded in NDCs to science-based targets for the private sector, and provide clear indications on its implementation, including resource allocation and performance indicators (OECD, 2022[89]).
Aligning economic and financial incentives with climate objectives is also key to attracting climate‑aligned FDI. For example, fossil fuel subsidies provide disincentives to greenfield FDI in renewable energy. Only a handful of countries that offer large fossil fuel subsidies (e.g. above 1% of GDP) attract significant shares of FDI in renewable energy (e.g. exceeding 10% of total greenfield FDI) (Figure 8.4). In addition to reforming fossil fuel subsidies, efforts should be made to align investment tax incentives with climate priorities. Evidence suggests that providing similar investment tax incentives to green and non-green energy alternatives reduces the ultimate effectiveness of efforts to promote renewable energy FDI (OECD, 2022[89]).
Figure 8.4. Large fossil fuel subsidies are associated with lower renewable energy FDI
Copy link to Figure 8.4. Large fossil fuel subsidies are associated with lower renewable energy FDIFossil fuel subsidies (% of GDP), 2019-22 average; greenfield FDI in renewable energy (% of total), 2019-23
Non-financial incentives also have an important role to play. Investment facilitation measures can reduce the administrative burden and time costs of an investment project, and be tailored to prioritise climate-aligned investments. For instance, investment promotion agencies can provide streamlined investment processes, revenue guarantees for strategic projects, and support for joint ventures and site visits, to investors that meet climate priorities.
Greening domestic financial policies
While ambitious and coherent real-economy climate policies remain pertinent for incentivising NDC-aligned investments, the role of financial sector public policies cannot be ignored. These policies oversee and guide the functioning of the financial system towards ensuring its stability, integrity, and efficiency. As the collective understanding of climate risks grows and the impacts of climate change intensify, climate risks are increasingly understood as being financially material, posing risks to financial and price stability. Financial sector policies integrating climate considerations have been increasingly adopted since the Paris Agreement. By 2023, 81 countries and the EU had adopted at least one such policy, up from 43 countries in 2015 (OECD, 2024[1]). These policies include climate-related transparency and information policies, prudential policies, credit allocation policies, monetary policies.
Climate-related transparency and information policies, which can be linked to enhanced NDCs, provide a foundation for integrating climate considerations in financing decisions in the private sector and develop green finance markets. Climate‑related transparency and information policies, which have been adopted by 42 AEs and 35 EMDEs (see Figure 8.5), can serve multiple purposes providing a foundation for NDC-related financial sector policies and practices. They contribute to improved understanding of climate performance of investments in relation to NDC goals, reduced information asymmetries and increased comparability (see Box 8.9). This can enable financial sector players to reflect NDC-aligned preferences in investment decisions and develop green financial products. They can also inform asset purchase programmes by central banks and, depending on their mandate, encourage them to tilt their portfolios towards NDC-aligned activities. There are two main types of climate-related transparency and information policies:
Climate-related disclosure policies enable investors and financial institutions to monitor progress toward climate targets and align capital allocation with NDCs. These policies are typically implemented by governments and market supervisors incentivise disclosure. While the global adoption of such policies has grown, particularly in advanced economies, gaps remain in the consistency and comprehensiveness of disclosures, particularly for Scope 3 emissions and in EMDEs (OECD, 2024[1]). There is also an increasing demand for transition plan disclosure (NGFS, 2024[90]). By providing requirements for standardised data, disclosure policies can facilitate engagement with companies by investors and integrate NDC considerations into investment and portfolio allocation decisions. As the effects of disclosure policies on GHG emissions would be mostly indirect, assessments of such effects on actual real‑economy decarbonisation have found limited significance.
Sustainable finance taxonomies and green bond frameworks can further support the development of NDC-aligned financial products (G20 SFWG, 2022[91]). Sustainable finance taxonomies classify activities, for example, as low-carbon, transition relevant, or supporting adaptation (Tandon, 2021[92]). Green bond frameworks, often building on taxonomies or disclosure requirements, further support the issuance of labelled financial products that attract capital to green projects. These policies are mainly adopted by government, market supervisors, and central banks (OECD, 2024[1]). Sustainable finance taxonomies and green bond frameworks provide an opportunity to integrate NDC ambitions in financial decision making by improving market transparency and helping investors to more easily identify NDC-aligned projects. As of 2024, around 75% of AEs, but less than 10% of EMDEs have a sustainable or green finance taxonomy (World Bank, 2024[93]). Although empirical evidence on their direct impact on emissions reductions is limited, green labels have demonstrated the potential to influence investment decisions and channel funds into climate-aligned activities (OECD, 2024[1]).
Figure 8.5. Adoption of climate-related financial sector policies
Copy link to Figure 8.5. Adoption of climate-related financial sector policiesClimate risks and assessments of NDC misalignment need to be accurately integrated in prudential and monetary policy frameworks. As climate change poses a threat to financial and price stability, climate risks need to be integrated into prudential and monetary policy (NGFS, 2020[94]). The degree to which financial sector policymakers, such as central banks and supervision authorities, can actively encourage NDC-alignment in financial institutions through prudential and monetary policies depends on the mandates of those policymakers, which differ across countries. In general, policymakers have started to integrate climate considerations in prudential policy, and to a limited degree in monetary policy (OECD, 2024[1]). By 2023, 41 countries and the EU had developed climate‑related capital‑based policies, including 20 AEs and 21 EMDEs. The common understanding of the effects of climate‑related financial sector policies remains primarily based on conceptual analysis and assumptions (OECD, 2024[1]). Limited analysis on the effects of climate‑related financial sector policies points to trade-offs and unintended consequences between financial and climate policy objectives.
Box 8.9. Innovative financing instruments and policies to align private sector action with NDCs – Insights from Mongolia
Copy link to Box 8.9. Innovative financing instruments and policies to align private sector action with NDCs – Insights from MongoliaMongolia’s National Committee for Sustainable Development, chaired by the Prime Minister, endorsed the Integrated National Financing Strategy in 2022. The strategy aims to improve the coherence of public finance, increase public, private and mixed financial resources and increase the sustainable development impact of financing through a supportive enabling environment. As the financing strategy is being implemented, Mongolia is already realizing financial outcomes supporting climate action across the public and private landscape.
On the public finance side, budgeting reforms and revised budget laws are enhancing the alignment of expenditure with national priorities and the SDGs. An SDG bond framework has been introduced and the Development Bank of Mongolia has developed a sustainability risk management framework, deploying tools to redirect finance to generate impact and sustained returns. These changes are aligning and mobilising public resources for investment in the SDGs and climate priorities.
On the private finance side, the country has set a target to increase green lending across all banking sector lending, from 2 percent to 10 percent by 2030. Sustainability reporting guidance adopted as part of the Disclosure and Transparency Regulation requires listed companies to report on their sustainability contributions, applying to firms with a combined market capitalisation of USD 3 billion. The stock exchange plans to develop ESG indices based on the companies that are reporting on their sustainability contributions. A green taxonomy is in place and has been expanded into an SDG Finance Taxonomy, representing only the second of its kind in the world. The Central Bank has incorporated the taxonomy into its monetary policies and in the first year already incentivised USD 90 million in Government funding and USD 30 million commercial bond issuance for green projects. The stock exchange has introduced listing-criteria waivers and reduced listing fees for projects aligned with the Sustainable Finance Taxonomy. Khan Bank, one of the main banks in Mongolia, issued Mongolia’s landmark green bond on the public market for USD 5 million, as part of the USD 30 million green bond issuance (the other USD 25 million of which is to be privately placed with strategic investors), and benefited from this green listing incentive adopted on the stock exchange within INFF. At the same time, a critical objective in the financing strategy that sought for Mongolia to be included in the Financial Times Stock Exchange (FTSE) Russell Frontier markets was achieved in September 2023. Inclusion in the FTSE will enable investments to flow to Mongolia from global institutional investors that track these indices, marking an important milestone in Mongolia’s effort to attract finance
Leadership by the government to implement these reforms through Mongolia’s Financing Strategy illustrates how investments can be unlocked and aligned with national sustainable development and climate priorities.
Note: Case box drafted by: Susanne Olbrisch, Christopher Marc Lilyblad, Snezana Marstijepovic and Lisa Baumgartner (UNDP)
Strengthening domestic financial institutions in financing NDCs
Strengthening domestic financial institutions is critical for mobilising and scaling the resources needed to implement NDCs. These institutions, which can include e.g., commercial banks, institutional investors, and national development banks, play a central role in channelling finance to climate-related projects, particularly in sectors that require significant capital investment or long-term funding. However, many domestic financial institutions face challenges such as limited technical capacity, insufficient alignment with climate goals, and underutilisation of available capital. To address these challenges, governments should ideally place greater emphasis on building capacity within financial institutions to evaluate and manage NDC-related investments, setting clear plans and timelines for gradually phasing out brown investments, and establishing dedicated institutions such as national climate funds to focus financing efforts.
Governments have a central role in fostering the development of climate finance expertise and ensuring that domestic financial institutions (e.g. banks, credit unions, development banks) integrate climate considerations into their decision-making processes. Ministries of Finance and central banks, in particular, can establish regulatory guidelines and incentives that encourage financial institutions to develop and offer climate-aligned financial products, such as green loans and sustainability‑linked loans, which can support the financing needs of NDCs. Financial regulators and supervisory authorities, such as financial stability boards and banking oversight bodies, can mandate the integration of climate risk assessment into lending and investment decisions, ensuring that institutions systematically evaluate greenhouse gas emissions reduction potential and physical climate risks. Public financial institutions, including national development banks, can also take a leadership role by developing model financial products and setting best practices that commercial banks and institutional investors can adopt.
Despite the growing importance of these considerations, many financial institutions still lack the technical expertise and internal processes to effectively integrate climate risks into financial decision-making. Governments can help bridge this gap by facilitating access to targeted capacity‑building initiatives. Ministries of Finance, often in collaboration with central banks, can support technical training programmes and professional certifications tailored to climate risk management. Financial supervisory bodies can work with multilateral institutions to integrate climate finance modules into existing banking certification programmes. Additionally, public investment agencies and national climate finance institutions can coordinate partnerships with international organisations to provide training programmes, such as the World Bank Group Academy’s Climate Risk Finance Program, which equips financial professionals with the skills needed to navigate climate-related investment decisions (World Bank, 2025[100]). Some countries have already taken steps in this direction. In Canada, the Bank of Canada and the Office of the Superintendent of Financial Institutions (OSFI) launched a climate scenario analysis pilot project to help financial institutions assess climate-related risks (Bank of Canada, 2022[101]). Similarly, Egypt’s 30 by 30 Zero programme supports banks in issuing green and sustainability bonds through targeted training and portfolio reviews (IKI, 2025[102]). By strengthening the expertise of financial institutions through such initiatives, these government actors can help align financial flows with NDC objectives and improve the overall resilience of the financial system to climate risks.
Establishing dedicated climate finance units within financial institutions is another effective approach to addressing capacity constraints. These units can focus on climate risk assessments, project appraisal, and resource mobilisation, drawing from international best practices such as the Climate Assessment for Financial Institutions (CAFI) tool developed by the International Finance Corporation (IFC) (IFC, 2025[103]). In addition to institutional capacity-building, governments can play a role in integrating climate risk assessment into financial decision-making by ensuring that financial institutions employ robust scenario analysis methods. For example, using methodologies recommended by the Task Force on Climate-related Financial Disclosures (TCFD) can enable financial institutions to evaluate how different climate policy pathways might affect their portfolios. This is critical in ensuring that high-emission, climate‑vulnerable sectors are assigned appropriate risk premiums while projects with strong emissions reduction potential or resilience benefits receive preferential financing terms. Governments can further support this process by developing regulatory frameworks that mandate climate risk disclosures, improving access to climate data, and providing technical assistance to financial institutions to strengthen their risk analysis capabilities.
Beyond strengthening individual financial institutions, governments should focus on establishing and supporting appropriate institutional structures to mobilise financing for NDCs. Ministries of Finance and Economy play a central role in designing these institutions, providing initial capitalisation, and setting financial policies that incentivise private sector participation. To give a few examples, Green Banks, National Climate Funds (NCFs), and Strategic Investment Funds (SIFs) all play a critical role in unlocking capital, particularly in countries where private financial markets are underdeveloped or risk-averse:
Green Banks are specialised public or public-private financial institutions that use innovative financing mechanisms to attract private investment into clean energy and climate-related projects. For example, the Green Investment Group (formerly the UK Green Investment Bank), which was initially capitalised by the UK government with GBP 3.8 billion in public funds to de-risk and scale up private investment, has played a pivotal role in financing offshore wind farms and other renewable energy projects, contributing to the country’s progress toward its NDC targets (Green Investment Group, 2025[104]).
National Climate Funds serve as dedicated mechanisms to channel funding towards priority areas such as renewable energy, climate-resilient infrastructure, and sustainable agriculture, providing a structured approach to resource allocation that attracts international climate finance (Flynn, 2011[105]) (see Figure 8.6). A notable example of a NCF that has successfully managed to mobilise substantial resources for NDC implementation is Rwanda’s Green Fund (FONERWA) (see Box 8.10)
Strategic Investment Funds, which operate along the lines of private equity funds, can help mobilise private capital while maintaining a commercial focus. By investing alongside private investors in priority sectors and actively originating deals – often in greenfield infrastructure – SIFs can crowd in private investment, lower financial risk, and reduce the cost of capital (OECD, 2020[106]). For example, the Ireland Strategic Investment Fund channels investment into renewable energy and sustainable infrastructure to support national climate objectives. By leveraging NDBs, NCFs, and SIFs, governments can create a structured financial ecosystem that blends public and private resources, ensuring that sufficient capital is directed toward NDC implementation.
Figure 8.6. The role of National Climate Funds in achieving NDC priorities
Copy link to Figure 8.6. The role of National Climate Funds in achieving NDC prioritiesBox 8.10. Rwanda: Leveraging a National Climate Fund to Mobilise Green Investment
Copy link to Box 8.10. Rwanda: Leveraging a National Climate Fund to Mobilise Green InvestmentSince 2020, Rwanda has made substantial progress in mobilising resources from domestic and international sources as well as through innovative financing mechanisms, underpinned by a comprehensive NDC implementation framework coordinated by the Ministry of Finance and Economic Planning (MINECOFIN). It has achieved a 93.3% fund mobilisation rate for the 2020-25 period of its current NDC through various efforts including the Rwanda Green Fund (FONERWA) and robust financing strategies. Experience with the Rwanda Green Fund (FONERWA) highlights how national climate funds can play a pivotal role in mobilising finance, coordinating investments, and driving private sector engagement for climate action. FONERWA not only pools and blends multiple sources of finance but also builds local capacity, reduces investment risks, and develops pipelines of bankable projects
In partnership with the Development Bank of Rwanda, FONERWA launched Ireme Invest, a project preparation and credit facility that offers concessional loans and credit guarantees to accelerate green investments. By providing early-stage capital and reducing investment risks, Ireme Invest helps catalyse private sector participation in green projects – a core function of an effective national climate fund. To strengthen its financing models, FONERWA conducted a 10-year impact assessment with UNDP support, identifying best practices and gaps in climate finance mobilisation. The findings informed Rwanda’s Strategic Plan for Climate Finance, which introduced three key financial models under the Rwanda Green Fund structure:
First, the Rwanda Green Fund (RGF) Holding acts as the parent entity, coordinating investments and providing technical assistance and project preparation support to develop bankable green projects. It also launched the Kijani Responsible Label, a green certification initiative to promote sustainable practices in Rwanda’s financial markets.
Second, RGF Investments manages both direct investments and a dedicated green fund, ensuring efficient deployment of resources into climate projects.
Third, RGF General Partnerships, which house existing investment products, including Ireme Invest, the flagship investment facility for private-sector green projects. Since its launch at COP27 in 2022, Ireme Invest has attracted over USD 300 million in investments. By June 2024, its Project Preparatory Facility had invested approximately Rwf 2.7 billion (USD 1.94 million) into small, medium, and large enterprises supporting green initiatives such as circular economy models, sustainable cities, smart mobility, and climate-smart agriculture (Ireme Invest, 2025[107]). The Rwanda NDC Facility, which directs grants toward public-sector green projects to support Rwanda’s NDC implementation.
FONERWA, in collaboration with UNDP, developed Rwanda’s Green Fund Strategic Plan 2024-2030 and a business and financial and investment model to mobilize climate finance that guides Rwanda’s Green Fund in mobilizing financial resources for NDC implementation. Approval of the draft strategic plan by Rwanda Green Fund's Board is pending. The plan reviews the existing business, introduces the investment model of the Fund and crafts a new strategic direction for this unique African Institution.
Note: Case box drafted by: Susanne Olbrisch, Christopher Marc Lilyblad, Snezana Marstijepovic and Lisa Baumgartner (UNDP)
Source: (Republic of Rwanda, 2024[108])
8.2.3. Increasing developing countries’ access to international finance
Developing countries face a growing gap in the financing they need to meet their climate goals, underscoring the need for increased international support. In 2022, developed countries collectively mobilised USD 116 billion in climate finance under the UNFCCC’s USD 100 billion climate finance goal (OECD, 2024[109]). However, this level of support falls short of investment needed to implement current NDCs in developing countries. To address this gap, financing and investments will need to come from a variety of sources (see Figure 8.7). While domestic resource mobilisation remains crucial, developing countries often face higher barriers in raising climate finance domestically. For instance, many developing countries continue to have limited access to capital markets, which restricts their ability to issue green bonds or secure private investment (Falduto and Jachnik, 2024[29]; OECD, 2023[22]). Other issues such as growing sovereign debts, as well as unintended negative impacts of existing regulatory frameworks further compound the issue, increasing the cost of capital in many developing countries and thus hindering their access to private investments (Falduto and Jachnik, 2024[29]; OECD, 2023[22]). Developing countries also have less public resources available with lower tax revenues making it difficult to allocate funds for climate projects – the average tax-to GDP ratio in LICs was only 13.8 in 2020, compared to 32.5 in advanced economies (IMF and World Bank, 2024[110]).
Therefore, alongside efforts to strengthen domestic resources, as discussed earlier in this chapter, international providers need to step up support for implementing developing countries’ NDCs. Such assistance should include not only direct financial contributions but also enhanced mechanisms to reduce access barriers, build institutional capacity, and strengthen project pipelines so that funds reach high-impact areas effectively. Broader efforts to address systemic challenges – including ongoing discussions on reforming the multilateral system to improve its efficiency – are equally important (see Box 8.11).
A wide body of literature has explored the broader systemic barriers to scaling up climate finance in developing countries, ranging from macroeconomic constraints to international financial architecture reform, offering numerous recommendations and policy options (see, for example: (IEA, 2023[111]; OECD, 2023[26]; OECD, 2023[22]). While these are critical and well-recognised challenges, this report does not aim to duplicate existing analyses. Instead, it focuses on a set of more operational areas where international providers can play an immediate and tangible role in supporting the financing of NDC implementation. Specifically, it highlights four avenues:
First, simplifying access to climate finance.
Second, increasing capacity-building and technical assistance for project preparation.
Third, strengthening bilateral and regional partnerships.
Fourth, leveraging one-stop-shop initiatives offered by MDBs.
Figure 8.7. Climate finance needs and potential sources for developing countries by 2030 (excluding China)
Copy link to Figure 8.7. Climate finance needs and potential sources for developing countries by 2030 (excluding China)Box 8.11. Reforming the MDBs to address the climate challenge: Progress and prospects
Copy link to Box 8.11. Reforming the MDBs to address the climate challenge: Progress and prospectsThe 2022 Bridgetown Initiative called for a reform of the global financial system to address climate change. Among several important priorities, the Initiative emphasised the need for MDBs to scale up concessional finance, improve access, and expand their capital base (Government of Barbados, 2022[113]). Since its launch, the Initiative gained significant traction at international fora including the G20 and COP27, where countries increasingly recognised the need for MDBs to reform their practices and approaches to mobilising climate finance.
In 2022, the G20 commissioned an independent review of MDBs’ capital adequacy frameworks (CAF) (G20 Independent Expert Group, 2023[114]). Later that year, the Sharm El-Sheikh Implementation Plan called for enhancing MDBs’ financial capacity and reforming their business models to better support climate action (UNFCCC, 2022[115]). Building on these efforts, the Indian G20 Presidency in 2023 commissioned the "Strengthening Multilateral Development Banks: The Triple Agenda" report, which provided three key recommendations (Summers and Singh, 2023[116]):
Adopting a triple mandate: expand MDBs’ objectives to address poverty eradication, shared prosperity, and global public goods, ensuring a balanced approach to development and global challenges like climate change and pandemics.
Triple MDB lending capacity: increase MDB lending volumes by threefold by 2030 through better capital utilisation, optimised balance sheets, and stronger mobilisation of private sector investment.
Create a third funding mechanism: establish a new, flexible funding mechanism to address global challenges, enabling targeted contributions from diverse stakeholders, including private and philanthropic actors.
Despite the report's recommendations, progress toward MDB reforms has been slower than anticipated. A follow-up assessment by the IEG in October 2024 noted that while MDBs have initiated reform programs, the pace and ambition fall short of what is required. The report emphasized that major shareholders must take greater responsibility for advancing these reforms (Summers and Singh, 2024[117]). In November 2024, the Heads of ten MDBs responded by welcoming the G20’s endorsement of the "Roadmap for Better, Bigger, and More Effective MDBs.” They reported progress on several fronts, including increasing their lending capacity by USD 400 billion over the next decade. They also developed a co-financing portal covering 125 projects worth USD 95 billion, advanced private sector mobilisation through local currency financing and hedging instruments, and streamlined procurement practices to reduce transaction costs (Heads of MDBs Group, 2024[118]).
Simplifying access to climate finance
Accessing multilateral finance remains a significant challenge for developing countries, particularly for financing NDC implementation. In the latest round of submitted NDCs, at least 99 countries identify access to finance as a key barrier. A primary issue is the fragmentation of the international climate finance architecture. Over the past decade, there has been a notable increase in the number of climate funds, alongside numerous bilateral providers. As of 2022, more than 94 green climate funds have been created, with 81 currently active, yet their combined financial contribution remains small, accounting for less than 1% of global climate finance flows (Le Houérou, 2023[119]). For many developing countries, navigating this plethora of funds and providers can be complex and very resource intensive, especially as different funding sources often have their own unique criteria, access requirements, and application processes (OECD, 2023[26]).
Moreover, the complex and lengthy application procedures, coupled with stringent eligibility, fiduciary, and reporting requirements, create substantial barriers that many countries lack the capacity to navigate. The process of accrediting national institutions to access funds can take several years and requires extensive documentation, including fiduciary, environmental, and social safeguards, which many countries struggle to meet (Rodriguez Osuna, 2022[120]). For example, accessing GCF's Project Preparation Facility requires a high-potential concept note endorsed by a national designated authority, a step that is both time-consuming and technically demanding (Rodriguez Osuna, 2022[120]). Additionally, entities seeking accreditation to the GCF must demonstrate compliance with up to 479 public financial management requirements (Fouad et al., 2021[121]). These issues are particularly pronounced for least developed countries (LDCs) and small island developing states (SIDS), where limited institutional capacity and inadequate technical expertise further hinder efforts to secure funding (Fouad et al., 2021[121]). As a result, critical projects essential for meeting NDC targets often face significant delays or fail to secure funding altogether, with adaptation projects disproportionately affected due to additional scrutiny and limited global adaptation finance (Rodriguez Osuna, 2022[120]; OECD, 2023[26]).
Tackling these challenges is essential to ensure that developing countries can access finance to support their NDC implementation. International providers, and shareholders of MDBs and multilateral climate funds can act on three fronts:
Aligning application requirements across different climate finance providers. Simplifying and harmonising application procedures across multilateral climate finance institutions would significantly reduce the administrative burden on developing countries. By standardising key elements such as financial reporting, environmental safeguards, and monitoring frameworks, developing countries could streamline their applications, saving both time and resources. For instance, the GCF and the Global Environment Facility (GEF) jointly issued a Long-Term Vision on Complementarity and Coherence, proposing collaboration on programming and common guidelines for project design and impact measurement (GCF & GEF, 2021[122]). Encouraging mutual recognition of accreditation between funds could further streamline access, reducing duplication and easing the burden on applicants (Rodriguez Osuna, 2022[120]; Le Houérou, 2023[119]).
Encouraging climate funds to provide direct access to resources. Allowing countries to access funds directly, without intermediaries, could significantly reduce costs and empower national entities to implement more locally led, small-scale NDC projects with higher country ownership. For example, the GCF’s pilot project-specific assessment approach enables one-step project appraisals without requiring full accreditation of implementing entities, offering a promising model for reducing bureaucracy (Rodriguez Osuna, 2022[120]). Moreover, several funds have been working to simplify and accelerate accreditation procedures to make direct access more feasible, although much of the funding is still channelled through multilateral implementing entities (Masullo et al., 2015[123]). The potential for scaling up these initiatives could provide developing countries with more control over their projects, ensuring that resources are better aligned with local needs and priorities.
Improving co-ordination among different funds to reduce fragmentation. A more coordinated approach would reduce duplication, simplify access, and create a more coherent financial ecosystem. Efforts such as the GCF and GEF’s collaboration on the Long-Term Vision for Complementarity and Coherence aim to enhance collaboration, ensuring that funds complement rather than compete with one another (GCF & GEF, 2021[122]). Moreover, the Mutual Reliance Initiative launched by AFD, EIB, and KfW encourages co‑operation among providers, aiming to lower the transaction costs for recipient countries (EIB, 2025[124]). Reducing the proliferation of new funds and focusing on enhancing collaboration among existing ones would not only simplify the funding landscape but also improve the impact and efficiency of financial support for climate action. This would be further reinforced by the inclusion of specific statements on collaboration in strategic documents and the development of shared complementarity strategies.
Increasing capacity-building and technical assistance for project preparation
The lack of readily available project proposals and investable project pipelines is often identified as one of the major bottlenecks to mobilising finance for NDCs (section 8.1.4). This is even more accentuated in developing countries, where limited institutional capacity and financial resources make project preparation a particularly daunting task (Cooke, Gogoi and Petrarulo, 2018[125]). Many governments lack technical expertise to conduct feasibility studies, assess climate risks, and structure financially viable projects. In addition, fragmented governance and unclear mandates slow approval processes (Nassiry, Nakhooda and Barnard, 2016[126]). Early-stage project preparation is severely underfunded, with limited domestic financial resources and reliance on international grants, compounded by weak local capital markets and restricted access to concessional finance (OECD/The World Bank/UN Environment, 2018[127]; Nassiry, Nakhooda and Barnard, 2016[126]). The absence of clear investment pipelines, standardised project frameworks, and scalable financial structures further raises transaction costs and discourages private sector participation, as investors face high due diligence costs evaluating one-off, small-scale initiatives rather than structured investment programmes (OECD, 2018[30]).
To bridge these gaps, international donors and development finance institutions play a critical role in providing capacity-building and technical assistance for project preparation. Several initiatives have emerged to address these challenges, offering financial and technical support to help governments and project developers turn NDC priorities and activities into investable projects (see Table 8.6). These initiatives typically provide funding for feasibility studies, technical assessments, and financial structuring to ensure projects are bankable and aligned with investor requirements. Many also offer advisory services to strengthen institutional capacity, improve policy frameworks, and enhance co-ordination between public and private stakeholders. Others prioritise knowledge-sharing, technical co‑operation, and direct engagement with project developers to accelerate the pipeline of viable projects.
Despite these efforts, access to project preparation support remains limited, and greater co‑ordination, long-term technical assistance, and scaled-up resources will be essential to unlock climate finance for NDC implementation. Currently, project preparation support is strongly reliant on grants provided by public institutions and international donors (Oberholzer et al., 2018[128]). To enhance the effectiveness and sustainability of capacity-building and technical assistance, international providers may focus their efforts in strengthening a few key areas. First, more emphasis should be placed on embedding technical expertise within local ministries, development banks, and financial institutions through long-term secondments, training-of-trainers models, and mentorship programmes, rather than providing short-term, consultant-driven support. Second, more early-stage collaboration between governments, development partners, and private sector investors is needed to align project design with financial requirements, as project preparation often remains disconnected from investor engagement, meaning that even technically sound projects struggle to attract financing. This could be achieved by linking technical assistance programmes with investment platforms, where projects under preparation receive direct feedback from potential financiers. Third, expanding open-access project preparation toolkits can empower local officials and project developers with the skills and resources needed to prepare investment-ready proposals more efficiently. To date, many developing countries lack access to standardised methodologies for risk assessment, financial modelling, and project structuring.
Table 8.6. Overview of selected programmes focused on supporting project preparation
Copy link to Table 8.6. Overview of selected programmes focused on supporting project preparation
Institution |
Initiative |
Role |
---|---|---|
World Bank |
Supports project structuring, transaction advisory, and financial modelling to mobilise private investment. |
|
Green Climate Fund (GCF) |
Provides up to USD 1.5 million per project for feasibility studies, environmental assessments, and financial structuring. |
|
European Investment Bank (EIB) |
Provides technical and financial advisory support to improve project preparation and ensure the bankability of sustainable infrastructure projects. |
|
German Government |
Provides targeted technical assistance to support project pipeline development. |
|
Agence Française de Développement (ADF) |
Fund for Technical Expertise and Experience Transfers (FEXTE) |
Supports project preparation by providing technical co‑operation, capacity-building, and feasibility studies to developing countries. |
Strengthening bilateral and regional partnerships
In developing countries, bilateral and regional partnerships across different stakeholders are an extremely important tool to mobilise financing for NDCs. This is for several reasons. First, distributing financial and operational risks among multiple actors allows to lower investment risks and reduce borrowing costs, thereby decreasing the cost of capital and incentivising private sector participation in climate projects (Mohan, 2023[129]; OECD, 2023[22]). Second, regional partnerships often consolidate projects across countries, reducing administrative burdens that for many developing countries represent a cost barrier. These partnerships can be particularly beneficial for poorer or smaller countries, as they help overcome the structural disadvantages that sometimes limit funding allocations – such as weaker trade interconnections, path dependency, or less economic strength – and increase the likelihood of funds reaching those with the greatest needs (Qi and Qian, 2023[130]). Finally, partnerships bring technical expertise and capacity-building opportunities to developing countries, enhancing their ability to design and implement ambitious climate projects (Qi and Qian, 2023[130]; Pauw et al., 2022[131]).
Bilateral and regional partnerships to bring stakeholders together can take very different forms, including:
Country platforms, generally understood as government-led mechanisms that facilitate co‑ordination among government agencies, international donors, and private sector – such as Just Energy Transition Partnerships (JETPs) (Chapter 7.3). Their main purpose is to coordinate national and international interests behind a shared goal, attract investments from both international donors and private sector actors (Hadley et al., 2022[132]). Emerging experiences point to important lessons for successful financial mobilisation through country platforms, including aligning climate finance with national priorities, utilising blended finance instruments to de-risk investments, and strengthening institutional capacity to manage and allocate funds effectively (Hadley et al., 2022[132]).
Collective investment vehicles (CIVs) such as green bonds, pooled funds, or climate-focused equity funds, serve as mechanisms to channel private sector investment into climate projects while reducing financial barriers to entry. By aggregating capital from multiple investors, these vehicles diversify risk and increase funding availability for projects that may otherwise struggle to secure financing (OECD, 2023[22]). To date, only 10% of private finance in developing countries is mobilised through CIVs – and research points to a very strong case for increasing efforts on these instruments (OECD, 2024[109]; OECD, 2023[22]). Successful examples include the UK’s Mobilising Institutional Capital Through Listed Product Structures (MOBILIST) programme (MOBILIST, 2025[133]; OECD, 2023[22]).
Technical assistance hubs play a critical role in supporting developing countries to design, structure, and implement bankable climate projects as they provide expertise in areas such as project preparation, financial structuring, and navigating regulatory frameworks, which are often significant barriers to accessing international climate finance. Notable examples include the Climate Finance Access Network (CFAN) and the NDC Partnership (CFAN, 2025[134]). Another relevant initiative is the Climate Club’s Global Matchmaking Platform which connects governments in emerging markets and developing economies with tailored technical and financial support to accelerate the decarbonisation of industries (Climate Club, 2025[135]) (see Box 7.11). The Regional Platforms for Climate Projects, coordinated by the UN Climate Change High-Level Champions, represent another key initiative. These platforms act as regional hubs to curate pipelines of investment-ready climate projects, facilitate matchmaking between project developers and financiers, and build capacity across institutions to enhance project implementation and scaling (Climate Champions, 2024[136]). There also exist several other smaller-scale initiatives that can help with specific issues. An example is the African Development Bank’s Green Mini Grid Help Desk, which supports mini grids developers by providing market reports, links to industry stakeholders, instruction guides, business forms and templates, and financial models (African Development Bank, 2025[137]). Some of these initiatives are often hard to find for countries and investors willing to support NDC action – as there is a need for increased efforts to catalogue and better showcase them.
These initiatives have been very important to simplifying and facilitate access to financing for NDCs; however, to maximise their effectiveness international providers could focus on a few key actions. These include enhancing co-ordination and alignment between initiatives through regional climate finance co-ordination hubs. Regional development banks could play a fundamental role in this space. A second area for improvement relates to the need to streamline administrative and regulatory processes within regional partnerships to lower transaction costs. Finally, embedding long-term capacity-building efforts within partnerships – through regional training programmes, mentorship initiatives, and institutional strengthening – would help developing countries sustain their ability to prepare, finance, and implement NDC projects independently over time.
Leveraging one-stop-shop initiatives offered by MDBs
In recent years, a range of initiatives have emerged to support developing countries in implementing their NDCs, providing a mix of technical assistance, capacity building, policy support, and financial resources. Examples include the African Development Bank’s Africa NDC Hub see Box 8.12), the Asian Development Bank’s NDC Advance, and the World Bank’s Climate Support Facility (African Development Bank, 2025[138]; Asian Development Bank, 2023[139]; World Bank, 2025[140]). These initiatives address key aspects of the NDC process, often providing concrete solutions to the challenges discussed earlier in this chapter and ensuring that countries are equipped to plan, implement, and monitor their climate commitments effectively. Many of these programmes provide grants that finance analytical work, stakeholder engagement, and capacity-building activities. In addition, some initiatives offer technical assistance through in-house staff or by hiring external consultants to provide targeted expertise and support. The areas covered by many of these programmes usually include:
Planning and policy alignment. These initiatives assist countries in mainstreaming NDC targets across national development plans, sectoral strategies, and budgeting processes. This includes the development of long-term decarbonisation pathways, integration of climate objectives into national planning cycles, and alignment with macroeconomic and fiscal frameworks.
Project preparation and pipeline development. Several programmes provide hands-on support for the identification, design, and structuring of climate-aligned investment projects. This may include conducting prefeasibility studies, developing concept notes for funding proposals (e.g. to the GCF), or establishing national project pipelines aligned with NDC implementation plans.
Capacity building and institutional strengthening. These initiatives work to build technical and institutional capacity across government agencies. Activities include training on climate finance planning, monitoring and evaluation of NDC implementation, stakeholder co-ordination mechanisms, and strengthening institutional mandates to oversee climate policy implementation.
Mobilising financial resources. Programmes offer support for accessing climate finance from multilateral and bilateral sources, as well as leveraging private sector investments.
While one-stop-shop initiatives have been valuable in providing integrated support for NDC implementation, several challenges remain. A key issue is funding. Many of these initiatives rely on short-term donor contributions, which undermines their ability to offer continuous, multi-stage support. As a result, it is often difficult for countries to receive consistent assistance across the entire NDC implementation cycle, from updating their NDCs, preparing financing strategies, and developing bankable project proposals, through to actual implementation. This fragmentation weakens the effectiveness of the support and risks losing momentum between phases. Given the central role these initiatives play in addressing interconnected bottlenecks of NDC implementation, increased and more predictable support from bilateral donors could help strengthen their continuity and impact.
Box 8.12. The Africa NDC Hub: Co-ordinating Support for Climate Action in Africa
Copy link to Box 8.12. The Africa NDC Hub: Co-ordinating Support for Climate Action in AfricaLaunched by the African Development Bank (AfDB) in 2017, the Africa NDC Hub is a collaborative platform designed to support African countries in implementing their NDCs. The Hub brings together more than 30 development partners, including UN agencies, bilateral donors, regional organisations, and multilateral development banks, under a coordinated framework to streamline support across countries.
The Hub offers a combination of technical assistance, capacity building, policy advice, and access to financial resources. It helps countries strengthen NDC planning and mainstream climate goals into national development strategies, budgeting processes, and sectoral plans. The Hub also supports the preparation of investment plans and project pipelines aligned with NDC priorities and facilitates access to international climate finance.
Recent country-level activities include support to Burkina Faso in revising its NDC Investment Plan, assistance to Mozambique in updating its National Climate Change Strategy and developing an associated Investment and Implementation Plan, and collaboration with Zambia to prepare funding proposals to mobilise climate finance for NDC implementation. These examples illustrate the Hub’s role in linking high-level policy frameworks with concrete financing and implementation strategies.
One of the Hub’s distinguishing features is its focus on co-ordination, working to reduce fragmentation across partners and ensure that country needs are matched with targeted and timely support. It also serves as a knowledge platform, enabling peer learning and the dissemination of good practices across the continent. By aligning partner support and providing hands-on technical and financial assistance, the Africa NDC Hub plays a central role in helping African countries turn climate commitments into concrete, implementable actions.
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Notes
Copy link to Notes← 1. There is no universally agreed definition of what constitutes a "financing" or "investment" strategy in the international climate finance space. In practice, a variety of terms are used interchangeably, including financing frameworks, investment roadmaps, financing plans, and others, each reflecting different country contexts and institutional preferences. For the sake of simplicity, the terms "financing or investment strategies" are used throughout this text.