by Lino Sau[1]
The recent COP30, held in November 2025 in Belém, in Brazil, brought together nearly 200 countries to negotiate and strengthen global climate action, focusing not only on the implementation of the Paris Agreement, adaptation, and protection of the Amazon, but also pushing for greater climate ambition and emphasizing the fundamental role of climate and green finance.
As I will try to show, it is therefore important to analyse the role of the financial system in supporting this transition: both public and private financing channels are in fact necessary for the implementation and launch of the green transition.
As a starting point, it is necessary to define climate and green finance and highlight some of the differences between them, since they are indeed two terms that are often used interchangeably in the context of sustainable finance, but they have different meanings and applications.
Climate Finance is a financing mechanism aimed at supporting the measures needed to mitigate and adapt to climate change. This topic is committed to raising and managing financial resources for environmental projects, with a view to promoting sustainable development and mitigating human impact on the climate. Climate finance refers, on one hand and specifically, to financing for projects, strategies, and policies that aim to mitigate the impact of climate change and promote forms of adaptation. This includes projects such as renewable energy, energy efficiency, forest management, and sustainable agriculture. The focus of climate finance is primarily on climate issues and the mitigation of greenhouse gas emissions.
Green finance, on the other hand, covers a broader scope and refers to the financing of projects that benefit not only the climate but also the environment in general. This includes projects related to biodiversity conservation, air and water pollution, waste management, and recycling. In other words, while climate finance focuses exclusively on climate issues, green finance considers a wider range of environmental issues.
Now looking more deeply on the importance of climate finance in relation to climate in the current context, one can argue that climate finance is an essential factor in supporting the transition to low-carbon and climate-resilient economies, thus supporting the goal of limiting the global average temperature increase to below 2°C compared to pre-industrial levels. This sector goes beyond simple economic considerations, representing a key tool for stimulating sustainable and environmentally friendly interventions.
Climate finance is also a fundamental pillar of sustainable development, addressing global environmental and climate issues and ESG (Environmental, Social and Governance). This topic involves investments and financing directed at projects that mitigate or create the conditions for adaptation to climate change, and is a key element in achieving the Sustainable Development Goals (SDGs) set by the United Nations.
Climate finance can help reduce greenhouse gas emissions by promoting the use of renewable energy, improving energy efficiency, and encouraging sustainable agricultural practices. This directly supports the SDGs related to clean and affordable energy, climate action, and life on land. It can also help communities develop their capacity to adapt to climate change by financing projects that improve infrastructure resilience, promote sustainable water use, and protect vulnerable ecosystems. This directly links to the SDGs related to clean water and sanitation, sustainable cities and communities, and life below water.
Climate finance can also stimulate innovation and sustainable economic growth by financing green technologies and sustainable business practices, and plays a crucial role in promoting sustainable development in all its aspects. At the same time, to maximize its impact, it is essential that it be properly integrated into national and international development strategies and accompanied by appropriate policies and regulations.
Climate finance can come from a variety of sources: public (governments) or private (banks and investment funds), domestic or international, bilateral or multilateral. It can take a variety of forms, including grants and donations, green bonds, equity, debt swaps, guarantees, and concessional loans. It can also be used for a variety of activities, including mitigation (finance renewable energy, energy efficiency, sustainable agriculture, and forest management), adaptation (invest in projects that increase the resilience of ecosystems and communities to climate impacts (e.g., droughts, floods)), and resilience building. Climate Finance uses indeed a range of specific tools and methodologies to maximize the positive impact of its interventions. In addition, advanced methodologies are used to evaluate projects and measure their impact on the climate.
Governments have a key role to play. Through appropriate policies, they can indirectly encourage private investment in green projects (crowding-in effect), promote scientific research in the environmental field, and contribute to the process of defining standards for measuring the climate impact of various interventions.
In addition, governments can act directly as financiers of climate-related projects. As the effects of climate change are increasingly felt across all sectors of the economy, public budgets and other financing instruments are beginning to consider climate risk in their investment decisions, further broadening the definition of climate finance. Countries such as the Maldives, for example, consider all financing to be climate finance, as their entire economy and survival are so heavily dependent on climate resilience. As a result, efforts are increasing to redirect traditional development budgets towards financing climate action, particularly with regard to climate change adaptation.
In addition, governments can allocate funds for priority climate actions through their budget processes, such as those defined in their national climate commitments (known as Nationally Determined Contributions under the Paris Agreement), or issue sovereign green bonds to finance such projects. Sovereign bonds are loans that governments obtain from a group of investors in exchange for regular interest payments over a certain number of years. At the end of this period, when the bond matures, the government returns the initial investment to the investors.
Governments can also mobilize climate finance through emissions trading and carbon taxes. Through carbon trading, greenhouse gas emissions (GHG) are quantified into carbon credits that can be bought and sold. A tradable carbon credit is equivalent to one ton of carbon dioxide, or the equivalent amount of another greenhouse gas (GHG) reduced, sequestered, or avoided. Carbon credits can be purchased by countries or private companies that want to improve their greenhouse gas emission reduction efforts. Carbon taxes are typically applied to discourage the use of products and services with a high carbon footprint. For example, a tax can be applied to gasoline at the pump or to electricity generated from fossil fuels. The proceeds from these taxes can be used to invest in renewable energy, forest conservation, and other forms of climate action.
Banks and other financial institutions play also a crucial role in mobilizing the resources needed for climate finance. These actors can issue green bonds, offer credit on favourable terms for green projects, and invest directly in such projects. In addition, financial institutions can promote the dissemination of financial instruments. At the same time, in order to make these measures truly effective, the banking world needs tools that allow for effective impact measurement. This process makes it possible to assess the effectiveness of various interventions in terms of reducing greenhouse gas emissions and adapting to climate change. For this reason, various tools and methodologies have been developed to measure the climate impact of financed projects.
In this regard, the Net-Zero Banking Alliance (NZBA) is a pivot! This alliance (NZBA) was founded in April 2021 with 43 member banks and has since tripled in size, reaching over 120 members in 40 countries.
Since its inception, members have made a significant contribution to the creation of the internationally recognized “Guidelines for Setting Climate Goals for Banks” to achieve net-zero greenhouse gas emissions in line with the Paris Agreement.
Members also provided innovative guidance and analysis to help banks meet demands for transparency and credibility in climate-related information from regulators, investors, and civil society. By April 2024, over a hundred banks had launched individual, independent, sector-specific climate targets supported by this guidance. Many continue to develop and implement transition plans.
However, since December 2024 (and also while writing!) several banks unfortunately have left the Net Zero Banking Alliance (I shall point out this point later)
As to Investment funds, in particular, they play an important role and are key players in the development of climate finance. Through their investment strategies, they can channel substantial resources into green projects, help mobilize the resources needed to tackle climate change, and encourage the creation of new climate-related financial instruments.
The Climate Investment Funds (CIF), for instance, is a leading multilateral climate finance partnership that channels concessional finance through six multilateral development banks (MDBs) for both upstream advisory and downstream investment activities to support climate action.
The World Bank Group, including the International Finance Corporation, the African Development Bank, the Asian Development Bank, the European Development Bank, and the Inter-American Development Bank, are the implementing partners of CIF’s investments. CIF comprises two funds: the Clean Technology Fund (CTF) and the Strategic Climate Fund (SCF).
In the current complex and rapidly changing landscape, also international initiatives such as the United Nations’ Financing Climate Action and UNEP’s Climate Finance are working to chart a clear course towards increasingly green finance.
UNEP (United Nations Environment Programme) Climate Finance refers to all financial flows – public and private – aimed at addressing the causes and consequences of climate change, promoting investment in mitigation (emissions reduction) and adaptation (resilience building) projects, to steer economic decisions towards low-carbon and climate-resilient development, supporting global goals such as those of the Paris Agreement.
In summary, UNEP’s Climate Finance is a driver for shifting financial capital towards sustainable solutions, which is crucial for achieving the United Nations Sustainable Development Goals (SDGs) and implementing global climate commitments.
Developed countries often provide financial assistance to developing nations, recognizing differing capacities and historical responsibilities. Some multilateral funds that developing countries can access include the Green Climate Fund (GCF), the Global Environment Facility (GEF), and the Adaptation Fund (AF). These funds were established throughout the years as financial instruments of the United Nations Framework Convention on Climate Change (UNFCCC) to provide resources to developing countries.
Developing countries can access part of climate finance in the form of grants from the GEF, GCF, and AF. Governments and the private sector can also access concessional and market-based loans from financial institutions such as the World Bank, African Development Bank, and Inter-American Development Bank, among others. These grants and loans can be used to invest in projects that reduce, absorb, or prevent greenhouse gas (GHG) emissions, such as renewable energy power plants, electric buses, and forest conservation, or in projects that strengthen resilience to climate change, such as the creation of early warning systems, strengthening coastal protection, improving the resilience of agricultural and food systems, and building infrastructure that can withstand storms and floods.
Also, a rapid overview of climate finance and risk management is necessary since they are two closely interrelated concepts. While climate finance refers to the allocation of financial resources to projects or investments that contribute to climate change mitigation, risk management works to identify, assess, and manage risks, including those related to climate.
In the context of climate change, risks can be physical in nature, such as extreme weather events or long-term changes in climatic conditions, or they can be related to the transition to a low-carbon economy, such as regulatory or technological changes. Both types of risks can have a significant impact on the value of investments and financial returns.
Risk management in the context of climate finance involves the use of tools and techniques to assess and manage these risks. For example, it may include scenario analysis to assess the potential impact of various climate change scenarios on an investment, or the use of financial instruments such as insurance to manage physical risks.
Climate risk management is becoming increasingly important for investors, businesses, and regulators. Investors are becoming increasingly aware of climate-related risks and opportunities and are seeking to integrate climate considerations into their investment and risk management processes. Businesses are seeking to manage climate risks to protect their value and ensure their long-term resilience. Regulators are beginning to require greater transparency and disclosure of climate risks.
Last but not least, the relationship between climate finance and artificial intelligence (AI) is one of the most promising areas for addressing the global climate crisis. If climate finance also refers to financial flows to projects and initiatives aimed at climate change mitigation and adaptation, artificial intelligence, with its ability to analyse large amounts of data and identify complex patterns, can play a crucial role. First, AI can improve climate risk assessment. By analysing meteorological, geographical, and socio-economic data, AI algorithms can more accurately predict the impacts of climate change on specific regions or economic sectors. This allows investors to make more informed decisions and allocate funds more efficiently. Furthermore, artificial intelligence can optimize the allocation of financial resources. For example, through the use of predictive models, it is possible to identify the most promising renewable energy projects or the most effective mitigation technologies. This not only increases the effectiveness of investments, but also reduces the risk of project failure.
Artificial intelligence can also facilitate transparency and accountability in the climate finance sector by examining sustainability reports. Machine learning algorithms can monitor and verify the implementation of funded projects in real time, ensuring that funds are used appropriately and that climate goals are effectively achieved, for example by reducing the risks of greenwashing or greenhushing.
Finally, AI can help raise awareness and engage the public. Through sentiment and opinion analysis tools, it is possible to better understand the concerns and expectations of local communities and stakeholders, facilitating a more effective and inclusive dialogue on climate issues.
To conclude, despite significant progress, climate finance faces several challenges. These include the need to further increase the resources mobilized, ensure equitable access to finance for all countries, and improve mechanisms for measuring the climate impact of financed projects. Overcoming these challenges will be critical to ensuring a sustainable future for our planet.
Despite the several tools and methodologies available, the challenges for climate finance require a shared commitment from governments, banks, and financial institutions, as well as investment funds. The need for accurate measurement of the impact of climate finance is crucial to ensuring the effectiveness of interventions and meeting the needs of developing countries that are heavily dependent on this form of finance.
But the most significant challenges are closely linked to politics and politicians. In the summer 2025 agreement between climate change denier Donald Trump, who has returned to lead the United States of America, and the new von der Leyen administration, which, in order to contain the tariffs imposed by the former, has committed to massively increasing energy imports in an agreement that provides for $250 billion per year in oil, and nuclear fuels from the US over three years may represent a short-sighted approach, which effectively supports Trump’s strategy, which has once again taken the United States of America (alone responsible for 24% of cumulative emissions) out of the Paris Agreement.
And just as the Belem summit, COP30, which the US boycotted, was getting underway, the White House announced a new oil development plan, with concessions in the Gulf of Mexico, California, and even Alaska, about twenty of which would cover all offshore areas, including those in the High Arctic, an area more than 200 miles from the coast.
As I mentioned above the exodus from NZBA started on 6 December 2024, with Goldman Sachs becoming the first significant US bank to withdraw. Two weeks later, Wells Fargo followed. Subsequently, Citigroup and Bank of America declared their withdrawal on 31 December. The most recent departure in the US was Morgan Stanley, which happened on January 2. This was followed by the exit from five of the largest Canadian banks, namely TD Bank, Bank of Montreal, National Bank of Canada, Canadian Imperial Bank of Commerce and Scotiabank. Furthermore, five out of six Japanese banks have left the alliance, with Mizuho Financial Group being the most recent to leave along with the exit of Australian infrastructure financier Macquarie. Shortly after Trump’s election victory—but before he officially took office—six major U.S. banks (JP Morgan, Citigroup, Bank of America, Morgan Stanley, Wells Fargo, and Goldman Sachs) withdrew from the NZBA.
United States banks left the Alliance under increasing political and legal pressure from the US Republican Party, which portrayed ESG (Environment, Social, Governance) investments as a veiled attempt to boycott the fossil fuel industries. Last year, BlackRock, Vanguard, and State Street were sued by Texas and 10 other Republican-led states, which alleged that large asset managers violated antitrust laws through climate activism that reduced coal production and drove up energy prices. Now that the banking sector has retreated en masse, the credibility of voluntary climate finance initiatives is being called into question. Further, on 27 March 2025, the U.S. Securities and Exchange Commission (SEC) formally withdrew its defence of the Greenhouse Gas Disclosure Rule, which had been a cornerstone of climate-related financial transparency under the Biden administration.
The use of non-binding alliances is becoming increasingly unsustainable, with increasing legal risks and political backlash. For private finance to continue to be a critical component of the global response to climate change, robust and enforceable regulatory frameworks that protect climate action from policy change may be needed. The unravelling of the NZBA may signal that the era of voluntary climate commitments should be replaced by politically resilient, accountable and mandatory mechanisms that can sustain a climate-aligned banking system in volatile environments.
The NZBA continues to include major European and Asian institutions, and some institutions that have left continue to claim that they will independently pursue net-zero emissions strategies.
Now looking more closely at the ieefa.org report (2025) from COP30, we find many key financial expectations that open up many rather optimistic hopes: 1) A credible plan to meet the new $1.3 trillion climate finance goal; 2) A strong, new adaptation finance commitment; 3) Launch of new climate finance vehicles, including forest preservation and Just Transition Reform of multilateral development banks (MDBs) and other international finance architecture; 4) Transparency, accountability and institutional reform for climate finance flows.
Increasing funding to $1.3 trillion a year by 2035 requires far-reaching reforms; for this reason, the report from the circle of finance ministers identifies 5 strategic priorities:
Priority 1: Scaling up concessional finance and optimizing climate funds this is concerned with the creation of a transaction hub for transformative climate finance solutions (‘The Hub’) and with the acceleration of grid flexibility for high variable renewable energy (VRE) integration in countries that have joined the ‘Renewables in Latin America and the Caribbean’ (RELAC) initiative (AGF-RELAC).
Priority 2: Reforming MDBs to scale up sustainable finance that is the task Force on Credit Enhancement for Sustainability-linked Financing moves to a full implementation platform.
Priority 3: Strengthening national capacity and investment frameworks for climate finance that is: launch of a ‘Global Implementation Accelerator’ and the ‘Belem Mission to 1.5’ to help countries improve the ambition and execution of their NDCs ; boosting the NDC Partnership Work Programme 2026-2030 launched at COP30 (New Five-Year Roadmap for Collective Action for Climate); enhance National Platform Hub to connect Countries with technical assistance, provide Knowledge, and Funding; National Funding Localization Platforms (CPLFs) launched in two African countries; implement coalition for High-Ambition Multilevel Partnerships (CHAMPs) to strengthen collaboration between national and subnational governments; finally build a thriving global ecosystem of Southern Climate Technology Startup.
Priority 4: Development of scalable and innovative financial solutions for private capital mobilization for instance FX Edge will replicate and adapt its proven model to mitigate systemic foreign exchange barriers in new contexts; implement ready and resilient financial instruments (FIRREs) to utilize climate resilience debt clauses, contingent lines of credit, and risk transfer solutions; create promising avenues for streamlining climate finance and support for startups and SMEs in developing countries
Priority 5: Strengthening regulatory approaches for climate finance; implement global super-taxonomy regulatory approaches for climate finance (i.e. a global supertaxonomy to establish a common financial language for what counts as ‘sustainable’); creation and adoption of Paris-aligned transition plans; harmonization of carbon markets (GHG Protocol and International Organization for Standardization (ISO)); create a global alignment of carbon accounting; reinforce methodologies for the identification of environmental and climate expenditures in the public budget.
To conclude: it is certain that to prevent the financing of the transition from becoming a race to the bottom, characterized by political pressure, minimal transparency, and vague objectives, both the reforms and the instruments suggested and developed at COP30 in Belem should find urgent implementation.
[1] Department of Economics and Statistics “S. Cognetti de Martiis”, University of Torino, and OEET.
