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The landscape of global climate finance has undergone significant transformations in the wake of policy changes in the United States and the European Union, altering the course of international funding flows and the realization of climate finance targets.
**United States: Policy Reversals and Funding Cuts**
The new US administration has taken a drastic turn from previous commitments, revoking its international climate finance plan, which had pledged $11 billion annually, accounting for about 8% of global climate finance in 2024. This decision has resulted in a loss of at least $18 billion in climate finance, equivalent to 6% of the new global annual target of $300 billion agreed at COP29.
Furthermore, the administration has halted nearly all climate-related funding through the US Agency for International Development (USAID) and withdrawn $4 billion from the United Nations Green Climate Fund. These actions have left a substantial gap in the overall pool of available financing.
**European Union: Regulatory and Policy Adjustments**
In contrast, the European Union has introduced its Omnibus Package at the start of 2025, aiming to simplify sustainability regulations such as the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the draft Taxonomy Delegated Act. The changes are intended to make sustainability reporting and due diligence less burdensome for businesses, potentially encouraging more private sector involvement in climate finance.
**Global Climate Finance Commitments: The Bigger Picture**
At COP29 in Azerbaijan, developed nations agreed to increase climate finance to $300 billion per year by 2035, though this figure is seen as insufficient given the estimated $1.3 trillion per year needed by developing countries (excluding China) for climate adaptation and energy transition.
The private sector and multilateral development banks are increasingly viewed as critical to bridging this gap, but their contributions are limited compared to the scale of need, and private investment often prioritizes profit over resilience and justice.
**Conclusion**
The withdrawal of US funding and the EU's regulatory shifts have introduced new uncertainties into global climate finance flows. While the EU aims to streamline private sector participation, the overall reduction in public funding—particularly from the US—has made it more challenging to reach even the modest new targets set at COP29, let alone the much higher sums required by developing countries.
The cost of delay in addressing climate change is existential. To reach the US$300 billion target by 2035, we will need to reach around $160 billion in 2025. The Net Zero Banking Alliance (NZBA) experienced a wave of departures, with US banks exiting in response to domestic political instability and pressure to align with the new administration's policy ambitions.
Individual financial institutions like HSBC and RBC have scaled back their climate commitments, with HSBC delaying its 2030 net zero target to 2050 and RBC dropping its $500 billion sustainable finance goal.
The article underscores the need for financial institutions, corporates, and public entities to act decisively, ambitiously, and collectively on climate finance. The theme for London Climate Action Week 2025 is focused on building climate ambition towards COP30, with the new collective quantified goal (NCQG) of $300 billion annually by 2035 at the forefront of discussions.
The World Bank and the US administration are major sources of climate financing with outsized influence on achieving the NCQG. Developing countries (excluding China) need annually by 2030 $2.7 trillion of climate financing, and the new NCQG only covers 10% of this amount.
The article was first published on Carbon Trust Insights, highlighting the urgent need for concerted action on climate finance.
- The landscape of global climate finance has transformed significantly due to policy changes in the United States and the European Union, altering global funding flows and the realization of climate finance targets.
- The new US administration has revoked its international climate finance plan, causing a $18 billion loss in climate finance, equivalent to 6% of the new global annual target of $300 billion agreed at COP29.
- The European Union has introduced regulations such as the CSRD, CSDDD, and the draft Taxonomy Delegated Act to streamline sustainability reporting and due diligence, aiming to encourage private sector involvement in climate finance.
- Reaching the $300 billion target by 2035, estimated at around $160 billion in 2025, requires decisive, ambitious, and collective action from financial institutions, corporates, and public entities.
- Greenwashing remains a concern as private investment often prioritizes profit over resilience and justice, limiting the contribution of the private sector and multilateral development banks in bridging the gap between the global climate finance target and the much higher sums required by developing countries.
- Science plays a crucial role in informing climate policies, finances, and strategies, as the cost of delay in addressing climate change is existential.
- Policy-and-legislation and politics have a significant impact on the commitment and actions of financial institutions, corporates, and public entities in terms of climate finance.
- The landscape of global climate finance continues to be a topic of general interest and importance, as highlighted by the theme for London Climate Action Week 2025, building climate ambition towards COP30, with the new collective quantified goal (NCQG) of $300 billion annually by 2035 at the forefront of discussions.
