How private capital is driving the climate agenda
· 10 min read
This article is part of the Sustainable Finance Guide, a new series by Globalfields in collaboration with illuminem. Together, we provide readers with clear, educational insights into where sustainable finance stands today and how it is evolving to support nature, regeneration, and long-term resilience.
As climate risks intensify and investment needs escalate, commercial capital is playing an increasingly crucial role in closing the climate finance gap in accordance with the new collective quantified goal, or "NCQG”, which aims to achieve the goals of the Paris Agreement and subsequent UNFCCC commitments [1].
At the same time, recent geopolitical constraints on public climate finance have heightened the role of the private sector as a key actor in addressing the climate financing gap. The most recent estimates show that in order to achieve climate targets, EMDEs must mobilise USD 2.4 trillion annually by 2030 to meet their greenhouse gas mitigation targets and adapt to climate-related disasters - of which approximately USD 1 trillion must come from private sources [2].
Over the past decade, the establishment of the Green Climate Fund, the concentrated effort of Multilateral Development Banks (MDBs) and other public actors has led to the mobilisation of unprecedented shares of concessional capital to de-risk and incentivise private sector participation.
While private capital has begun to occupy a larger share of annually mobilised climate finance in recent years,, its contributions have been limited and slow to materialise [3]. International private finance mobilised for the EMDEs rose from USD 17 billion in 2021 to USD 36 billion in 2023, but still forms a small part of total climate finance and must grow 28-fold to reach USD 1 trillion annually by 2030 to meet the needs of these countries [4].
The narrative around climate finance and climate action is changing. Climate is no longer seen as a peripheral environmental issue; it is now recognised as a systemic financial risk, which needs to be reflected in the private sector’s portfolio allocations, especially in EMDEs [5]. Currently, the private sector manages more than USD 210 trillion in assets, which represents an unmatched opportunity for delivering investments at scale for climate, spanning clean energy, sustainable transport, green infrastructure and climate-resilient agriculture [6].
To mobilise private capital effectively, a systematic approach is needed - one that includes investment-friendly instruments and a strong pipeline of bankable projects driven by data transparency and local market insights.
Although the proportion of private capital within overall climate finance is increasing, its allocation remains uneven. It remains concentrated in regions and sectors that do not necessarily correspond to the areas of greatest need.
Total private climate finance (incorporating finance mobilised both in EMDEs and industrialised economies) rose to USD 1 trillion in the 2018- 2023 period, experiencing a compound annual growth of approximately 30%, and outpacing 18% growth in public finance over this period, as illustrated in Figure 1.
Figure 1: Climate finance public-private split [7]
Private finance primarily came from commercial financial institutions (FIs), corporations and households. Commercial FIs’ climate finance for energy systems almost doubled to over USD 250 billion over this period, representing 45% of total private finance in this sector. Across advanced economies and EMDEs in Latin America and the Caribbean and the Middle East, commercial FIs’ increased investments have largely been in wind infrastructure and solar PV, as prices of components continue to fall [8].
Private financing was almost evenly split between debt and equity, with concessional finance representing just 0.2% of the overall total. While debt instruments remain more prevalent, innovations such as carbon credit-backed loans and climate resilience bonds are being piloted in developing regions more than in previous years, as the latest comprehensive data from 2023 suggests [9].
Figure 2: Climate finance instruments by sector in 2023 [ibid]
Private climate finance to EMDEs more than doubled from 2021 to 2023, reaching USD 187 billion in 2023 - over 80% of all private climate finance [10][11]. However, international finance remains limited, making up just 19% of the total in 2023 [12].
The Climate Policy Initiative (2023) shows that finance is concentrated among a few investor types: commercial and investment banks (40%), corporates (35%), and institutional investors (1%), as illustrated in Figure 3. Philanthropies and private equity make up just 2%, with the latter constrained by small, fragmented projects and high risk [13][14][15].
Figure 3: Private climate finance flows to EMDEs, by investor type (2023)
Across most EMDEs, private climate finance remains predominantly directed toward mitigation activities. As expected, the energy sector continues to attract the largest share of private capital. Nonetheless, certain regions are beginning to exhibit early signs of diversification. In the Middle East and North Africa (MENA), for instance, adaptation finance accounted for approximately 4% of total private climate flows - higher than the global average - while mitigation continued to dominate with around 87%. This relatively stronger adaptation focus is likely driven by the region’s acute exposure to climate risks such as extreme heat and chronic water scarcity [16].
Figure 4: Regional distribution of private climate finance in EMDEs, by investment sector (2023)
The barriers for mobilising private capital have been well-studied: insufficient investable projects, inadequate matchmaking between project supply and investor demand, limited financial market development, heightened political and foreign exchange risks, and high cost of capital.
A persistent issue in private climate financing is the limited availability of a viable pipeline of mitigation and adaptation projects in EMDEs. A global survey of around 45 private investors conducted by the World Economic Forum in 2024 found that lack of bankable pipelines was cited as the leading challenge for 37% of investors. Another recurring theme from the survey is the critical need for reliable, standardised and accessible data to support climate investment decisions in EMDEs, highlighted by 28% of respondents
In many EMDEs, structural barriers continue to limit domestic capital flows, as institutional investors such as pension funds, insurers, and sovereign wealth funds are constrained by mandates that prioritise liquidity and capital preservation. Prudential regulations and risk-weighted capital requirements reinforce a preference for sovereign debt and short-term assets. As a result, institutional investors are systematically underrepresented in EMDE equity markets, accounting for only 12% ownership [17].
Better financial data, strong project pipelines, robust climate risk integration, and aligning national priorities with private investors all enhance investment attractiveness and impact.
Regulatory and policy uncertainty remains one of the most persistent barriers to mobilising private climate finance in EMDEs. Institutional investors frequently cite unclear investment regulations, opaque tax regimes and inconsistent climate policy commitments as key deterrents. These uncertainties elevate perceived risk, inflate due diligence costs and undermine investor confidence, particularly in markets with limited institutional depth and legal recourse [18].
COP30 in Belém in November 2025 has triggered the submission of a new round of updated Nationally Determined Contributions (NDC 3.0) to the UNFCCC. This new generation of NDCs presents a pivotal opportunity for scaling both private and public climate financing. However, many NDCs remain high-level ambitions rather than actionable plans. In order to mobilise capital, NDCs must move beyond headline targets and become or include detailed, sector-specific and operational investment roadmaps that align with national infrastructure development and emissions reduction priorities.
Investment policy reforms and country platforms can turn climate goals into investable opportunities, a concept endorsed by the World Bank and G20 Finance Ministers. Country platforms facilitate coordination among development finance stakeholders, addressing the current fragmentation in project support. By linking long-term investment plans to NDCs, these platforms encourage alignment between donors, DFIs, and MDBs. They focus on catalytic finance, guarantees, and technical assistance, while creating a collaborative environment for private investors during project preparation [19].
Mobilising private finance for climate adaptation remains a challenge. Unlike mitigation projects, which offer clear, measurable returns, adaptation initiatives primarily deliver long-term public benefits, making them harder to finance (see Article 3.2 for more detail). Loss and damage projects, in particular, often lack direct revenue potential, limiting private involvement to insurance and risk transfer mechanisms. To scale investment in EMDEs, innovative solutions are needed to engage private investors.
Attracting capital may require targeted regulatory measures and strong de-risking support from public and multilateral institutions to improve the risk-return profile [20]. Blended finance, combining concessional funding with commercial finance, has been key in unlocking adaptation investment. It is expected to play an even larger role in the coming years (see next article). Additionally, cross-cutting projects that deliver both adaptation and mitigation benefits offer a more compelling investment case (see Article 3.3). Between 2014-2023, mitigation projects had a leverage ratio of 3.6, while cross-cutting projects and adaptation projects had ratios of 2.8 and 2.12, respectively. Expanding these integrated models could help bridge the adaptation finance gap and deliver sustainable, resilient outcomes [21].
Private capital is central to how the climate agenda is financed and delivered.
With public finance constrained and climate risks intensifying, commercial banks, corporates and financial institutions are beginning to respond, particularly in mitigation-heavy sectors, such as renewable energy. Private capital, therefore, presents a critical opportunity to fund climate solutions at speed and scale.
However, private capital, as it currently operates, is not yet flowing to where it is most required.
Climate finance remains unevenly distributed, concentrated in familiar sectors and lower-risk geographies. Despite facing greater climate vulnerabilities, emerging and developing economies continue to receive a disproportionately smaller share. Structural barriers persist in private capital flows such as weak project pipelines, regulatory uncertainty and high costs of capital.
It is precisely these constraints that elevate the potential of blended finance in the sustainable finance ecosystem. The next article explores in further detail how public and philanthropic resources can be used to de-risk private investment, how multilateral banks and climate funds can deploy these instruments, and why concessional capital has become one of the most powerful, and often misunderstood, drivers of systemic climate transformation.
The views expressed are for informational purposes only and do not constitute financial, legal, or investment advice.
Start your journey with the Sustainable Finance Guide and explore the series reshaping how we think about money, markets and our planet. View the full guide content here.
Looking for more information on sustainable finance and what it means for your business or school? Check Globalfields' new pages here.
Curious how major companies measure up on climate? On illuminem’s Data Hub™, explore verified emissions data, net‑zero targets, and sustainability performance of thousands of firms — from industry leaders to emerging innovators.
Filip Koprčina
Energy Transition · Sustainable Investment
illuminem briefings
Sustainable Finance · Public Governance
illuminem briefings
ESG · Sustainable Finance
Green Central Banking
Public Governance · Sustainable Finance
ESG Today
Sustainable Finance · Corporate Governance
Inside Climate News
Public Governance · Sustainable Investment