What Is Climate Finance?

The growing importance of climate finance at COP summits stems from a fundamental question: What resources will be used to turn countries’ announced targets into action?

The transformation of energy, industry, transportation, and urban infrastructure requires large-scale, long-term investments. At the same time, there are significant differences between countries in terms of fiscal capacity, debt burdens, and access to finance. For this reason, who provides the funding, under what conditions it is offered, and whether it reaches the regions with the greatest needs all play a decisive role in shaping global climate cooperation.

Climate finance does not come from a single fund or institution; it consists of a diverse range of sources. National budgets, bilateral support provided by developed countries, multilateral development banks, international climate funds, commercial banks, and investment institutions all form part of the climate finance landscape. Public resources are particularly important in areas with limited revenue-generating capacity, high social benefits, or risks that may make them less attractive to private investors.

For more detailed information about COP summits, you can take a look at our article on the subject.

Development banks facilitate the implementation of large-scale infrastructure investments by providing long-term loans, technical assistance, and risk-sharing mechanisms. Private capital, meanwhile, can create scale in areas with revenue-generating potential, such as renewable energy, energy storage, clean transportation, and low-carbon production. Public financing plays a greater role in areas such as water security, disaster preparedness, and the protection of vulnerable communities.

In some projects, public funding assumes the initial risk, paving the way for private investment. Known as blended finance, this approach brings public resources, development finance, and private capital together within the same financing structure. As a result, investment costs can be reduced while larger amounts of capital can be mobilized.

The terms and conditions of financing are just as important as the amount of funding provided. Grants offer critical support to countries, local governments, and vulnerable communities with limited repayment capacity. Concessional loans provide longer repayment periods and lower financing costs. Guarantees assume part of the currency, repayment, or project risk, thereby increasing investor confidence. Equity investments also contribute to the development of new technologies.

Climate finance has been one of the central issues in negotiations under the United Nations Framework Convention on Climate Change (UNFCCC) for many years. One of the most significant milestones in this area came at COP15 in 2009, when developed countries committed to providing USD 100 billion annually in climate finance from 2020 onward to support mitigation and adaptation efforts in developing countries. Although this commitment was extended until 2025 under the Paris Agreement, there is no consensus on whether the target was actually met. The inclusion of existing development assistance as climate finance, the predominance of loans among financing sources, and difficulties in accessing funds are among the main issues underlying this debate.

Against this backdrop, Parties reached an agreement at COP29 on the New Collective Quantified Goal on Climate Finance (NCQG) for the post-2025 period. According to the adopted decision, climate finance provided and mobilized under the leadership of developed countries is to reach at least USD 300 billion annually by 2035. In addition, the decision calls for total climate finance from all sources—including public and private sector finance, multilateral development banks, and alternative financing mechanisms—to be scaled up to at least USD 1.3 trillion annually.

The targets established at COP29 aim not only to increase the volume of finance but also to facilitate access to funding, ensure that resources are provided in a predictable and transparent manner, and align their use with the priorities of developing countries. Therefore, as the process moves toward COP31, negotiations will focus on establishing a roadmap for implementing the New Collective Quantified Goal on Climate Finance, clarifying how the USD 300 billion annual commitment will be delivered, and effectively mobilizing public- and private-sector instruments to support the global annual climate finance target of USD 1.3 trillion.

Despite growing climate finance targets, the quality, distribution, and speed at which resources reach the ground continue to create significant challenges. The financing instrument used, the projects it supports, and its impact on the financial structures of recipient countries are just as important as the overall amount of funding.

Climate finance is provided through both loans and grants. However, the fact that a significant share of resources is provided in the form of loans can create additional pressure on countries already facing high debt burdens. Grants and concessional financing are particularly important for adaptation and loss and damage efforts that do not generate sufficient revenue to repay loans. Large headline figures announced without taking interest rates, repayment periods, and currency risks into account may not accurately reflect the real value received by the recipient country.

For more information, take a look at our blog post, “What Is a Carbon Credit?”

To strengthen access to funds for local governments and smaller institutions, it is important to simplify application processes, clarify reporting requirements, and increase access to technical expertise. Reliable data, feasibility studies, impact assessments, and viable financial plans make it easier to transform climate needs into finance-ready projects.

Guarantees, insurance instruments, and risk-sharing mechanisms provided by development banks can reduce the cost of clean energy investments in developing countries and help mobilize greater amounts of private capital. Accelerating the processes from commitment and approval to actual disbursement can also help resources reach the ground more quickly. Transparent reporting and independent impact measurement, meanwhile, increase the transparency of climate finance, ensure that climate contributions are accurately tracked, and strengthen investor confidence.

For climate finance to succeed, national targets must be translated into investment-ready projects. A project’s technical feasibility, financial model, climate impact, and implementation timeline should be developed together. When public institutions, development banks, companies, and local governments work with the same data, it becomes easier to direct resources toward the right projects.

Success should be measured by more than the amount of money spent. Emissions reductions, protected water resources, strengthened infrastructure, jobs created, and the number of households supported should all be monitored together. Involving local communities in decision-making processes also helps ensure that investments are aligned with regional needs.

For more information, read our article “What Is a Green Economy?”

The fact that COP31 will be held in Antalya gives Türkiye an opportunity to demonstrate its implementation capacity in the field of climate finance. Türkiye has significant investment needs across energy, industry, transportation, its building stock, agriculture, and water management. Bringing these needs together with international financing will require strong project pipelines, transparent measurement systems, and effective coordination among institutions.

Antalya provides a strong setting for this discussion. Tourism intensity, growing energy and water demand, wildfire risks, agricultural production, and urban infrastructure intersect within the same geography. Energy efficiency, renewable energy, smart destination management, climate-resilient infrastructure, and water conservation projects can be addressed through an integrated financing approach.

The strong message Türkiye should deliver at COP31 is one that clearly demonstrates which investments are ready, how financing will be managed, how results will be measured, and how successful models can be replicated in other cities. The true value of climate finance will ultimately be reflected in cleaner energy systems, more resilient cities, protected livelihoods, and reduced vulnerability.

For more detailed information about COP31 Antalya, you can check out this article.