International climate finance

The climate crisis is a global phenomenon. We need to cut emissions all over the world – lowering them in the EU alone is not enough. As such, the EU is proud to partner with developing economies to provide them with the support they need to mitigate and adapt to climate change.

The EU, its Member States and the European Investment Bank are together the biggest contributor of public climate finance to developing economies, providing €23.04 billion in 2021.

They are also the world’s top provider of official development assistance (a total €67 billion in 2020), with action to combat climate change being increasingly integrated into this assistance.

Under the Paris Agreement, multiple countries around the world committed to making finance flows consistent with a low-emission, climate-resilient pathway, to help achieve our long-term climate goals.

In this context, the EU has launched an ambitious Action Plan on Financing Sustainable Growth as well as a strategy for financing the transition to a sustainable economy. The EU also helps developing economies improve their conditions for mobilising low-carbon finance.

In October 2019, the EU together with Argentina, Canada, Chile, China, India, Kenya and Morocco (further countries have now joined), launched the International Platform on Sustainable Finance. The Platform aims to scale up the mobilisation of private capital for environmentally sustainable investment.

In 2021, the European Commission committed €2.50 billion to developing economies, with a significant share  it (almost 40%)  going to funds climate adaptation activities.

Furthermore, while 20% of the whole EU budget for 2014-2020 was spent on climate-related projects – this target has become 30% for 2021-2027 and 35% for the  Neighbourhood, Development and International Cooperation Instrument (NDICI).

In addition, the European Investment Bank provided €2.56 billion in climate finance to developing economies in 2021. It finances, for example, energy efficiency and renewable energy projects in Africa and other regions, and often blends funds with those from the Commission and national agencies in EU countries.

The main channel for EU support for policy dialogue and specific, targeted climate action in developing economies was the Global Climate Change Alliance Plus (GCCA+). This initiative ran from 2014 to 2020 and projects are currently being finalised.

Grant funding for this initiative increased from €317.5 million in the first phase (2007-2014) to €420 million in the second phase (2014-2020).

The GCCA+ had a strong focus on the Least Developed Countries and Small Island Developing States (SIDS), as these are most vulnerable to climate change.

The overall objective was to promote policy dialogue and cooperation on climate change between the EU and developing economies.

Priority areas:

• incorporating climate change into multiple aspects of national development strategies
• increasing resilience to climate change impacts
• helping countries formulate and implement adaptation and mitigation strategies
• helping them prepare and finance bankable (that is, cost-effective) climate-relevant development projects.

The European Fund for Sustainable Development Plus (EFSD+) is part of the EU’s investment framework for countries outside the EU. It ensures world-wide coverage for a range of financial operations. It is included in the EU’s long-term budget programme for external action: Global Europe – NDICI.

It is a comprehensive instrument that includes various means to support the development of partner countries, like:

• guarantees
• grants provided through ‘blending’ (a mix of EU grants and commercial bank loans)
• technical assistance to help partner countries improve the quality of their projects and implement reforms

EFSD+ will raise financial resources for sustainable and inclusive development from the private sector. It will support investment in partner countries to promote decent job creation, strengthen public and private infrastructure, promote renewable energy and sustainable agriculture, and support the digital economy.

The investment framework also includes the External Action Guarantee, which boosts EU funding for sustainable development to €53 billion.

The External Action Guarantee has a capacity of €39.8 billion to guarantee EFSD+ operations. Together with the private sector and thanks to the leverage effect, this may mobilise 200 billion euros in investment in 2021-2027.

The EU remains committed to contributing towards the developed economies’ goal of jointly mobilising from different sources $100 billion per year up to 2025 to support developing economies.

The funding comes from a wide variety of sources – public and private, bilateral and multilateral, and alternative sources of finance – in the context of meaningful mitigation action and transparent implementation by developing economies.

The EU is calling for existing and potential contributors to also finance climate action in developing economies in line with their respective capabilities and responsibilities.

In September 2022, the OECD published a report on developed economies’ finance for climate action in developing economies. It shows that developed economies are making progress on climate finance and the indications are that the upward trend will continue. Climate finance to developing economies reached $83.3 billion in 2020, up from $58.6 billion in 2016.

The Green Climate Fund was set up in 2010 to help developing economies reduce their greenhouse gas emissions and adapt to climate change.

Since 2014, it has gathered initial pledges worth $10.3 billion. EU countries have pledged nearly half of this: $4.7 billion.

In the first Green Climate Fund replenishment in October 2019, 27 countries (most of which are EU countries) pledged to replenish the fund with an additional $9.78 billion equivalent for the next 4 years. By 31 May 2022, $5.5 billion of the pledged funds have been disbursed by the EU countries.

Some EU countries and regions also contribute about 95% of the annual voluntary pledges to ensure the functioning of the Adaptation Fund, which helps developing countries adapt to climate change. The European Commission pledged support for the Adaptation Fund worth €100 million at COP26 in 2021.

Countries need to attract additional public and private financing to transition to a climate-friendly economy and drive sustainable economic growth.

International climate finance should be used as a lever to incentivise climate-resilient and low-carbon investment, complementing domestic resources in developing economies.

The EU's approach is twofold:

• provide grant funding directly to the poorest and most vulnerable countries
• use grant funding to leverage private investment by combining grants with loans and equities from public and private sources, including bilateral and multilateral development banks

For example, the EU and its member countries have established a number of blending facilities that combine grant funding with loans, covering different regions.

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