Strengthening Collaboration to Scale Climate and Development Finance

This report, commissioned by the G20 Sustainable Finance Working Group under the 2025 South African G20 Presidency, examines how Vertical Climate and Environmental Funds (VCEFs), Multilateral Development Banks (MDBs), and National Development Banks (NDBs) can collaborate to scale climate finance. It identifies financial and non-financial barriers to cooperation and proposes a roadmap of short- and mid-term actions to improve interoperability, leverage local currency financing, and mobilize private capital to meet sustainable development and climate goals.

• Public climate finance is delivered through a diverse ecosystem of institutions with distinct roles: VCEFs (such as the GCF, GEF, Adaptation Fund, and CIF) provide primarily grant-based concessional finance; MDBs provide large-scale financing, mostly as loans, and delivered a record USD 125 billion in climate finance in 2023; and NDBs act as local intermediaries providing finance in local currency to align international funds with national priorities.
• Co-financing significantly increases the scale of climate projects, with VCEF-funded projects averaging USD 100 million when co-financed compared to USD 7 million without. Between 2019 and 2023, MDBs were the largest co-financing contributors to VCEFs, providing USD 17 billion with an average of USD 107 million per project, primarily through debt.
• There is a systemic investment gap for adaptation compared to mitigation. VCEF data from 2019 to 2023 shows that every VCEF dollar leveraged five dollars for mitigation but only three for adaptation. Additionally, middle-income countries (MICs) received 43% of co-financing and mobilization volumes, while low-income countries (LICs) received only 8%.
• Private finance mobilization is associated with larger project sizes; VCEF-funded projects with private sector investment averaged USD 135 million, whereas those financed only by public actors averaged USD 78 million. To further mobilize private capital, the report suggests using VCEF concessional capital to unlock MDB guarantees, which can leverage 6-25 times more financing than loans.
• Several operational barriers hinder collaboration between VCEFs, MDBs, and NDBs, including complex and time-consuming accreditation processes, slow project approvals and disbursements, and a lack of interoperability in due diligence. Information asymmetries and weak feedback mechanisms also lead to lost lessons and high transaction costs for private sector partners.
• The report recommends several short-term (1-2 years) and mid-term (3-4 years) actions to enhance the finance architecture. Key proposals include harmonizing due diligence to simplify private sector engagement, establishing dedicated VCEF funding for proposals involving unaccredited NDBs, and creating streamlined pathways from project preparation support to actual financing.

APA

Climate Policy Initiative (2025). Strengthening Collaboration to Scale Climate and Development Finance. https://www.climatepolicyinitiative.org/publication/strengthening-collaboration-to-scale-climate-and-development-finance/

Chicago

Climate Policy Initiative. Strengthening Collaboration to Scale Climate and Development Finance. 2025. https://www.climatepolicyinitiative.org/publication/strengthening-collaboration-to-scale-climate-and-development-finance/.

Wikipedia

{{cite report |author=Climate Policy Initiative |title=Strengthening Collaboration to Scale Climate and Development Finance |date=25 July 2025 |url=https://www.climatepolicyinitiative.org/publication/strengthening-collaboration-to-scale-climate-and-development-finance/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{climatepolicyinitiative2025strengthening, author = {{Climate Policy Initiative}}, title = {{Strengthening Collaboration to Scale Climate and Development Finance}}, institution = {Climate Policy Initiative}, year = {2025}, month = jul, url = {https://www.climatepolicyinitiative.org/publication/strengthening-collaboration-to-scale-climate-and-development-finance/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }