Progress and Challenges in Climate Finance Post-COP29: A Focus on Sustainable Development Goals

The 2025 London Climate Action Week centers on enhancing climate ambition en route to COP30 by fostering cooperation, politics, diplomacy, and finance aligned with limiting global warming to 1.5°C. Central to this objective is climate finance, a critical enabler for achieving multiple Sustainable Development Goals (SDGs), particularly SDG 13 (Climate Action), SDG 7 (Affordable and Clean Energy), and SDG 17 (Partnerships for the Goals).

New Climate Finance Goals and Their Implications

At COP29 in November 2024, developed countries agreed on a new collective quantified goal (NCQG) to increase climate finance flows to US$300 billion annually by 2035. This target, triple the previous US$100 billion goal set at COP21, remains insufficient compared to the estimated US$2.7 trillion annual financing needs of developing countries (excluding China) by 2030.

• SDG Alignment: The NCQG supports SDG 13 by mobilizing resources to combat climate change and its impacts.
• Financing Gap: The US$300 billion target represents only 0.1% of the required funding, highlighting a significant gap in achieving SDG 1 (No Poverty) and SDG 10 (Reduced Inequalities) through climate resilience.

Market and Political Developments Since COP29

The first half of 2025 has seen volatility in global financial markets, influenced by political and regulatory changes in major economies such as the United States and the European Union. These shifts have introduced uncertainties affecting climate finance flows and the broader SDG agenda.

1. United States Policy Changes:
   • Revocation of the international climate finance plan, eliminating US$11 billion annually (8% of global climate finance in 2024).
   • Suspension of foreign aid including nearly all climate-related funding through USAID (approximately US$3 billion in 2023).
   • Withdrawal of US$4 billion from the United Nations Green Climate Fund.
   • Impact: A total reduction of US$18 billion in climate finance, about 6% of the NCQG target, undermining SDG 17 and SDG 13.
2. European Union Regulatory Adjustments:
   • Introduction of the Omnibus Package revising sustainability regulations including CSRD, CSDDD, and Taxonomy Delegated Act.
   • Mixed responses from corporates and financial institutions regarding potential dilution of climate transparency.
   • Concerns over voluntary disclosures possibly weakening corporate sustainability ambitions and investor information quality, affecting SDG 12 (Responsible Consumption and Production).

Impact on Global Financial Alliances and Institutional Commitments

Regulatory and political shifts have influenced global climate finance alliances and institutional commitments, with implications for SDG 17 and SDG 9 (Industry, Innovation, and Infrastructure):

• Net Zero Banking Alliance (NZBA): Experienced member departures, including US banks and European institutions like Triodos, due to weakened climate targets and political pressures.
• Net Zero Asset Managers Initiative (NZAM): Suspended operations following high-profile exits and political scrutiny, raising concerns about the continuity of climate finance commitments.
• Individual Financial Institutions: Examples include HSBC delaying its 2030 net zero target to 2050 and RBC abandoning its US$500 billion sustainable finance goal, reflecting challenges in balancing ambition with regulatory realities.

Assessing Progress Towards the NCQG

Despite political setbacks, some institutional actors show progress in climate finance contributions:

1. Historical Data and Projections:
   • Developed countries contributed US$116 billion in 2022 towards climate finance for developing nations (OECD data).
   • A linear trajectory suggests a need for approximately US$160 billion in 2025 to stay on track for the US$300 billion target by 2035.
2. World Bank Contributions:
   • On track to allocate 45% of its FY2025 lending (approx. US$52.9 billion) to climate finance.
   • This represents nearly one-third of the 2025 target, emphasizing the role of multilateral funding in SDG 17.
3. Challenges:
   • US policy reversals reduce the available climate finance pool, creating uncertainty and deterring private capital.
   • Heavy reliance on a few major actors increases concentration risk, affecting the stability of climate finance flows.

Call to Action: Accelerating Climate Finance for Sustainable Development

Climate change poses existential risks that intersect with financial systems, making climate risk an integral component of credit, liquidity, and market risks. Addressing these risks aligns with SDG 13 and reinforces the necessity of integrating climate considerations into fiduciary duties.

Key Recommendations for Stakeholders

• Financial Institutions and Corporates: Maintain and enhance transparency and robust sustainability disclosures to build investor confidence and mobilize capital aligned with climate goals.
• Policy Makers: Avoid short-term policy reversals that undermine long-term climate finance commitments and SDG progress.
• Global Partnerships: Strengthen collaborations across public and private sectors to scale up climate finance in line with the NCQG and SDG 17.

Collective, decisive, and ambitious action is imperative to accelerate climate finance flows and meet the challenges posed by climate change. The cost of delay extends beyond financial implications to threaten the very existence of ecosystems and communities worldwide.

Source: Adapted from an op-ed first published on Carbon Trust Insights. Pietro Rocco, Head of Sustainable Finance, and Toby Kwan, Senior Manager, Green Finance at Carbon Trust.

1. Sustainable Development Goals (SDGs) Addressed or Connected to the Issues Highlighted in the Article

1. SDG 13: Climate Action
   • The article focuses extensively on climate finance, climate ambition, and the global efforts to limit temperature rise to 1.5°C, directly relating to SDG 13.
2. SDG 17: Partnerships for the Goals
   • The article discusses international cooperation, climate finance commitments by developed countries, and multilateral funding mechanisms such as the United Nations Green Climate Fund and the World Bank, which align with SDG 17.
3. SDG 8: Decent Work and Economic Growth
   • References to financial markets, regulatory changes, and sustainable finance goals implicate economic growth and the transition to sustainable economic models.
4. SDG 12: Responsible Consumption and Production
   • Discussions on corporate sustainability reporting and transparency touch on responsible production and consumption patterns.

2. Specific Targets Under Those SDGs Identified Based on the Article’s Content

1. SDG 13: Climate Action
   • Target 13.2: Integrate climate change measures into national policies, strategies, and planning – implied by the discussion of national climate finance commitments and policy shifts.
   • Target 13.a: Implement the commitment undertaken by developed-country parties to the United Nations Framework Convention on Climate Change (UNFCCC) to mobilize jointly $100 billion annually by 2020 to address the needs of developing countries – extended in the article to the new collective quantified goal (NCQG) of US$300 billion annually by 2035.
2. SDG 17: Partnerships for the Goals
   • Target 17.3: Mobilize additional financial resources for developing countries from multiple sources – reflected in the article’s emphasis on climate finance flows and multilateral funding.
   • Target 17.14: Enhance policy coherence for sustainable development – connected to the regulatory and political shifts discussed.
3. SDG 8: Decent Work and Economic Growth
   • Target 8.4: Improve progressively, through 2030, global resource efficiency in consumption and production – linked to sustainable finance and corporate sustainability reporting.
4. SDG 12: Responsible Consumption and Production
   • Target 12.6: Encourage companies to adopt sustainable practices and to integrate sustainability information into their reporting cycle – directly related to the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) discussed.

3. Indicators Mentioned or Implied in the Article to Measure Progress Towards the Identified Targets

1. Climate Finance Amounts
   • Indicator related to SDG 13.a and 17.3: The annual amount of climate finance mobilized by developed countries to developing countries, e.g., the US$300 billion annual target by 2035 and historical figures such as US$116 billion in 2022.
2. Percentage of Lending Allocated to Climate Finance
   • Indicator related to SDG 17.3: The World Bank’s goal of allocating 45% of its total lending to climate finance, translating to approximately US$52.9 billion in FY2025.
3. Corporate Sustainability Reporting Compliance
   • Indicator related to SDG 12.6: The extent and quality of corporate sustainability disclosures under regulations such as CSRD and CSDDD, and the impact of regulatory changes on transparency and reporting timelines.
4. Net Zero Commitments and Targets
   • Indicator related to SDG 13.2 and 8.4: Progress of financial institutions and corporations towards net zero targets, e.g., HSBC delaying its 2030 target to 2050, and the Net Zero Banking Alliance’s shift from 1.5°C alignment to ‘well below 2°C’.
5. Political and Regulatory Stability
   • Implied indicator: The stability and consistency of climate finance policies and international commitments, which affect the mobilization and flow of climate finance.

4. Table: SDGs, Targets and Indicators

Source: eco-business.com