About this Opportunity
Financing the implementation of NDCs will require the use of multiple financial instruments and the strategic use of limited public finance to mobilize domestic and international private sector investments at scale. Building on the assessment and prioritization of investments, it is beneficial to conduct an in-depth evaluation of the landscape of financial sources and instruments available in the country and how to strategically finance the different NDC investment needs.
Common Financial Instruments
Some of the most common financial instruments available at the international and domestic level (with grants primarily from public sector and philanthropies, loans primarily from development finance institutions [DFIs], international finance institutions [IFIs] and commercial banks, and equity primarily from private businesses and state-owned entities [SOEs]) to finance the development and implementation of NDCs are summarized below (see A, B, C and D in table). This information draws in part from the Global Landscape of Climate-Finance 2023 (Climate Policy Initiative, 2023). Additionally, taxes and subsidies (see E and F) and certain de-risking and catalytic instruments, in addition to grants (see G, H and J), as well as carbon offsetting (see I), have been included to further diversify and blend funding sources and explore new avenues for financing.
| Example of Financial Instrument | Summary | Domestic/ International |
| A. Grants | Transfers made in cash, goods or services for which no repayment is required. These are often provided by governments, international organizations, or philanthropic institutions to support various climate-related projects. | International |
| B. Debt (e.g., loans) | Transfers made in cash for which repayment is required. Concessional loans have more favorable terms and conditions than standard market loans. Loans are issued by governments, international financial institutions, or commercial banks to finance climate projects, infrastructure, or business activities. | Domestic/International |
| C. Debt (e.g., bonds) | Debt securities that involve transfer of funds from an investor to a borrower — typically, governments or corporations. “Green bonds” are specifically issued to finance climate-related or environmental projects. Governments and corporations issue bonds to raise capital for various projects contributing to environmental sustainability. (Source: Climate Bonds Initiative) Bonds can also be issued more specifically to finance green infrastructure projects such as renewable energy installations, sustainable transportation systems, or energy-efficient buildings. Such “green infrastructure bonds” provide capital for climate-resilient infrastructure development and mitigation projects worldwide. (Source: Climate Development and Knowledge Network (CDKN)) | Domestic/International |
| D. Equity | Ownership shares in a company, providing ownership interest to shareholders. “Green equity” can be raised to finance environmentally sustainable initiatives or projects. Investors purchase shares in companies to support sustainable practices, renewable energy projects, or climate adaptation efforts. (Source: Heinrich-Böll-Stiftung) | Domestic/International |
| E. Taxes (e.g., green taxes or carbon taxes) | Mandatory contributions levied by governments to finance activities and public services. “Green taxes” or “carbon taxes” aim to increase the cost of certain activities such as pollution or energy use, encouraging mitigation efforts and funding climate-related projects and initiatives. (Source: Center for Climate and Energy Solutions (C2ES) | Domestic |
| F. Subsidies (e.g., green subsidies) | Financial assistance provided by governments to reduce the cost of activities or goods for organizations or individuals. “Green subsidies” aim to support environmentally friendly practices or products, stimulating adoption and investment in climate-friendly technologies and initiatives. (Source: OECD) | Domestic |
| G. De-risking instruments (e.g., guarantees) | Risk-mitigation instruments providing credit enhancement to cover potential losses, making investments more attractive. Government or international guarantees facilitate access to commercial debt for climate projects, supporting investments aligned with climate goals and NDCs. (Source: World Resources Institute (WRI)) | Domestic/International |
| H. De-risking instruments (e.g., insurance) | Financial instruments transferring climate-related risks from insured parties to insurance companies. Insurance mechanisms help manage risks associated with climate change impacts, such as extreme weather events or natural disasters, providing financial protection and support for adaptation measures. (Source: United Nations Development Programme) | Domestic/International |
| I. Carbon offsetting | Carbon trading mechanisms allowing individuals or companies to invest in projects reducing or capturing greenhouse gas emissions to offset their own emissions. Carbon offset projects contribute to global emission reduction efforts and support mitigation activities in various regions and sectors. (Source: United Nations Framework Convention on Climate Change) | International |
| J. Results-based financing (Performance-based payments) and incentives | Funding provided based on the achievement of predetermined results, incentivizing performance-based action for emissions reductions or increased resilience to climate change. Results-based financing mechanisms support projects with measurable impacts, encouraging accountability and effectiveness in climate finance allocation. (United Nations Development Programme) | Domestic/International |
Common Funding Sources
The table below summarizes the most common sources of domestic and international funding used in the development and implementation of NDCs, with information on the types of sources they are and the types of financial instruments they typically provide, in line with the categories used and data collected by the Global Landscape of Climate-Finance 2023 (Climate Policy Initiative, 2023), along with additional information:
| Funding Sources | Public/Private | Description | Financial Instruments Provided | |
| Multilateral Development Finance Institutions (DFIs) | Public | International financial institutions (IFIs) established and owned by more than one country to support the development and climate-related activities, programs and projects in different sectors, in multiple countries (in a specific region or across regions). | Mostly debt (project-level market rate debt) and, to a lesser extent, low-cost project debt and grants. | |
| Bilateral DFIs | Public | Financial institutions established and owned by one country (typically, a developed country) to support the development and climate-related activities, programs and projects in different sectors in another country (typically, a developing country). | Mostly, debt (low-cost project debt) and, to a lesser extent, project-level market rate debt and grants. | |
| Multilateral climate or environmental funds | Public | Dedicated funds established and owned by more than one country to support climate-related or environmental activities, programs and projects in different sectors, in multiple countries and across regions. | Grants and low-cost project debt. | |
| National DFIs | Public | Financial institutions established and owned by one country to support the development and climate-related activities, programs and projects in different sectors, mainly within that country. | Mosty debt (project-level market rate debt and balance sheet financing [as debt]) and, to a lesser extent, low-cost project debt and grants. | |
| State-owned entities (SOEs) | Public | Public entities (such as public utilities, national energy companies) established and owned by one country to provide support to activities, programs and projects in respective sectors, mainly within that country, as well as state-owned investment entities (such as sovereign wealth funds) that invest both within and outside the country. Mostly equity (balance sheet financing) and, to a lesser extent, debt (project-level market rate debt) and project-level equity. | ||
| Commercial financial institutions | Private | Domestic and international financial institutions (such as commercial banks), providing financing for projects and corporations, in different sectors, in one country or region or across regions. | Mostly debt (project-level market rate debt and balance sheet financing [as debt]). | |
| Corporations | Private | Domestic and international companies (such as manufacturing businesses, service businesses), providing real economy investments for goods and/or services, in respective sectors, in one country or region, or across regions. | Mostly equity (balance sheet financing) and, to a lesser extent, project-level market rate debt and project-level equity. | |
| Institutional investors | Private | Domestic and international companies or organizations (such as asset owners and asset managers, pension funds, insurance companies), investing money on behalf of others (by buying and selling often substantial blocks of equity/stocks and debt/bonds or other securities). | Mostly equity (balance sheet financing and project-level level equity), and project-level market rate debt. | |
| Philanthropies | Private | Non-for-profit organizations targeting projects, initiatives, or stakeholders with a social or environmental impact potential for usually noncommercial purposes. | Mostly grants. | |
The following strategies could help to implement this Opportunity:
The following strategies and enablers can help to facilitate understanding the landscape of available financial options:
Enhancing understanding of the climate finance landscape for NDCs
Developing a strategy that provides a clear and accessible understanding of climate finance could include signposting to tools and guides aimed at demystifying general NDC financing, such as understanding the landscape, defining processes and requirements, and the role of investment plans to access those funds. This landscape should also consider domestic sources, as relying solely on international sources may not fully address the diverse financing needs within a country, and tapping into domestic resources can provide additional stability and sustainability to climate finance initiatives.
Maximizing financial opportunities for NDC implementation
Unlocking the necessary finance for subsequent implementation of the NDC requires careful planning and strategic utilization of available financial instruments and sources. Key opportunities include:
- Diversifying funding sources. Relying on a single source of funding for NDC implementation can pose risks. Exploring a diverse range of domestic and international funding sources, including grants, loans, equity investments, bilateral finance and blended finance solutions can spread risk and ensure financial stability.
- Aligning funding with NDC priorities. Ensuring that the chosen financial instruments align with the conditional and unconditional priorities outlined in the NDC will increase the likelihood of successful funding. For example, if the NDC emphasizes renewable energy projects, consider accessing funds earmarked for green initiatives, such as green bonds or grants.
- Leveraging concessional financing. Concessional loans, which offer more favorable terms and conditions than standard market loans, can be a valuable resource for NDC implementation. Governments could explore opportunities to access concessional financing from multilateral development banks and other financial institutions to reduce borrowing costs and enhance financial sustainability.
- Enhancing coordination and collaboration. Coordinating with relevant stakeholders, including international organizations, development banks, private sector entities, and civil society organizations, to leverage their expertise, resources, and networks. Collaboration can facilitate access to financing opportunities, promote knowledge sharing, and foster innovation in NDC implementation.
- Promoting transparency and accountability. Establishing robust mechanisms for monitoring, reporting, and evaluating the use of funds allocated for NDC implementation. Transparency and accountability in financial management are important for building trust among stakeholders, attracting additional investment, and demonstrating progress toward NDC targets.
Country Examples
Tajikistan leveraged resources from the Green Climate Fund (GCF) and key partners to strengthen the capacity of its National Designated Authority (NDA). The project built capacity within the NDA to engage key stakeholders to access and deploy climate finance in Tajikistan, as well as update its NDA website and develop communication and knowledge products to be disseminated on a platform to improve Tajikistan’s ability to access and deploy climate finance. (Source: Strengthening Tajikistan’s Capacity to Access and Deploy Climate Finance, GCF)
Grenada’s climate finance hub is a one-stop source for Grenada’s climate change and climate finance resources. It summarizes Grenada’s climate finance needs by sector, focused on energy and water, as well as providing easy access to important national information and documentation such as its NDC, its National Climate Change Policy, and its National Adaptation Plan. (Source: Grenada Climate Finance Portal, Ministry of Finance, Planning, Economic Development and Physical Development) Colombia began establishing a broker-type intermediation system designed to connect climate action market opportunities with sources of financing following the enhancement of its NDC in 2020. The resulting “climate finance broker facility” facilitates the coordination and prioritization of the country’s actions as it seeks to identify sectoral and territorial projects and match them with different sources of financing. (Source: Climate Finance Broker Facility, NDC Partnership)
Further Resources
Guidelines for Building a National Landscape of Climate Finance (CPI, 2021)
The document provides guidelines for establishing a comprehensive national landscape of climate finance, offering insights into effective strategies and frameworks for financing climate-related initiatives at a national level.
Paying for the Paris Agreement: A Primer on Government Options for Financing Nationally Determined Contributions (WRI, 2022)
NDCs are crucial for limiting global warming to 1.5°C, yet financing for their implementation is inadequate. This report highlights the tools and instruments governments can use to shift and raise trillions of dollars toward NDC targets by 2030.
Climate Funds Explorer (NDC Partnership)
This tool offers an interactive platform for exploring climate finance flows, including information on funding sources, sectors, and geographic distribution to support countries in implementing their NDCs and advancing climate action.
A climate Finance Framework: Decisive Action to Deliver on the Paris Agreement (IHLEG, 2023)
This report offers expert recommendations on climate finance, emphasizing innovative mechanisms and public-private collaboration to mobilize funds effectively. It highlights key challenges and opportunities for scaling up global financial support for climate action.
Guidebook for the National Adaptation Finance Board for ASEAN Countries (UNFCCC, UNDP and JICA, 2023)
This guidebook provides practical guidance for Member States of the Association of Southeast Asian Nations (ASEAN) on establishing and operating National Adaptation Finance Boards to enhance climate resilience and access climate finance.
Inventory of Innovative Financial Instruments for Climate Adaptation (IISD)
This resource provided by the NAP Global Network offers insights into innovative financing mechanisms for climate adaptation, including case studies and best practices for mobilizing financial resources to support adaptation efforts worldwide.
Toolkit to Enhance Access to Climate Finance: A Commonwealth Practical Guide (Commonwealth Secretariat, 2022)
This toolkit provided by the United Nations Framework Convention on Climate Change (UNFCCC) offers practical guidance and tools to enhance access to climate finance, including information on financial mechanisms, project preparation, and stakeholder engagement strategies.
Climate Funds Update (ODI)
This online platform offers a database of climate finance initiatives, funding sources, and project information, providing valuable insights for countries conducting landscape assessments.
Climate Fund Inventory (OECD)
This database, maintained by the Organisation for Economic Co-operation and Development (OECD), provides comprehensive information on climate-related funds, including their objectives, governance structures, and funding sources to aid countries in understanding available financing options.
Strengthening the Role of Ministries of Finance in Driving Climate Action (Coalition of Finance Ministers for Climate Action, 2023)
This resource provides a framework and guide for the engagement of Ministries of Finance in climate action, building on support provided through the NDC Partnership and the Coalition of Finance Ministers for Climate Action (CFMCA), specifically focusing on the key role of finance ministries in the design, update and implementation of NDCs and LT-LEDS. This builds on our long-standing collaboration with the CFMCA, including the elaboration of the first and second reports exploring the role of Ministries of Finance in NDCs.
National Climate Finance Vehicles: Best Practice Insights from International Case Studies (ADB, 2024)
This working paper—developed under ADB’s NDC Advance technical assistance platform—sets out the important role that national climate finance vehicles can play in stimulating investment in low-carbon and climate-resilient development.
How This Links to Other Routes
Enhancing understanding of the investment gap and finance landscape is fundamentally linked to various routes and opportunities within the broader context of climate action. Navigate to the resources below to learn more:
Route: Aligned to the Paris Agreement Temperature Goal
Assessing the sources of climate finance will help inform the mobilization of resources to support the achievement of ambitious mitigation targets outlined in the NDC.
Route: Aligned to Paris Agreement Global Goal on Adaptation
Understanding the climate finance landscape enables strategic investments in adaptation measures, enhancing resilience to climate impacts as outlined in the NDC.
Route: Delivers a Just and Equitable Transition
An in-depth evaluation of the landscape of financial sources allows funding to be directed toward facilitating a Just Transition, ensuring equitable access to finance and supporting inclusive development goals embedded in the NDC.
Route: Mobilizes All-Of-Government and All-Of-Society
Assessing the sources of climate finance fosters collaboration with the private sector, facilitating diverse funding sources and promoting inclusive engagement in NDC implementation across government and stakeholders.
Route: Technology and Capacity-Building as Needs and Enablers
Identifying capacity-building needs and leveraging diverse financial instruments develops an understanding of the climate finance landscape and ensures that investments address technology gaps and enhance implementation capabilities outlined in the NDC.
Route: Technically Sound and Transparent Documents
Transparency in financial processes, facilitated by an understanding of the climate finance landscape, enhances accountability and trust, promoting efficient resource allocation for NDC implementation and ensuring technically sound financial decisions.
