Aligning Finance for Climate, Nature and Development

The path to accelerating progress on global goals for people, nature and the climate depends on bringing together different sources of finance to align efforts and work better as a system. It also requires agreement to tackle systemic challenges, such as high capital costs and limited fiscal space. That’s exactly what this year’s Financing for Development Conference (FFD4) aims to deliver. It’s an opportunity to identify where more supportive, integrated frameworks could help countries more quickly shift, align and increase finance for sustainable development. 

This opportunity comes amid a rocky global context. Poverty, inequality, climate change, environmental degradation and rising fragility are not isolated crises — they are deeply interconnected and mutually reinforcing challenges that require an integrated response. Yet they are often addressed separately, resulting in unintended consequences and missed opportunities for sustainable solutions.

This gap is evident as we’re on track to achieve just 17% of the Sustainable Development Goals (SDGs) — which include targets for people, nature and the climate — by their 2030 deadline. The progress report also shows that since 2015, progress on the climate action goal (SDG 13) has gone backward on 30% of its targets, while the remainder show only marginal improvement.

FFD4 also comes at a time when multilateralism is under strain, as evidenced by recent cuts to Official Development Assistance (ODA) — finance provided by the governments to promote and specifically target the economic development and welfare of developing countries. ODA grew at an average annual rate of 7.6% from 2019 to 2023, but dropped 7.1% between 2023 and 2024, and may decline further amid shifting geopolitics, financial pressures in provider countries and a reprioritization of investments toward defense and other domestic priorities. Despite its past demonstrated resilience in response to crises, recent cuts by some of the wealthiest countries, including the U.S. and the UK, have raised concerns about future levels of ODA.

Despite these headwinds, there are four key areas where multistakeholder approaches to financing sustainable and equitable development can be better coordinated — at FFD4 and beyond.  

1. Integrate Climate and Nature into Development Planning

Since the Earth Summit in 1992, financing for development and financing for climate and nature have largely evolved on separate tracks. But this parallel trend is reaching its limits. A central theme at FFD4 is the need to rethink sustainable development in light of new, compounding shifts in the global economy, climate and biosphere. 

Addressing climate, nature and development goals together brings both the opportunity for economic growth — up to $26 trillion from bold climate action by 2030 — and recognizes the imperative for development to be climate-resilient and nature-positive. Climate transitions must also be inclusive if they are to be sustained. 

The 2015 FFD in Addis Ababa, Ethiopia, outlined the principles that this FFD must now turn into action, recommending concrete ways to incorporate climate and nature into development and economic decision-making. An independent expert report to the G20 emphasized the need to integrate climate and nature into macroeconomic planning through a whole-of-economy, whole-of-government and whole-of-society approach. This would allow countries to weigh the choices and trade-offs involved in meeting climate, nature and people goals, and to drive forward structural reforms that shift economies onto a more sustainable path. 

There is a range of tools that countries will need to make this possible. In addition to new macroeconomic models and multistakeholder consultations, Wealth and Natural Capital Accounting offers a way for decision-makers to incorporate climate and nature into their analytical toolkit. The WAVES (Wealth Accounting and the Valuation of Ecosystem Services) partnership, coordinated by the World Bank, shows how governments are integrating natural capital accounting into macroeconomic planning, budget decisions and development policy in countries such as Colombia, Indonesia and Rwanda (WAVES core implementing partners). This approach to national accounting includes incorporating water resources, minerals, forests, biodiversity and tourism, helping shift decision making away from short-term GDP growth toward long-term sustainability.

International data-gathering frameworks offer another key opportunity for progress. Frameworks like the one underpinning the SDGs have helped governments adopt and monitor policies aligned with global targets. Many countries have already used these data to develop SDG action plans; now, innovative data-gathering methods can support more targeted development policies. 

FFD4’s Compromiso de Sevilla underscores the need to support “high quality and disaggregated data and statistics [to] enable evidence-based policy decisions and enhance accountability and transparency, fostering public trust and international cooperation.”

But countries can’t do this alone. Data sharing and international cooperation are crucial for addressing global challenges such as climate change and nature loss. To help finance flow to climate and nature, the Compromiso de Sevilla emphasizes the importance of “economic, financial, risk, and resilience data [to be made] available to all financial market actors, including through capacity building for developing countries.” 

In implementing the Compromiso de Sevilla, a shared global vision for data cooperation on SDGs could unlock international investment and bridge capacity gaps. Ministers of finance, climate and environment can jointly lead this effort. 

2. Rewire Public Finance for Development, Climate and Nature

There are several areas where countries broadly agree on the need for national action but require a coordinated approach, given the interconnected nature of the global economy. 

Coordinate subsidy reform

It is widely recognized that countries — both developed and developing — should reform environmentally harmful subsidies, including those related to fossil fuels ($7 trillion in 2022, 18% in “explicit” subsidies, where fuels are sold below retail cost through government support) and unsustainable agricultural practices ($619 billion in 2021). Ending these subsidies would help reduce environmental and atmospheric degradation; repurposing them could help reverse it. 

But such shifts would have to be coordinated to ensure a just transition where no worker or country is left behind. Without coordination, any first mover is likely to face a competitive disadvantage. FFD4 should call on governments to lead in reforming subsidy frameworks and to work together to ensure a just and equitable transition. 

Align and unlock investment flows

A holistic, country-level approach to financing, such as the concept of ‘country platforms’, could help match appropriate finance to transition needs. Country platforms are a way for governments to align public and private, national and international finance at scale behind country-led plans and policy reforms to deliver climate, nature and development goals. 

These platforms have the potential to address policy risks by aligning stakeholders around a shared vision and creating an enabling environment for attracting private finance. They recognize the centrality of capacity building and technical assistance in supporting countries — especially the poorest and most vulnerable — to take a systemic approach. They also allow for the most strategic use of scarce concessional and blended finance by prioritizing structural reform and taking more programmatic approaches.

FFD4 calls to “support enhancing the ability of MDBs [multilateral development banks] and other PDBs [public development banks] to work better as a system, aligned with country-led development priorities and strategies”. It also calls on other development partners, financial institutions, relevant domestic actors, civil society and local governments to play their part in integrated approaches based on each actor’s comparative advantage. Countries are in the driver’s seat to initiate this convergence and advance country platform mechanisms.

3. Activate Private Investments in the Real Economy

Right now, mobilizing private investment aligned with people, nature and climate goals, and its potential to transform the real economy, is not happening fast enough or at sufficient scale. 

Building on the 2015 Addis Ababa declaration, FFD4 aims to address the systemic issues that limit private sector investments in sustainable finance. The UN estimates developing countries face a $4 trillion investment gap to achieve the SDGs, particularly in sectors such as renewable energy and infrastructure, where the private sector plays a crucial role. 

As stated in the Addis Ababa Accord, the private sector is a major driver of productivity, inclusive of economic growth and job creation; yet looking to private financiers to “fill in the gaps” has proven complex. To date, there has been a strong focus on the use of blended finance to de-risk and thereby mobilize more private investment. This includes using concessional finance (from MDBs, for instance) or philanthropic finance to catalyze investments in nascent markets where risks are currently too high, or returns too low, for investors to step in alone. 

Reforming risk-sharing instruments — such as guarantees, first-loss capital and hybrid instruments — and blended finance would help bring these approaches to scale. In the G20 process, MDBs have been encouraged to take more programmatic approaches (e.g., guaranteeing portfolios rather than single projects) and to streamline and harmonize internal processes, both among themselves and with other PDBs. They have also been encouraged to unlock more institutional investment through originate-to-share models and by supporting the development of sustainable asset classes. The Compromiso de Sevilla also proposes promoting the use of risk management, risk mitigation and risk transfer practices too. 

However, mobilization of private finance also requires a stronger focus on changes in fiscal incentives, regulatory environments, enabling conditions and business models, as well as changes in demand. It is important to achieve cost-effectiveness, improve returns and reduce risks in this way, rather than rely solely on blended finance. In some cases, this can be done by using better data on returns or by showcasing the dividends that can come from investing in adaptation.

When it comes to investing in climate and nature, delivery has been inconsistent and difficult to track, especially in the case of private finance. The conference is likely to call for UN member states to implement proposals by adopting standards, tools and metrics as targets, and to publish performance indicators to better measure private sector mobilization rates, sustainable finance mechanisms and their impacts on people, nature and the climate (e.g., continuing the GEMS effort). 

4. Improve Global Cooperation on Debt

As developing countries face increasing repayment burdens due to rising interest payments on debt, about 40% of the global population lives in a country that spends more on debt servicing than on essential public services such as education and health.

The climate- and nature-relevant provisions of the Compromiso de Sevilla acknowledge the importance of accounting for climate and nature in debt frameworks and include the following:

• A request for a UN-led working group (with the IMF and the World Bank) to propose voluntary principles for responsible sovereign borrowing and lending, “to strengthen debt management,” including:
  • Supporting more frequent use of state-contingent debt instruments, including climate-resilient debt clauses and debt pause clauses, which allow debt service suspension during climate or other external shocks. This would increase fiscal resilience.
  • Encouraging wider uptake of such clauses across both official and commercial lending, with international financial institutions supporting implementation.
     
• Support scaling up debt swaps for the SDGs, especially those targeting climate and biodiversity outcomes, to “lower the cost of borrowing”:
  • Promotes concessional finance based on vulnerability to enhance debt sustainability and climate-resilient development.
  • Calls for simplifying debt swap processes, lowering transaction costs and ensuring country ownership.
     
• Launch an intergovernmental UN-led process to close gaps in the international debt architecture and explore options to enhance sustainability, aiming to “restore countries to a path of debt sustainability and continue to work toward debt restructurings being timely, orderly, effective, fair, negotiated in good faith, predictable, and coordinated”:
  • This includes dialogues with all stakeholders (UN Members, Paris Club, MDBs, IMF, World Bank and private creditors) to address debt challenges and climate-linked vulnerabilities.
     
• Calls for reforming Debt Sustainability Assessments (DSAs) to “ensure that debt sustainability and credit assessments are accurate, objective and long term oriented”:
  • Calls for more accurate, long-term DSAs that integrate climate and nature spending needs, and account for investments in resilience, nature protection and productive capacity.
  • Account for multidimensional vulnerabilities and spillovers from monetary policy.
  • Encourages open consultation on DSA reformulation, capacity building and for countries to conduct their own assessments.

Multilateral initiatives to support countries at risk of, or already in, debt distress are mainly led by the World Bank, the IMF and forums such as G20. However, gaps and challenges remain across these initiatives, limiting comprehensive support that considers factors like climate vulnerability as an indicator for debt management and risk assessments. 

It is high time for a concrete breakthrough, one that takes a comprehensive approach to debt challenges and provides tailored solutions to free up fiscal space that countries need to invest in essential public services and resilient green growth. This should include measures addressing the drawbacks outlined in the table above.  

The World Bank Group and IMF have had climate strategies since 2021, yet integrating nature into their fundamental economic frameworks is still lagging. For example, FFD4 proposals are needed on how investments in resilience, nature protection and productive capacity can benefit economic activity and financial stability, including specific timelines for integrating these elements into national accounts. IMF and WBG are well positioned to lead the implementation of these proposals. 

Accelerating Sustainable Development Action

A systemic, transformational approach is essential for addressing complex, transboundary environmental challenges like climate change and environmental degradation, and to achieve the SDGs. This requires more inclusive and effective global governance. FFD4 presents an opportunity to enhance global cooperation on these issues, ensuring policies and actions are harmonized across borders and effective in addressing them. 

The Addis Ababa Action Agenda laid the groundwork for the SDGs and outlined a clear map for mobilizing finance to deliver them. Yet, with SDG progress currently off track, the task in Seville is to accelerate momentum by rebuilding trust and confidence in global cooperation. Political traction and impetus are urgently needed to implement complex domestic reforms, scale up international support to climate, nature and development, activate the private sector, address debt vulnerabilities and enable finance to work better as a system. 

FFD4 could be a unifying moment that brings together the aspirations of the Bridgetown Initiative, the Nairobi declaration, the Paris New Global Financing Pact and the Pact for the Future, along with wider development and nature finance commitments, into an integrated action agenda. Keeping leaders accountable for delivering on the indivisible integrity of the SDGs is paramount.