The report by IHLEG dilutes historical responsibility, focusing instead on domestic reforms, private capital, and South–South cooperation to deliver the next phase of climate finance
“Tackling climate change and nature loss is one of the greatest economic opportunities of our era.” This line from the Fourth Report by the Independent High-Level Expert Group on Climate Finance (IHLEG), released on Wednesday at COP30, may have forever changed the language of climate finance from one of responsibility of richer nations towards poorer ones to one of investment, especially for the Global South.
This is the fourth report by the IHLEG, which has been supporting climate finance deliberations since COP26.
Titled ‘Delivering an Integrated Climate Finance Agenda in Support of the Baku to Belém Roadmap’, this report dives deep into the pathways that can provide $1.3 trillion in external finance by 2035 for developing countries other than China.
The report, by economists Amar Bhattacharya, Vera Songwe and Nick Stern, says that investment has to dramatically increase across the Global South if the world is to meet both its climate and development goals. It imagines a mix of public, private, multilateral, and innovative sources of finance coming together into an “integrated climate finance agenda.” The report’s recommendations on means of implementation of the New Collective Quantified Goal (NCQG) , which was deliberated at the last COP, remains one of the most watched discussions this year. India had criticised the NCQG decision, which drew on last year’s report of the IHLEG. It had highlighted that ‘grant-based concessional Climate Finance is the most critical enabler to formulate and implement the new NDCs.’
“Expansion of the contributor base, reflection of conditional elements such as macroeconomic and fiscal measures, suggestion for carbon pricing, focus on private sector actors for scaling up resource flows as investments – is contrary to the mandate for the goal. NCQG is not an investment goal,” India had said last year.
This year’s IHLEG report comes at a time when the debate over who pays for climate action has stagnated. The Brazil Presidency also stated on Day 1 of the summit that it was looking to the Global South for solutions. “In absence of the US, and the reluctance in the way other developed countries are forthcoming about funding climate action, this has opened up a way for the world to look at how developing countries are dealing with climate change,” said COP30 President André Corrêa do Lago.
The message is clear. The Global South cannot be a passive recipient of support. It has to play the role of an active organiser and implementer of a new financial system.
A new distribution of responsibility
The crux of this report is that, in order to meet the Paris Agreement goals, the world needs an investment surge, and much of this needs to take place in Emerging Market and Developing Economies (EMDEs).
Credit: IHLEG report
According to the IHLEG, these countries will require $3.2 trillion investment every year until 2035, with approximately $1.9 trillion to come from domestic sources and about $1.3 trillion from external flows. That means a sevenfold increase from current climate finance levels, which hover around $190 billion.
“Traditional sources provided $40 billion in 2022. A doubling to $80 billion by 2035 is a reasonable target, but the need is upwards of $300–350 billion. New sources are needed to fill the gap,” said Bhattacharya during a press conference held at COP30 in Belem.
Among the sources are carbon markets, which could yield $70 billion by 2035, South-South cooperation, innovative finance including levies like taxing jet fuel, private philanthropy, and corporate sector contributions, according to him.
According to their calculations, of the $350 billion, $80 billion can come from public grants, carbon markets can deliver $70 billion, $40-50 billion can come from South-South cooperation, while the remaining $150 billion has to come from newer funding sources like Special Drawing Rights (SDRs), debt swaps and philanthropy.
The report acknowledges the historical responsibility of developed countries. It refers to the New Collective Quantified Goal (NCQG) agreed at COP29, under which developed nations pledged to mobilise at least $300 billion per year by 2035 for developing countries. It, however, asks developed countries “take the lead,” in providing this finance. They are no longer positioned as the sole drivers of finance. This framing reflects a quiet, but significant, evolution.
“It would be very odd if poor nations do not invest in climate resilience just because other nations aren’t helping. It’s still a good investment,” said Stern at the same conference. “However, there is a moral obligation for developed countries to support the development process because past emissions have made it more difficult.”
The most effective way to be helpful is not through a contentious bill, but by getting behind MDBs and finding innovative ways to bring concessional money to the table, added both the economists.
According to Bhattacharya, getting hung up on CBDR is not helpful for developing countries as it risks not looking at other opportunities that do not require contributions from developed countries.
The question of ownership
One of the report’s most notable themes is country ownership. The IHLEG places “country-led investment strategies and platforms” at the centre of its framework.
The authors envision these “country platforms” to become hubs of coordination, bringing together ministries, development banks, and private investors around a single investment agenda. By 2035, the report envisages least developed countries (LDCs) and small island states (SIDS) operating such platforms with the support of development partners.
While this model intends to empower national governments, it also reflects a shift in the onus. The ability to design credible investment strategies, maintain fiscal stability, and manage risk is now expected as a precondition for accessing larger financial flows. For developing countries, this means there is much more work to be done. They will have to build strong domestic institutions alongside climate ambition.
Debt and fiscal reform
The IHLEG identifies debt burdens as one of the most significant obstacles to scaling up investment. The report puts forward a series of reforms such as expanding the G20’s Common Framework to include more countries and incorporating climate action into debt sustainability models.
But it also calls upon governments to enhance domestic resource mobilisation through improved tax systems, carbon pricing, and phasing out harmful subsidies. For countries that are already struggling with limited fiscal space, these recommendations are likely to put a large implementation burden on them.
“Debt swaps and SDRs are particularly suited for poor and vulnerable countries. While the total scale is limited, $5–10 billion per year from each would be serious money for these nations,” said Bhattacharya.
Private finance at the centre
A key characteristic of the $1.3 trillion target is the dependence it has on private investment. The report estimates that about half of all external finance, around $650 billion per year, will need to be privately sourced by 2035.
To unlock this money, the report calls for a “structured approach”, including scaling blended-finance structures, improving foreign exchange hedging, and reforming risk assessment frameworks. This vision, however, relies on the participation of Multilateral Development Banks and Development Finance Institutions to de-risk investment and open up private flows.
But, as the report acknowledges, much of this finance will flow to sectors that generate returns such as RE, grids, and infrastructure. Adaptation, resilience, and loss and damage will continue to rely on concessional or grant-based funding, according to the report.
Reimagining cooperation
The report identifies South-South cooperation as a rising pillar in global finance, estimating $30-60 billion annually by 2035. It mentions large emerging economies such as Brazil, India, and South Africa as key drivers of this finance.
This emphasis on South–South partnerships reflects a push for Global South countries to be less dependent on traditional aid. But the levels of expectation are not uniform. The report calls for larger economies of the Global South to assume broader regional responsibilities.
Reform rather than redistribution
The IHLEG’s approach focuses on reforms within the multilateral banks for expansion of concessional finance, new instruments such as debt swaps and SDR rechannelling, and predictable flows through carbon markets and solidarity levies.
The emphasis is on functionality and scale, not on politics. Terms such as “justice” do not appear. While the term “Common but Differentiated Responsibility (CBDR) finds a couple of mentions in the report, they are more passing references than guiding principles. Instead, the report views finance as something that can be solved through coordination, efficiency, and better risk-sharing. For many Global South countries, this creates clearer pathways for investment, but it shifts much of the responsibility for delivery onto developing economies themselves.
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