Climate finance is failing the Global South – and the planet: here’s how to fix it
Following the UK governments decision to half its budget for the Green Climate Fund, Ines Urman, campaigner at the Environmental Investigation Agency, examines how climate finance could be restructured to deliver change in the Global South
The UK government recently told the Green Climate Fund it will deliver only half its pledged contribution for 2024-27, weakening a major pillar of the international climate finance system. Now, the funding we have must work harder.
Across international forums, governments have recognised the urgent need to transition away from fossil fuels and, in turn, both public and private commitments are multiplying. But in many Global South countries, these commitments are failing to deliver meaningful change. This is because climate finance is not structured to deliver transitions in practice.
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Replacing fossil fuels is not simply a question of funding more renewable energy projects. It requires a transition architecture capable of reshaping entire economies. Yet, current architectures continue to fragment resources across short-term, project-based initiatives. This gap must be bridged.
Climate financing is unfit to support energy transition
Global South countries are expected to transition away from fossil fuels without the financial system required to make that transition viable.
The current system is complex and fragmented, with little coordination between the many kinds of climate finance providers: from development banks to private actors and climate funds. The outcome is duplication in some areas and gaps in others. The pipelines for renewables infrastructure, for instance, are relatively well-stocked, while finance for capacity building or fossil fuel decommissioning projects remains scarce. The lack of investment in readiness activities in particular not only hinders long-term success but constitutes a missed opportunity for donors to support cost-effective interventions.
Exacerbating matters is the fact that each climate finance provider has its own priorities, funding windows, accreditation procedures, reporting requirements and frameworks. This is a bureaucratic minefield for countries in the Global South.
The level of fragmentation is compounded by short-term, project-based funding cycles. Funding is typically tied to discrete initiatives with limited time horizons, offering little predictability for countries attempting to plan decades-long transitions. Without confidence in sustained support, governments are incentivised to prioritise lower-risk, incremental projects. In short, the system largely ignores the structural economic barriers that define energy transitions in the Global South.
In many countries, fossil fuels are not just an energy source; they underpin public finances and economic stability. For some, oil accounts for the vast majority of exports and government revenues. Asking such countries to phase out fossil fuels without addressing the resulting fiscal gap is not a realistic transition strategy.
More broadly, countries in the Global South face a combination of constraints: limited fiscal space, rising debt burdens, two to three times higher cost of capital, and policy environments that still favour fossil fuels. Climate finance rarely engages with such issues. This explains the limited progress on the ground in spite of rising financial flows. Despite billions mobilised, many countries still lack clear, sequenced transition plans or the means to implement them.
The issue, then, is not simply the quantity of finance. It is what that finance is designed to do. Redirecting resources towards cost effective readiness activities, and better aligning donor efforts, is essential to making limited finance go further.
Fine-tuning existing architecture
A shift from funding projects to programmatic, country-led transitions is urgently needed.
First, finance must better support early-stage readiness activities, such as funding for governmental planning teams to assess economic risks, map out energy systems, and implement transition policies. These activities are the foundation upon which all subsequent investments depend.
Second, public and private funders must align resources behind long-term national transition strategies that target unique domestic issues. Today’s fragmented landscape, with multiple donors financing isolated projects, undermines coordination and coherence. All capital should be sequenced within coherent national programmes, ensuring investments reinforce each other and contribute to an overarching pathway.
Crucially, the system must explicitly address structural barriers. This means using public finance not only to crowd in private capital at scale, but to alleviate debt pressures, support economic diversification, and lower the cost of capital. Without tackling these issues, even well-funded projects will struggle to scale.
More funding, incumbent tools: The keys to fossil fuel phase-out
While the current climate finance architecture is enabling incremental innovation, it is not delivering the scale, speed, or equity needed for a just transition aligned with the Paris Agreement.
Phasing out fossil fuels is a non-negotiable, but it will not happen if our architecture remains fragmented. This does not mean reinventing the system but fundamentally redesigning how it operates. Governments and climate international financial institutions should therefore focus on making the existing architecture fit for purpose: aligning institutions, scaling up programmatic approaches, and placing country-led transitions at the centre.
Without a system designed to deliver transitions, public and private climate finance will continue to fall short – and so will the global response to climate change.
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