A Greater Focus on Climate Finance
COP29 commitments offer opportunities for investors and businesses to benefit from financial returns and meaningful impact, says Izabella Brooks, Associate at Hunters.
Innovative climate finance initiatives took centre stage at the most recent UN Climate Change Conference, COP29. Billed as ‘The Finance COP’, COP29 aims to deliver at least US$300 billion in climate finance annually. UN Climate Change Executive Secretary Simon Stiell referred to the new finance goals as an insurance policy for humanity.
Stiell said the climate finance deal will “keep the clean energy boom growing and protect billions of lives”. He added: “It will help all countries to share in the huge benefits of bold climate action: more jobs, stronger growth, cheaper and cleaner energy for all. But like any insurance policy – it only works – if the premiums are paid in full, and on time.” COP29 reflected a clear understanding that both governmental financial commitments and private investment flows are key to tackling climate change.
COP29 took place in Baku, Azerbaijan in November 2024 – the same month that Donald Trump was re-elected as US president. Having withdrawn the US from the Paris Climate Agreement in 2020, Trump again withdrew from the accord in January 2025, soon after coming into office. Yet despite the lack of US involvement over the next four years, many expect that the COP29 will succeed in its aim of increasing climate-supportive investment.
The conference focused on the need for creating new funding mechanisms, while also establishing a more robust system for carbon markets and credits. A key focus at COP29 was the establishment of a new, ambitious climate finance target, known as the New Collective Quantified Goal (NCQG). This target is set to replace the US$100 billion annual target created at COP15 in 2009 and is expected to drive trillions of dollars toward climate action. The NCQG aims to provide broader, more inclusive funding sources, accommodating both public sector contributions from wealthier nations and private sector investments from around the globe.
The NCQG is structured to support both climate adaptation and mitigation efforts, with a focus on high-priority goals such as developing green infrastructure and resilience to climate impacts. However, debate continues to rage over just where the balance of responsibilities should lie. Developing nations advocate for a substantial increase in public finance from developed countries, citing their historical contributions to greenhouse gas emissions. Developed countries, on the other hand, tend to emphasise the need for private sector investment and contributions from large emerging economies like China.
Carbon credits and the role of carbon markets
Carbon credits and markets, as governed under Article 6 of the Paris Agreement, are a crucial part of COP29’s climate finance strategy. Carbon markets allow countries to offset emissions by purchasing carbon credits, typically from projects that either remove carbon from the atmosphere or prevent emissions. This mechanism provides flexibility for nations aiming to meet their emissions targets by investing in reductions abroad, which can offer benefits both buyer and seller countries.
At COP29, nations worked to strengthen international carbon market rules, ensuring that credits are more transparently verified and that any emissions reductions are both real and additional. To this end, after almost a decade of work a global agreement on carbon markets was reached and stronger regulatory frameworks are now planned to help prevent issues like ‘double-counting’, where emissions reductions are claimed by more than one country. COP29 also sought to improve accessibility for smaller developing nations which wish to participate in carbon markets. This could help these states fund sustainable development and climate initiatives.
Critics argue that carbon markets and carbon credit arrangements should not replace direct emissions reductions but should be viewed as a complementary strategy. This is because carbon credit systems alone cannot fully offset the extensive emissions from industrialised nations. Nonetheless, carefully regulated and transparent carbon markets can certainly play an important role in the global effort to curb emissions and to finance climate action internationally.
Cap and trade arrangements also exist in many countries, including the UK, the EU, Canada, China, New Zealand and Japan. In the US, many states now operate carbon pricing initiatives, though there is no national cap and trade scheme as yet. Many leading companies in the US and globally will also voluntarily purchase carbon offsets as part of their ESG strategies. These markets can encourage innovative new players to enter the market with new and more efficient ways to offset carbon emissions.
An increasing number of states now levy carbon taxes, but the effectiveness of such measures depends on wider macroeconomic factors. A key policy aim of carbon taxes is to make high-emission energy sources more expensive, relative to greener alternatives, thus altering market dynamics and encouraging the adaptation of low emission alternatives. However, President Trump’s re-election may yet have an indirect impact here too, as he has encouraged OPEC to cut oil prices, and has aimed to increase domestic oil and gas production. If this results in significantly lower oil process, it could weaken the economic case for the transition to and adaptation of greener energy alternatives.
Future outlook on climate finance
COP29’s focus on climate finance reflects a growing recognition that only with substantial investment can global climate goals be met. It will require significant global investment in new low emissions transport and power generation to meet the 1.5°C target of the Paris Agreement. Such technologies are often a very sound investment, since they can reduce costs over the long term, but face the stumbling block of high upfront costs. That is why accessible and affordable finance makes sense.
Likewise, investments that would mitigate the physical impact of climate change can be very costly. For example, areas likely to be impacted by heavy rainfall may require better flood defences and drainage systems, while areas experiencing extreme droughts may require irrigation works. Large scale civil engineering works require substantial upfront capital, even if they may well yield long-term economic and social benefits.
Nations will continue to balance immediate climate needs with long-term financing strategies, emphasising both public contributions from developed countries and private sector engagement. The resolutions from COP29 will set a precedent for future climate negotiations, aiming to secure a sustainable and just financial framework for climate resilience worldwide.
COP29 will likely help to shape future climate policies, especially in areas requiring coordinated financial support, such as loss and damage, adaptation, and carbon markets. We can expect COP30 to build on the progress and unresolved issues from COP29, and see Brazil set the tone for climate ambition as a representative of emerging markets and developing economies.
Closing the adaptation finance gap
The adaptation finance gap remains a significant challenge. The current funding levels fall far short of the estimated US$194-US$366 billion needed annually to meet global adaptation requirements. The Global Goal on Adaptation (GGA), established in previous climate agreements, aims to build resilience against climate impacts and reduce vulnerability in affected countries. At COP29, nations were focused on enhancing the GGA’s framework, ensuring that adaptation funding is accessible with flexible terms and low-interest rates to enable more equitable implementation.
Developing countries, particularly those most exposed to climate hazards, have advocated for a structure that allows easier tracking of adaptation progress. Many nations also proposed a dedicated funding stream specifically for adaptation within the NCQG, seeking to place adaptation on par with mitigation in terms of financial commitments and accountability.
Loss and damage funding
As fears around climate-related natural disasters escalate, many see a greater urgency to ‘loss and damage’ funding. COP28 saw the establishment of the Loss and Damage Fund, which allocated US$700 million, a relatively small amount in light of estimates that actual needs could exceed US$580 billion by 2030. At COP29, nations pushed for more robust financial commitments, hoping to strengthen the Loss and Damage Fund to support nations experiencing catastrophic impacts, such as floods, wildfires and hurricanes.
The loss and damage discussions had a strong justice component, with developing countries pointing out that they contribute significantly less to global emissions but bear disproportionately high costs of climate change impacts. To address these concerns, COP29 aims to encourage high-income countries to deliver substantial financial support for immediate relief and long-term resilience-building in vulnerable regions like Bangladesh, Pakistan, and Pacific island nations.
The takeaway message for investors is that massive amounts of capital are now being dedicated to managing and mitigating climate change. Although there is a lot of work to be done to ensure COP29’s deliverables are met, this climate conference shows that these investments will involve both public and private finance and are projected to grow for decades to come. As this international commitment to tackling climate change grows, there are real opportunities for investors and businesses to benefit from both financial returns and meaningful environmental impact.
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