By Clare Wingfield
Two things happened almost in the same breath this summer, and together they tell a more interesting story than either does on its own. The first is that the multilateral development banks published their 2025 Joint Summary Report on Climate Finance, and the numbers are, by any measure, a record. Collective MDB climate finance grew 19 per cent to nearly USD 163 billion. In low-and middle-income countries specifically, it grew 21 per cent to almost USD 103 billion. Adaptation finance in those countries rose by 31 per cent. It’s the best year multilateral climate finance has ever had.
The second, which came a few weeks before that report appeared, is the World Bank, the largest single MDB lender to low- and middle-income countries, had decided to extend its Climate Change Action Plan (CCAP), while retiring the 45 per cent climate co-benefits target and the 35 per cent target in the plan. The Bank said the move would allow it to shift from input-based targets towards measuring outcomes. The decision followed months of pressure from its largest shareholder.
Albeit unexpected, a target is not a law, and this one never was. It’s an internal target, set by the Bank’s own board, now removed. It doesn’t claw back funding that’s already been committed as the Bank’s own 2025 figures show it hit 48 per cent climate-related financing last year, comfortably above the target of 45 per cent it’s now dropped. What’s changed isn’t the money, but it’s the discipline that made hitting those numbers an institutional obligation. Whether that shows up as a slow drift downward over the next few years, or makes no practical difference at all, remains to be seen. This is a complete mixed bag when set side by side. Multilateral climate finance has never moved this much money and the institution that pumps in the most of it in low-and middle-income countries has never had less obligation to keep contributing at that level.
Why we can’t rely on one institution
Diversification is the sensible response here. No single institution, however large, should be responsible for a country’s or a fund’s access to capital. The institutions building genuine, durable momentum are the ones getting serious about mobilising private capital alongside their own balance sheets, not instead of them.
The private co-financing figures show why. MDBs mobilised USD 116 billion dollars in private capital last year. Just USD 35 billion of it reached low-and middle-income countries; the rest, more than double that amount, went to wealthier economies. The reason has more to do with risk pricing and risk perception than where the need is greatest. The countries facing the greatest climate risk are well documented and rarely disputed, yet investors continue to price emerging markets well above what many individual projects there warrant.
This is where blended finance plays a much more critical role and where it has repeatedly held its own in practice. A modest, catalytic tranche of concessional capital absorbing the first layer of risk can be the difference between an institutional investor walking away and committing real capital at scale. What’s often missing isn’t appetite, but the awareness needed. There have been instances where experienced bankers have sometimes been unfamiliar with what blended finance means or unaware that de-risking mechanisms like these even exist as an option.
The data shows that investment loans made up USD 110 billion of total MDB climate finance in 2025, taking the lion’s share of all commitments. Guarantees, which work best for taking on early risk in blended deals, came in at USD 11 billion. Equity totaled a mere USD 2.5 billion. The instruments that make blended finance work are sitting right in the shed, but its usage has only lagged behind.
Mitigation eats the larger share and what adaptation investment actually looks like
Mitigation dominates the total picture everywhere, taking in roughly USD 121 billion against USD 41.7 billion for adaptation last year. But the two categories split by geography in opposite directions. Low- and middle-income countries take a narrow majority of mitigation finance, about 56 per cent. Adaptation finance runs the other way hard. Those same countries receive 83 per cent of it, leaving wealthy economies with under 17 per cent. Mitigation flows toward high-emitting infrastructure, while adaptation funding responds to locations experiencing immediate climate impacts.
With figures running in the billions, adaptation finance can easily feel abstract. Looking at actual assets brings the sector into focus. Market mappings, including analysis from Boston Consulting Group (BCG) and Temasek, break the adaptation and resilience space into six commercial subsectors: climate intelligence, flood defense engineering, resilient building materials, adapted agricultural inputs, industrial water efficiency, and emergency medical services. All six demonstrate solid growth today.
Working directly with investors and fund managers reveals that same reality in everyday operations. It appears in sustainable fisheries, waste recycling infrastructure, eco-tourism projects built on conservation, and resilient agrifood supply chains. Rarely do these enterprises identify explicitly as ‘adaptation businesses’. They operate as technology firms, agricultural suppliers, or tourism operators. Resilience is the outcome of their work, not their branding. That packaging makes the overall asset class harder to quantify, forcing pioneers like The Lightsmith Group, which launched in 2017 as an early growth equity firm focused on resilience, to prove the investment case company by company.
Room for more private capital
Multilateral climate finance is growing, genuinely and substantially, even as its largest contributor becomes politically less predictable. Private investors are willing to participate, but they still stick to safer bets, leaving many of the highest-need countries short of investment. Adaptation finance also had a strong year, after long trailing mitigation by a wide margin. The record shows that the system can deploy capital at scale, but that scale cannot be assumed to rest on any single institution. Investors looking to co-finance have every reason to build ties across multiple development institutions rather than anchor their exposure to one. Keeping capital moving will require guarantees and blended structures that can withstand political shifts and changes to institutional targets. That is where the heavy lifting lies.
