By Clare Wingfield
Anyone working in climate finance notices a persistent theme in discussions about standards. Most experts agree that the market needs clear guidelines, but there is far less consensus about which standards to use. At a recent industry summit, an investor summed it up neatly, ‘Everyone is doing their own frameworks and KPIs.’ It was a candid observation, but not a surprising one. Most of the people in the room understood exactly what he meant because they had also encountered that same pattern.
Line up the frameworks next to each other and the problem becomes obvious. Over the past few years, a useful set of classification systems has emerged to define what counts as climate finance, and in particular what counts as adaptation and resilience finance, a category that has always been harder to pin down than mitigation.
The MDB Common Principles for Climate Finance Tracking, developed jointly by the multilateral development banks and members of the International Development Finance Club, cover mitigation and adaptation through two separate methodologies. Multinational Development Banks (MDBs) including the World Bank, African Development Bank and European Bank for Reconstruction and Development use the principles as a common basis for tracking and reporting climate finance. The adaptation principles date back to 2015 and were updated in 2023. The MDBs have since developed a separate Common Principles for Tracking Nature Finance, aligned with the climate finance principles but supported by its own definition and taxonomy.
The Tailwind Taxonomy for Adaptation and Resilience Investments offers more than four hundred examples of investable solutions, and maps each one against existing systems such as the North American Industry Classification System so investors already fluent in those systems have somewhere familiar to start. The BII/FMO Climate Investment Playbook was designed for a narrower audience, private equity and venture capital investors, particularly those newer to climate and operating in emerging markets, who need help translating the Common Principles and the EU Taxonomy into something usable at deal stage.
Meanwhile, the Climate Bonds Initiative tackled this through the bond market. Having spent years developing the mitigation-focused Climate Bonds Taxonomy that now underpins a sustainable debt market approaching USD 7 trillion in cumulative aligned issuance. Every one of these exists for a good reason. None of them is wrong and a fund manager trying to raise capital from more than one type of investor is now expected to speak fluently in all of them at once.
A fund caught between frameworks
This has recently happened to a fund. It had built its eligibility criteria and vulnerability assessment framework around one funder’s requirements, reasonably enough, since that funder had been its anchor investor from the start. As the fund matured and began engaging a new institutional investor, the question came up plainly, how did its eligibility framework align with the MDB Common Principles, and had the team considered the Tailwind taxonomy as a reference point.
Frankly, it had not, because the framework had never needed to speak that language before. The underlying work was rigorous throughout. What the fund was experiencing was the ordinary friction of moving from a single donor-aligned framework toward scrutiny from more than one kind of investor, a stage most funds hit eventually and one that has nothing to do with any single fund’s competence. It will keep happening more often as more capital, and more different kinds of capital, enter into this market.
Interoperability over new standards
Another framework will not fix this. If anything, this would make the underlying problem worse, however well-intentioned it might be. What is missing is the capacity to work across several of these frameworks simultaneously and translate between them. That means taking a fund’s existing eligibility criteria, or its GCF-aligned assessment tools, and mapping them against whichever standard a given investor is asking for. Done properly, the gaps become visible and fixable long before they are noticed on a due diligence call.
This kind of translation work already has precedent elsewhere in sustainable finance, applied to a different part of the market. The International Platform on Sustainable Finance spent years developing the Common Ground Taxonomy between the EU and China’s green taxonomies, work that has since been extended into the Multi-Jurisdiction Common Ground Taxonomy covering the EU, China and Singapore, now mapping more than one hundred activities across eight sectors. It exists purely to reduce the cost of a green bond meeting one jurisdiction’s definition of green but not another’s, and it has been used to label Chinese green bonds sold to international investors.
Something similar has begun happening at the adaptation and resilience level too. The Climate Policy Initiative built its own private-sector adaptation finance taxonomy by taking a set of seven themes directly from the Tailwind and Climate Bonds taxonomies and shaping them to track private-sector financial flows. Both examples suggest the market already recognises translation as legitimate, focused work in its own right, once someone is willing to do it.
That is a fairly specific, practical skill, and a different one from designing a framework from scratch. It means tracking the details of several taxonomies together, understanding where they truly diverge and where they are asking the same question in different language. And also being able to update a fund’s documentation so it can stand up to whichever lens it is being read through. It is unglamorous work, and it is exactly the work that unblocks capital sitting on the sidelines because a fund manager and an investor are, technically, talking past each other.
E Co. has been doing versions of this work for a while without treating it as a formal capability, including building additionality tools and vulnerability assessment frameworks aligned to specific funder criteria, then adapting them as clients’ investor base broadens. This alignment work has earned recognition as a capability in itself, not just something that happens inside a broader mandate.
Market expansion and future outlook
Adaptation and resilience finance has gone, in a short space of time, from a niche concern to a central institutional priority. The proliferation of taxonomies is what that kind of growth produces before the market’s infrastructure has time to catch up. But success creates its own friction, and right now it falls squarely between funds trying to raise diversified capital and investors trying to satisfy their own internal standards. What the market needs next probably is not another taxonomy, but specialists who can reconcile existing systems and keep investment flowing.
