What is Climate Finance :
Any financing that flows to help address the needs for Climate Change Mitigation (reducing the root cause of Global Heating, ie, emissions of Green House Gases GHS), or Adaptation to Climatic Changes, or to acquire technologies that helps in either, or even building capacity in poorer and less developed countries to do Mitigation or Adaptation : is generally called Climate Finance. In addition to that, any external financing (from sources outside of the country where it’s received) for responding g to climatic disasters and the resulting Loss and Damage (of lives, properties, infrastructures and social fabric too — not only monetary losses), is called Loss and Damage Finance (like the recently sanctioned USD 21 million to Nepal, to to start dealing with the August 2026 Himalayan disaster), and is part of overall Climate Finance.
According to originally accepted ideas and definitions adopted in the United Nations Conference on Environment and Development UNCED, better known as the “Earth Summit”, held in 1992 in the Brazilian city of Rio-dege iro, climate finance was supposed to be flowing from Annex.I countries (the 36/37 rich, developed countries which emitted the most GHGs in the course of their last 150+ years of Fossil Fuel powered ‘development’, to Non Annex countries, mostly the poorer, less industrialized developing countries, including what are today defined as “emerging economies”. This was explicitly written in Article 3 of the convention. The United Nations Framework Convention on Climate Change UNFCCC, is one of the outcomes of this 1992 Earth Summit.
It was also a generally accepted understanding that all or most of climate finance will be grant based, not adding to debt burdens of already debt-stressed poorer developing countries, and that most of these will be Public finance, rather than dodgy private financial sources, which will seek short term financial returns. Over the past three decades, many of these ‘accepted principles of climate finance’ were slowly undermined / violated. More so after the 2007-2008 global economic collapse.
That’s a story to be written separately.
Climate Finance and India :
In this short coverage, let’s focus a little more on the climate finance scene in India, leaving the global climate finance scene in the backdrop.
There is no doubt that the growing flow of climate finance into India has given many agencies and people (particularly in the Climate Governance circles) a feeling that a lot is happening. The rapid rise of renewable energy installed capacity, rapid rise of EVs in many countries, electrification of public transportation and connecting these with RE sources – globally and in India, no doubt indicate some real progress. But a closer look at India’s Climate finance reveals a fundamental imbalance : private capital is increasingly attracted to commercially profitable mitigation, while the adaptation needs of vulnerable people remain overwhelmingly dependent on public resources. A just transition requires changing this equation.
Climate finance is often presented in impressive numbers only : billions of dollars invested in solar parks, wind farms, electric vehicles, green hydrogen and energy-efficient infrastructure. India, too, has witnessed a substantial expansion of climate-related investment.
Yet, behind these headline figures lies a more complicated question : who is financing which climate interventions, who benefits from the investments, and who is left struggling to protect their lives and livelihoods against worsening climate impacts ?
From a climate justice and just transition perspective, the distribution of climate finance matters as much as its overall volume. Financing a commercial solar power project and protecting small farmers against recurrent droughts may both constitute climate action, but their financial structures, beneficiaries and social purposes are fundamentally different.
The expanding climate-finance landscape.
According to the Climate Policy Initiative’s (CPI) Landscape of Green Finance in India 2026, India’s tracked annual climate finance averaged ₹8.20 trillion (approximately US$100.4 billion) during FY2022–23 and FY2023–24. This included ₹6.685 trillion (US$81.9 billion) for mitigation and ₹1.510 trillion (US$18.5 billion) for adaptation.
These figures indicate substantial growth in climate-related investment. Mitigation finance increased by around 80 per cent compared with FY2021–22. However, the figures cover selected sectors and activities, and should not be mistaken for a complete accounting of every climate-related expenditure in India.
The sources include central and state government budgets, public-sector undertakings, commercial banks, private companies, infrastructure funds, international development banks and climate funds. Their instruments range from outright grants and concessional loans to commercial lending, equity investments, green bonds, guarantees and blended finance.
The distinction between these instruments is crucial. A grant is not equivalent to a loan that must be repaid with interest. Nor should a commercial investment mobilised through a public guarantee automatically be counted as international public climate support.
Who finances mitigation?
The clearest pattern is the growing dominance of
domestic capital in mitigation. CPI estimates that domestic sources accounted for 88 per cent of tracked mitigation finance in 2023–24. Private actors contributed 68 per cent of this domestic financing, led by commercial financial institutions. Domestic public finance came primarily through government budgets and public-sector undertakings.
Renewable energy is a major beneficiary. Solar and wind projects attract private equity, commercial bank loans, infrastructure funds and corporate investment because they offer relatively identifiable revenue streams through electricity sales and power-purchase agreements. Similar opportunities are emerging in battery manufacturing, electric mobility, charging infrastructure, industrial energy efficiency and green hydrogen.
International finance also plays an important role. The World Bank, Asian Development Bank, Asian Infrastructure Investment Bank, New Development Bank, Japan’s JICA, Germany’s KfW and France’s AFD provide loans, concessional finance, guarantees and technical assistance. The Green Climate Fund (GCF) offers grants, loans, equity and guarantees. Its India portfolio includes support for rooftop solar, electric mobility, climate-oriented enterprises and MSME financing.
The Clean Technology Fund has supported solar parks, rooftop solar and associated transmission infrastructure. These arrangements illustrate how international public finance can help reduce investment risks and mobilise additional private capital.
But we must ask whether the growing availability of finance for commercially viable mitigation is being matched by adequate resources for those who face the gravest consequences of climate change.
Adaptation : the glaring financing imbalance
Adaptation is where the imbalance becomes particularly concerning. According to CPI, domestic sources account for approximately 95 per cent of India’s tracked adaptation finance. The earlier CPI assessment for FY2021–22 found that almost all adaptation finance came from domestic public sources, with private-sector contributions negligible.
India’s adaptation requirements are enormous. Small and marginal farmers need reliable water access, drought-resilient agriculture, weather information and crop protection. Fishers and coastal communities need protection against cyclones, coastal erosion and changing marine ecosystems. Informal workers, construction labourers and street vendors need protection against increasingly dangerous heat stress. Himalayan communities need support against glacial lake outburst floods, landslides, changing water availability and ecosystem degradation.
These interventions often generate enormous social and economic benefits but little direct commercial revenue.
Consequently, private investors have limited incentives to finance them.
The National Adaptation Fund for Climate Change, supported through NABARD, has financed state-level interventions involving agriculture, water security, livestock and vulnerable ecosystems. International grants from the Adaptation Fund, GCF and GEF have also supported community resilience, watershed development, coastal protection and climate-sensitive livelihoods. Yet the scale of these interventions remains highly inadequate relative to the growing risks.
The problem extends far beyond India though. UNEP’s Adaptation Gap Report 2025 (already outdated by its reference sources) estimates that developing countries will require US$310–365 billion annually by 2035 for adaptation. International public adaptation finance, however, was only US$26 billion in 2023, down from US$28 billion in 2022. Estimated needs are therefore at least 12–14 times current international public flows.
For least developed countries, small island developing states and other highly vulnerable countries, this financing deficit threatens development itself, sometimes – even their survival. Many face repeated disasters, mounting debt and limited fiscal capacity. Asking them to finance essential adaptation through additional commercial borrowing risks deepening their economic vulnerability.
Grants, loans and the politics of climate finance :
The distinction between grants and loans is not merely technical. It concerns justice and responsibility.
Adaptation investments in public health, early-warning systems, ecosystem restoration, community water security and protection of informal workers should receive substantial grant-based support. Highly concessional loans may be appropriate for certain revenue-generating infrastructure, but vulnerable communities and financially constrained countries should not be burdened with debt for protecting themselves against a crisis they contributed least to creating.
International climate finance must also be assessed against the principles of equity and Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC). Developed countries have historical responsibility for the accumulation of greenhouse gases and greater financial capacity. Their obligations cannot be discharged simply by encouraging private investment or extending loans at commercial or near-commercial rates.
The GCF and Adaptation Fund provide important grant-based channels, while MDBs and bilateral development agencies provide a mixture of grants, concessional loans and other instruments. However, the volume, accessibility, predictability and grant-equivalent value of this support matter more than announcements of total commitments.
A just transition must reach workers and communities
Climate finance must also address the social consequences of the transition itself. Renewable-energy expansion, critical-mineral extraction, transmission corridors and large infrastructure projects can create new pressures on land, forests, water and livelihoods.
Pastoralists, small farmers, forest-dependent communities and Indigenous peoples must not be displaced or deprived of resources in the name of decarbonisation (mega solar parks are often doing just that). Nor should workers in coal-dependent regions be expected to absorb the economic costs of energy transition without retraining, income security, social protection and alternative employment.
Public finance has a critical role here : supporting workers, strengthening local economies, financing decentralised renewable energy, enabling community ownership and ensuring meaningful participation in decisions affecting land and livelihoods.
Private capital can contribute to these objectives to a degree, but profitability cannot be the principal test of which communities deserve protection.
Changing the priorities of climate finance :
India needs a more transparent and comprehensive climate-finance accounting system, distinguishing domestic from international sources, public from private capital, and grants from loans, equity and guarantees. Announced, approved, disbursed and actually utilised amounts must be reported separately. Co-financing must be recorded carefully to prevent double counting.
More importantly, climate-finance allocation must be guided by vulnerability and need, not simply by investment readiness or expected financial returns.
Local governments, panchayats, community organisations and frontline workers need accessible funding for heat protection, resilient agriculture, water security, disaster preparedness and ecosystem restoration.
Private investment should be mobilised wherever commercially appropriate, with safeguards against public risk being socialised while private gains are concentrated. But public and international grant finance must remain the foundation for essential adaptation and community protection.
Ultimately, climate finance is not just about mobilising capital for a low-carbon economy. It is about determining whose lives, livelihoods and futures are protected in a dangerously warming world. If the transition finances profitable technologies while leaving the most vulnerable people and countries to cope with climate disasters largely on their own, it cannot be called just.
A genuinely just climate-finance architecture must put people, livelihoods, ecological security and historical responsibility at its centre.
References :
- Climate Policy Initiative (2026), Landscape of Green Finance in India 2026.
Report and data. - UNEP (2025), Adaptation Gap Report 2025 : Running on Empty. Report.
- CEEW Green Finance Centre (2026), Arjun Dutt, Dishant Rathee and Gagan Sidhu, Mobilising Private Finance for Climate Investment in India. Report.
- Climate Policy Initiative (2024), Financing Adaptation in India. Report.
- Government of India, Ministry of Environment, Forest and Climate Change (2023), India’s Third Biennial Update Report to the UNFCCC.
- Government of India, Ministry of Finance (2026), Economic Survey 2025–26, Chapter on Environment and Climate Change. Official release.
