COP29 is over, but climate action also needs private financing: four keys to achieving it

This year’s UN climate conference (COP29) has come to a controversial end, with rich countries pledging to raise $300 billion annually by 2035 to help poorer countries fight climate change: current funding levels. Threefold, but far from what developing countries had expected. Delegates from 190 countries worked overtime to avoid leaving Baku, Azerbaijan empty-handed.

Under the agreement, rich countries will make payments from a variety of sources, including governments and bilateral and multilateral agreements. The agreement also reaffirmed COP28 promises, which included tripling renewable energy, doubling energy efficiency and moving away from fossil fuels.

The current target of $100 billion annually expires in 2025, so setting a new target was one of the key mandates of COP29. Before the Baku conference, there was consensus that the deepening climate crisis required greater financial investment, but estimates of how much ranged from $200 billion to $1.3 trillion per year.

However, domestic investment is only part of the story: the fight against climate change also requires an unprecedented level of international cooperation between private interests, development banks and carbon markets. Here are four key ways for the world to advance the fight against global warming beyond the bounds of COP29.

1. To promote private investment

The final COP29 agreement makes clear that public money will only go towards financing the green transition. The need for private capital is increasing.

But one of the key steps to mobilize private finance on a large scale is standardization and convergence. This may seem disingenuous in a political context that looks increasingly fragmented, but for financial institutions and markets to support climate finance, they need to know what they are doing.

It is the job of central banks, standards bodies, regulators and stock exchanges to establish those definitions. Coordination in this regard must improve dramatically and quickly.

2. Fight greenwashing

We must improve global standards to combat greenwashing green washingHe marketing Which leads consumers, or investors, to believe that a company is more concerned about the environment than it actually is.

Although capital markets are global, they operate within a fragmented framework that weakens their effectiveness. This has led to an increase in “greenwashing” as companies and investors operate under unclear or inconsistent guidelines: expressions such as “eco-friendly” or “green” may have different legal or cultural meanings in different places around the world. .

The EU’s Green Taxonomy is a step in the right direction, providing transparency that helps prevent greenwashing and align investments with real sustainability efforts.

3. Normalize carbon credits

Stocks and bonds are universal, but carbon credits are not. They depend on the country, as different states set up their own emissions trading systems, and set corresponding prices.

The fragmentation of carbon prices is a major obstacle to global climate action. Although the economic damage caused by emissions is shared globally, CO₂ prices vary widely across countries, and this fragmentation undermines the effectiveness of climate finance. It also complicates global trade, investment and emissions reduction strategies.

A global standard for carbon pricing would improve coordination, reduce market distortions and facilitate cross-border investments.

This is not only a moral issue, but also a practical one. Without a balanced approach, public resistance in fossil fuel-dependent areas will be too great, causing progress to slow or stop altogether. These governments must be able to invest in reskilling, community development and infrastructure that supports alternative livelihoods, ensuring that those most affected by the transition to a green economy are not left behind.

4. Involve development banks

In the past, institutions such as the WTO were instrumental in promoting trade during the height of globalization, and multilateral development banks (MDBs) can play a similar role in financing the fight against climate change today.

MDBs – such as the World Bank and the European Investment Bank – are uniquely positioned to act as coordinators of climate finance, mitigating risks and mobilizing private investment.

Through structured processes, risk sharing and loan enhancements, MDBs have a multiplier effect that attracts private capital to climate projects that might otherwise be considered too risky. Leveraging their partnerships, these banks can lead transformational change by bringing together public and private capital to scale up climate finance, which traditional government interventions alone cannot achieve.

Increasing cross-border financing for the fight against climate change is in the interests of developed countries, given the economic risks they face. Harmonized carbon pricing and strong green standards reduce inefficiencies and build trust. MDBs, through their multiplier effect, can mobilize private capital on a large scale. These pillars are not idealistic but practical, linking national interests with global needs.

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Article by Nuno Fernandes, IESE Business School (University of Navarra).