Global efforts to tackle climate change are off-track. Without a major, immediate course-correction, the Paris Agreement goal of limiting the global average temperature rise to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C will slip away, with the crossing of climate change tipping points leading to irreversible impacts. Meanwhile, efforts to adapt and build resilience to the impacts of climate change remain inadequate. The challenge is most acute in developing countries, for whom the imperative of climate action is one among several priorities, including wider economic development and poverty alleviation, amidst a complex and difficult global economic backdrop.

Meeting the Paris Agreement’s goals requires a rapid scaling up of financing from all sources – public, private, international and domestic – towards climate action, including in developing countries. Private finance from a range of commercial actors in developed and developing countries is critical to closing the financing gap for investments in climate action, notably in clean energy systems, agriculture, forestry, land-use, adaptation, and resilience. International public climate finance has an important role to play in mobilising such private finance.

Achieving low-greenhouse and climate-resilient development in developing countries requires a significant mobilisation of finance from all sources: public, private, domestic, and international. The estimated financing gap for climate action in developing countries is significant. International public climate finance needs to be deployed more effectively to accelerate and scale up the mobilisation of private finance. This chapter provides context for the report. It presents the global challenge, both in the context of the USD 100 billion climate finance goal and beyond, and the fundamental questions this report seeks to address – what are the barriers to private finance mobilisation, and what are the opportunities to overcome them? – and the report’s scope and methodology for answering them.

This chapter examines trends in private climate finance mobilised by bilateral and multilateral public climate finance interventions between 2016 and 2021. It presents disaggregated analysis of private climate finance mobilisation across a range of dimensions. It analyses the use of different leveraging mechanisms in mobilising private finance, the distribution of private climate finance across developing country geographies and income groups, and the role of different development actors.

This chapter draws on the quantitative analysis in Chapter 2 and further empirical evidence to identify barriers to and opportunities for scaling up the mobilisation of private finance for climate action in developing countries. It explores (i) policy, regulatory and wider constraints in recipient countries and their impact on investor perceptions; (ii) hurdles to private investment and possible solutions in two key areas: clean energy, and agriculture and forestry; and (iii) constraints within the multilateral development architecture that limit private capital mobilisation. Scaling up the mobilisation of private finance requires system-wide action: concerted efforts to improve the conditions for private investment in developing countries; more effective use of public climate finance to crowd-in investment; and strengthening of the international climate finance architecture, notably multilateral development banks, to more effectively partner with the private sector.

This chapter draws on the challenges and solutions identified in Chapters 2 and 3 to set out recommendations to increase and accelerate the mobilisation of private finance, and the role that international public finance providers can play to this end. The chapter identifies three key action areas that policymakers should prioritise: i) tailoring project- and country-level interventions to de-risk projects and markets; ii) scaling up the use of cross-border financing mechanisms and improving co-ordination to channel global finance; and iii) enhancing international institutions to maximise the mobilisation potential of public climate finance.

For the purpose of this report’s analysis and figures, the following classifications are used: