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Terms of Climate Finance Make a Mockery of Justice Claims
Insisting on loans instead of grants, especially on non-concessional terms, exacerbates the debt traps of many developing countries already deeply ensnared.
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The people of the Global South waited with eager expectation and hope that their climate efforts would receive a big boost when Climate FinanceDefinitionFinancial resources provided by developed countries to developing countries to help them address climate change, including mitigation and adaptation efforts. promised by the rich countries materialized. Now, rich countries claim they crossed the promised annual contribution of $100 billion by 2024, but can it be argued that the cause of Climate JusticeDefinitionA concept that frames global warming as an ethical and political issue, rather than purely environmental or physical in nature, advocating for equitable distribution of the burdens and benefits of climate change and its solutions. has been adequately served?
The answer clearly is ‘no,’ and this is related significantly related to the terms on which this finance has been provided. There are fewer grants and more of loans; fewer concessional loans and more of standard interest rate loans.
In a report published about a year back in October 2025, Oxfam and Climate CARE said that for every five dollars given as climate finance, seven may have to be returned, leading to reverse flow to rich countries.
Oxfam’s Climate Policy Lead Nafkote Dabi said, “They are lending money to the very people they have historically harmed, trapping vulnerable nations in a cycle of debt. This is a form of crisis profiteering.”
John Norbo, Senior Climate Adviser at CARE, Denmark said, “In fact, many wealthy countries are gutting aid, leaving the poorest to pay the price, sometimes with their lives.”
Earlier in an analysis particularly of World Bank’s climate finance, CARE said, “World Bank projects show a clear trend: although the World Bank is a major contributor to adaptation finance, a significant portion of its loans are offered on Non-concessional termsDefinitionLoan conditions that are closer to standard market rates, without the preferential interest rates or repayment schedules typically associated with development aid.. These loans come with standard market interest rates, which are now much higher than they were a few years ago, drastically increasing the debt of the recipient countries.”
This is all the more harmful for developing countries considering that such climate finance is generally not for income-earning projects. Only projects designed to be income-earning can at least hope to generate enough to pay back the principal amount and the interest. Insisting on giving only loans instead of grants, and that too increasingly on non-concessional terms, results in worsening the Debt TrapsDefinitionA situation where a country is unable to repay its debts, leading to a cycle of borrowing more to service existing debt, often resulting in economic instability and loss of sovereignty. of many developing countries that are already caught deeply in this. Where is the justice in this finance?
Around two thirds of the climate finance is in the form of loans, perhaps a little more. Less than one third is for adaption aspects, which has more chance of helping vulnerable people and communities. As a result of giving more priority to getting the money back with interest, the poorest countries and the most vulnerable people have not received the due attention and priority.
Compared to the estimated needs of developing countries for climate adaptation funds amounting to over 300 billion dollars by 2035 (over 400 billion after providing for inflation), at present only about 30 billion dollars are available, and even if tripling of these funds is achieved by 2035, something which has been often discussed but not yet agreed to, still the available funds will be less than a third of the need in 2035. Again when tripling is at least discussed, we are not told how much will be loan and how much will be grant. Such loans, particularly those given at standard rates, can be quite problematic and there should be an unbiased, independent audit of the actual impact and utility of such loans.
COMPARATIVE ANALYSIS
Climate Adaptation Funding Gap (2035 Projections)
VISUALS BY THE RIFT
Much is made of the original target of annual climate finance of 100 billion dollars having been crossed recently, but this fails to take into account to what extent inflation has reduced the real value of this target since it was set a very long time back, to what extent the needs have increased and to what extent what was supposed to be ‘justice’ based funding has been turned into profit earning transactions.
Clearly, there is a strong case for increasing climate justice finance and significantly reforming it to ensure it truly serves justice.
Disclaimer:The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of The Rift.
