Conditions for climate-efficient Official Development Assistance from the EU and its Member States

Context 

The New Collective Quantified Goal calls on developed countries to increase funding for climate, with a target of US$ 300bn per year by 2035. This goal has a similar scope to the US$100 billion agreed in Copenhagen and thus requires a significant step-up in climate spending. The subsequent Baku to Belém roadmap aims to chart a path to mobilising US$1.3 trillion from all sources. Concessional funding is certain to play a role.  

Though widely overlooked when the debate focused on an ambitious finance target, the issue of allocation takes on even greater importance at a time when cuts in development aid budgets are likely to jeopardise the concessionality of climate and development finance. Global Official Development Assistance (ODA) (all purposes) fell from US$223 billion in 2023 to US$212 billion in 2024, and the OECD anticipates a further drop (up to 17%) in 2025 (OECD, 2025). 

Indeed, shrinking aid budgets will likely entail a re-prioritisation of ODA, where it is imperative that climate remains in scope while acknowledging the linkages with development finance. Such redirection should rely on evidence of the conditions under which concessional finance has the highest potential to generate positive climate impacts or to mobilise additional finance.  

The levers for mobilising and scaling up finance are very different among emerging and developing economies (EMDEs). Least developed countries receive 82% of climate finance as concessional funding (including nearly 50% as grants), mostly from international public finance (CPI, 2024). The current global geopolitical context makes it increasingly important to channel concessional finance to the most vulnerable countries and design the most impactful development assistance programs. This project considers how to reflect considerations on quality of climate finance in donor strategies. 

Upstream of donor allocation strategies, more granular estimations of climate finance needs can also help support better allocation. Climate finance targets such as the NCQG are negotiated based on broad climate financing needs estimates, which are not fit-for-purpose when moving from ambition to action. Refining needs assessments – so that they meaningfully inform both policy discussions and finance mobilisation efforts – means shifting from investment totals to actionable financing strategies. This project also examines the need for demand side intelligence.  

Objectives 

Against a backdrop of ODA reductions in Europe, the objective of our research is to contribute to a clearer understanding of the conditions under which bilateral ODA contributions from EU Member States can achieve positive outcomes for climate while supporting development objectives.  

The specific aims are to: 

• Capture the state of play of climate-related development finance, focusing on how the funds are allocated (instruments, recipient countries, sector) by EU member states and institutions 
• Identify the situations where ODA has proven crucial to addressing climate and development objectives, based on case studies 
• Provide input for and foster dialogue between EU Member States’ bilateral aid agencies around their approaches to ODA allocation for climate, in view of providing guidance and principles to optimize allocation strategies. 
• Provide tools to refine climate finance needs assessments. Namely, develop a pilot on urban adaptation to reconceptualize adaptation financing by examining financing structures, and quantify how high cost of capital and low concessionality impact project viability. 

Partner

European Climate Foundation

Period 

June 2025 – March 2026