This report synthesises key discussions from a significant session at the Hamburg Sustainability Conference (HSC) 2025, titled “Charting a New Financial Course: Mobilizing Climate Action from COP29 to COP30”. The session focused on the critical need to accelerate climate finance, particularly private sector investment, to meet global sustainability targets and address the profound challenges of climate change. Organized by partners including the German Federal Ministry for the Environment, Climate Action, Nature Conservation and Nuclear Safety, the event brought together leading figures from government, finance, and international organizations.
The Urgent Imperative for Mobilizing Climate Finance
The global community faces a significant challenge in mobilizing the necessary financial resources for climate action. A key target discussed was the New Collective Quantified Goal (NCQG) of $1.3 trillion needed by 2035. This substantial figure underscores the urgent need for private sector investment, as public budgets alone cannot meet this demand. As highlighted by State Secretary Jochen Flasbarth, the aim is to transform the logic of the economy, making green investments the “new normal” and phasing out “brown” investments. However, mobilizing such capital is complex, especially in a world with increasing geopolitical tensions and skepticism towards international cooperation.
Overcoming Structural Barriers to Private Investment
A core insight from financial experts like Avinash Persaud is that finance is structural, not merely a matter of profitability. Institutional investors, such as pension funds and life insurance companies, typically seek triple-B rated, euro- or dollar-denominated instruments with specific yield targets. However, projects in emerging markets often present as unrated, unpermitted, unconstructed, or early-stage, which deters these investors despite their interest. This creates a “puzzle” that needs to be broken.
Furthermore, Official Development Assistance (ODA) is regrettably shrinking, putting more pressure on the private sector, yet the promised trillions from the private sector have not fully materialized since the 2015 Addis Ababa discussions on financing for development.
Innovative Financial Instruments and Mechanisms
To bridge the massive financing gap, various innovative instruments and approaches were discussed:
- Green Guarantees: Initiatives like the Green Guarantee are crucial instruments to de-risk private sector involvement.
- Blended Finance: The LA Climate Private Sector Mobilization Fund was created to boost blended finance in climate action areas.
- Debt-for-Climate Swaps: An example is the project in Barbados with the Inter-American Development Bank (IDB) and the European Investment Bank (EIB), which restructured debt to free up resources for critical projects like wastewater management.
- Climate Syndication Platform (CSP): Developed by the German KfW and EBRD, this platform bundles B-loan private institutional investors and provides extra credit protection through a first-loss risk cover, catalyzed by over 400 million euros from the International Climate Initiative (EKI).
- FX-Hedging Platforms: To address foreign exchange risk, development banks can provide hedges on the real exchange rate, which falls a tenth of what the nominal exchange rate falls, allowing projects to be fully hedged on FX.
- Tropical Forest Forever Facility (TFF): Proposed by Brazil’s Ministry of Finance, this facility aims to mobilize $25 billion from governments to catalyze another $100 billion from private investors for nature-based solutions, bioeconomy, and circular economy projects.
- Country Investment Platforms: These are emerging as “matching places” for demand and supply of projects, guiding investments towards new technological paths.
- Carbon Markets: Both voluntary and compliance carbon markets are growing, with over 40 jurisdictions now having them, offering a tool for decarbonization.
The Role of Governments and Policy Coherence
Governments play a vital role in creating an enabling environment for private financial flows towards climate action and neutrality. This involves:
- Regulatory Frameworks: Examples include the EKI’s support for an emission trading scheme in Mexico to price CO2, and the support for South Africa in changing its electricity regulation to ensure non-discriminatory access to the grid, making every wind and solar park a viable business case without ODA.
- Sustainable Finance Policies: Supporting the development of instruments for risk assessments in the banking sector and policies like green taxonomies are essential for investors to have a full picture for their decisions. Cooperation with the IDB on green taxonomies in Latin America has been successful. Brazil is building its own sustainable taxonomy, which includes social goals (reducing inequalities, promoting decent jobs, guaranteeing rights) and involves extensive public participation from various entities, including indigenous peoples.
- Budgetary Alignment: Governments should integrate a sustainability perspective into their budgeting cycles, directing public investments towards projects that align with the “new ecological paradigm”. Christina Fróes de Borja Reis from Brazil’s Ministry of Finance emphasized the need for coherence among financial, regulatory, tax, and administrative instruments to pursue economic, social, environmental, and climate objectives, terming this “ecological transformation”.
The Critical Role of Multilateral Development Banks (MDBs)
MDBs like the EIB and IDB are positioned between public funding and private investment, and their role is increasingly vital as ODA shrinks. They play a crucial part in attracting private capital and de-risking investments.
- Leveraging AAA Ratings: MDBs can use their AAA ratings to lower borrowing costs for developing countries and provide guarantees, effectively “passing a cordon of AAA” around renewable and emerging assets.
- De-risking: MDBs contribute to de-risking private sector involvement, recognizing that entrepreneurs should take reasonable risks but not every risk.
- Project Examples: The EIB allocates 60% of its lending to climate-related investments, including projects outside Europe. The Global Bond Initiative, launched with the European Commission and other European development finance institutions, has a large first-loss piece to attract private bondholders for green bonds issued by developing countries.
- Supporting Local Financial Institutions: The EIB also lends to local financial institutions in Africa to support climate, gender, and women empowerment projects, demonstrating that significant public funding isn’t always needed for development finance.
- Staying the Course: Ambraise Fayolle of the EIB stressed that MDBs must maintain climate as a key priority for their credibility and contribution to global challenges.
Data, Risk Perception, and Systemic Issues
Perceptions of risk in developing countries often hinder investment. However, data-driven approaches can demystify these markets:
- GEMS Database: The GEMS (Global Emerging Markets Survey) database, a collaborative effort of 27 MDBs and bilateral institutions over 40 years, provides real numbers on default and recovery rates. This data suggests that the risk level and default risk level in the “poor part of the world is low, if not very low,” for direct investments.
- Project vs. Macro Risk: While project-specific risk in developing countries can be comparable to developed countries, the primary risk is often macro-economic or country-specific, not project-specific. This macro risk is rooted in a global financial system that defines certain assets (e.g., Euro, Dollar) as “safe” and others as “risky,” regardless of underlying debt-to-GDP ratios. This asymmetry means that in a crisis, developing countries often have to raise interest rates, exacerbating their situations, unlike developed countries with central bank support.
Youth Engagement and Addressing Vulnerable Communities
The conference also addressed the crucial aspect of ensuring climate finance benefits the most vulnerable communities and engages future generations.
- Directing ODA for Loss and Damage: Avinash Persaud argued that Official Development Assistance (ODA) should be primarily focused on loss and damage for the poorest and most vulnerable people, rather than on renewable energy projects (which the private sector can handle) or adaptation (which MDBs can scale). He noted that $150 billion in loss and damage is already being paid annually by the most vulnerable.
- Public Participation: Public participation in policy-making, as exemplified by Brazil’s sustainable taxonomy development, is vital to ensure that policies reflect the needs and priorities of communities, including indigenous peoples.
- Human Development Integration: When considering the $1.3 trillion target, it’s crucial to factor in human development issues like education quality and R&D, as these directly impact the capital cost of energy transition and climate actions. Institutions should not only pursue “green standards” but also “social standards” (S standards) to ensure projects contribute to human development.
Conclusion
The Hamburg Sustainability Conference 2025 provided a vital platform for frank discussions on the monumental task of financing sustainable development. Key takeaways emphasize the need for concrete, scalable solutions, robust international partnerships, and aggressive mobilization of private sector investment. Overcoming structural financial barriers, leveraging MDBs’ unique positions, and utilizing data to reshape risk perceptions are paramount. Furthermore, integrating human development goals, ensuring equitable access to finance for vulnerable communities, and fostering strong public participation are essential for a just and effective global climate response. The ongoing dialogue and commitment from stakeholders signal a determined, albeit challenging, path toward a sustainable future.