Why Integrating Climate and Development Finance is Key to Global Progress
In Asia Pacific, climate shocks are already rewriting the development story. The region has suffered over half of all global climate disaster related deaths and almost US$2.7 trillion in damages since 1970. That is not an environmental footnote. It means lost schools, hospitals, factories, livelihoods. For governments, the way climate finance, development finance, and sustainable investment are aligned will determine whether growth is resilient or fragile.
If you sit in a finance ministry or planning commission, you feel this every budget cycle. Then a flood, heatwave, or storm wipes out years of progress. Yet climate finance, development finance, and debt management often still sit in different silos, each with their own strategies and reporting lines.
That separation has become a serious structural risk. Integrated climate and development finance is no longer just a talking point at global summits. It is now a practical requirement for protecting growth, jobs, and stability in emerging markets. The question is not whether to integrate, but how quickly you can redesign your country’s financing architecture so that every development dollar builds climate resilience and supports low carbon growth.
Why separating climate and development finance is now a liability
The false dual agenda
For decades, climate action was treated as a side issue next to what was seen as “real” development. Separate climate funds. Separate targets. In many countries, it even sits in separate ministries. As Mahmoud Mohieldin, UN Special Envoy on Financing Sustainable Development and Co-Chair of the Expert Group on Debt, has argued, the international community has long operated under the illusion that climate action and development are different pursuits, which has hindered progress on both agendas.
In practice, almost no project is purely “climate” or purely “development”. If a flood resistant road keeps trade flowing after a cyclone, should that be counted as climate finance, development finance, or both? When you modernise an irrigation system to cope with erratic rainfall and raise farmer incomes, which budget should pay?
Integrated finance is the only viable path forward, because a government that invests in climate action such as resilient agriculture or green transport is also advancing development goals. Keeping climate and development in different “boxes” multiplies transaction costs, fragments accountability, and wastes scarce fiscal space. An integrated approach lets your team build a single pipeline that serves multiple mandates instead of competing ones.
The scale and structure of the finance gap
The numbers alone make the case for integration. Developing countries will require between USD 5.1 and USD 6.8 trillion through 2030 to meet their NDCs, while adaptation finance needs are 10 to 18 times greater than current international public finance flows. On top of that, debt overhang and high interest rates constrain your ability to borrow. For a finance ministry, this means every new borrowing decision must now weigh not only immediate growth payoffs, but also how it affects long term exposure to climate shocks, credit ratings, and refinancing risks.
At the same time, financing green energy in developing countries can cost 2 to 3 times more than in advanced economies due to structural biases such as sovereign ratings and currency risk. Integration does not magically create new money. What it does is force a different question: given limited fiscal space and expensive debt, which investments reduce long term climate risk, support growth, and lower your future financing costs all at once?
Climate risk is already a development risk
The climate crisis is not a future scenario on a slide deck. It is baked into local economic realities. In India, for instance, three out of every four districts are now extreme climate event hotspots with overlapping hazards, affecting 80 percent of the population. That is a development map as much as a risk map. For planners, this means traditional cost benefit tools that ignore climate variables are now outdated, because they miss how repeated shocks erode tax bases, strain social protection systems, and weaken investor confidence.
Imagine a coastal city government trying to protect jobs while facing annual flooding and heat stress. If the only money tagged as “climate finance” can fund a handful of pilot projects, but the main infrastructure budget ignores risk, the city will keep rebuilding the same vulnerable assets. Integrated climate and development finance would instead align housing, transport, drainage, and health spending around a shared resilience plan.
For finance and planning ministries, the implication is stark: national budgets that ignore climate risk are mispricing development projects. You are effectively underestimating future repair costs, revenue losses, and social instability. Treating climate as a core development variable is not environmental activism. It is sound macroeconomic management.
What integrated climate finance and development finance look like in practice
Blended and concessional capital as catalysts, not crutches
Blended finance is often presented as a magic solution, but it is not. Used well, it is a powerful tool in an integrated architecture. In many structures, concessional capital often accounts for only 20 to 30 percent of blended finance structures, with 70 to 80 percent coming from private investors. It shows that public and development finance can be catalytic rather than the dominant source. For example, a modest public guarantee can sometimes unlock an entire portfolio of grid or transport projects that would otherwise be priced out by perceived sovereign or currency risk.
For your institutions, the key questions become: where does a limited pool of grants or cheap capital unlock the most system level impact? Is it first loss equity in a distributed solar facility that expands access and resilience? A guarantee that lowers financing costs for climate smart irrigation? Or early stage design grants that turn fragmented proposals into bankable programs?
Blended finance cannot compensate for weak governance, opaque procurement, or uneconomic projects. It can, however, tilt the risk return equation just enough to bring in commercial capital where development and climate priorities overlap. That is only meaningful if your national strategy clearly defines those priority intersections.
Outcome anchored models that serve people and nature
Integrated finance is ultimately about paying for outcomes rather than labels. The most promising new models tie disbursements to avoided emissions, restored ecosystems, and improved livelihoods at the same time.
One example is the Tropical Forests Forever Facility, described as an ambitious blended finance mechanism designed to unlock large amounts of public and private capital for conserving tropical forests. If it succeeds, it will show how outcome anchored climate finance can preserve biodiversity, support local livelihoods, and advance development simultaneously.
Grids, land, and local resilience integrated on the ground
Nowhere is the integration challenge more concrete than in energy and land use. Power grids are core development infrastructure. Planning them with climate goals in mind can actually improve reliability and cost. In India, research has shown that scaling non fossil capacity to 600 GW would yield the most reliable grid at the lowest cost, countering the belief that renewables undermine stability.
The same analysis found that India can achieve over 7,000 GW of renewable power and 56 million tonnes of green hydrogen if projects are steered away from fertile farmland, use water sustainably, and share benefits with local communities. That is an integrated land, water, energy, and development model in action. For policymakers in emerging markets, the practical takeaway is clear: integrated climate and development finance is less about new labels and more about redesigning core infrastructure decisions to reflect the full costs and benefits you already face.
How governments and institutions can build integrated finance architectures
Budgeting, mandates, and metrics that align climate and development
Integration starts with how you plan and budget. Some development institutions are already moving in this direction. The World Bank Group has committed to provide 120 billion dollars annually in climate finance by 2030, with nearly half of its development financing already having climate co benefits, and aims to mobilize 65 billion dollars per year from the private sector. Crucially, climate is being integrated into its core development mandate rather than treated as a separate window.
For governments, similar principles apply. Embed climate criteria in public investment management systems. This can be as practical as requiring all large capital projects to include a simple climate risk screening and, where relevant, a quantified adaptation or mitigation plan before they reach cabinet approval. Update central bank and regulator mandates so climate risk is part of financial stability assessments. Develop shared metrics that line ministries and treasuries can use to score co benefits, instead of arguing from different evidence bases. These are governance choices, not technical problems.
Faster, fairer climate and development finance for emerging markets
Speed and fairness are where integration becomes urgent. A year long approval cycle for climate financing can turn a disaster into a catastrophe for communities at risk of floods and droughts. Slow, fragmented processes turn climate shocks into development crises.
At the same time, debt distress and high borrowing costs continue to constrain countries’ ability to invest. This is why debt relief, restructuring, and new concessional instruments are increasingly being designed in tandem with climate-smart investment. Globally, the New Collective Quantified Goal sets an even stronger signal after COP30: the NCQG now targets mobilizing around USD 1.3 trillion annually by 2035 for climate action in developing countries, and further mandates tripling global adaptation finance within that target by 2035.
This commitment, reinforced at COP30, clarifies not only the scale of ambition but also the accountability of developed countries to deliver. Without integration, these resources risk reinforcing old silos. With integration, they can enable country-led strategies that align climate action, development goals, adaptation priorities, and debt management within a single, cohesive framework, as emphasized by the most recent COP outcome.
The Nexus Climate perspective: aligning innovation, policy, and capital
Integrated finance also has to reach the frontier of climate innovation. Early stage technologies and business models in sectors like heavy industry, built environment, water, and agriculture are central to both climate and development outcomes, yet they often struggle to access capital aligned with national priorities. For a ministry or public bank, this often shows up as a thin pipeline of bankable climate projects, even when there is clear political commitment and available funding on paper.
At Nexus Climate, we often work with public and private institutions that recognise this gap. As described in its own materials, our policy work with public and private institutions aims to create a more favourable environment for early stage climate innovation and investment, and we are looking into gaps in financing the scaling of early stage climate technologies and exploring ways to catalyze the right kind of investments to maximize climate impact and returns.
From a practitioner standpoint, integrated climate and development finance cannot stop at sovereign projects. It needs to flow through domestic financial systems, innovation ecosystems, and industrial strategies. Partnering with practitioner led platforms can help you translate high level goals into investable pilots, pipelines, and policy reforms.
If you are reassessing how your country finances its transition, our team at Nexus Climate works with governments and public institutions to align climate policy, climate finance, and development finance in integrated strategies, from regulation to project pipelines. Contact us to explore what an integrated model could look like in your context.
FAQ
1. Why is integrating climate finance and development finance especially important for emerging markets?
Emerging markets face intense climate impacts and large development needs at the same time. For example, Asia Pacific has suffered over half of all global climate disaster related deaths and around US$2.7 trillion in damages since 1970, putting hard won development gains at risk. Integrating climate and development finance helps governments make each investment deliver multiple outcomes such as resilience, jobs, and growth. It also allows ministries of finance and planning to manage debt, fiscal space, and climate commitments in a single framework instead of competing silos.
2. What practical steps can governments take to start integrating these finance streams?
Governments can begin by: (a) embedding climate risk and emissions criteria into core public investment, budgeting, and climate policy processes, not just “green” projects; (b) aligning national development plans, NDCs, and sectoral strategies so they share the same priorities and timelines; (c) working with development banks to design blended finance facilities that support both infrastructure and resilience; and (d) improving data and analytics on local climate risk so projects are targeted where they protect people and assets most effectively.
3. How does blended finance support both climate and development goals?
Blended finance combines concessional capital, such as grants or low interest loans, with commercial investment. Typically, concessional funds make up about 20 to 30 percent of a structure, with 70 to 80 percent coming from private investors. When used well, this approach can lower risk and the cost of capital, making more projects viable in sectors such as clean energy, resilient agriculture, and sustainable transport. Since these projects reduce emissions or climate risk and also expand access to services and jobs, they serve climate and development objectives at the same time.
4. Where does Nexus Climate fit into the climate and development finance landscape?
Nexus Climate works at the intersection of policy, innovation, and capital. Through its advisory and policy work with public institutions, Nexus Climate helps create more favourable environments for early stage climate innovation and investment. In parallel, Nexus Climate is developing Nexus Climate Capital to manage syndications and funds that support climate tech startups and scale ups, with the goal of catalyzing investments that maximize both climate impact and financial returns. This combination gives governments and partners practitioner led insight into how to design integrated, investable transition pathways.
5. How can our ministry or agency engage with Nexus Climate on integrated finance or climate innovation?
Public institutions can reach out to Nexus Climate to discuss collaboration on areas such as market and policy diagnostics, integrated transition roadmaps, early stage project pipeline development, or climate tech focused investment vehicles. Nexus Climate’s team draws on deep experience across climate, technology, policy, and finance to provide practical, jargon free support. To explore potential collaboration, you can use the contact options available here on the Nexus Climate website.
