RELEASE: New Report Reveals Flawed Climate Finance Allocation in Low-Income, Low-Emission Countries

A new study released today reveals a major misallocation of climate finance by the World Bank and other multilateral development banks, finding that climate adaptation is significantly underfunded relative to climate mitigation. Looking across all MDBs, 37 percent of $60.9 billion spent on climate finance in low- and middle-income countries in 2022 went to adaptation, while 63 percent went to mitigation. The study calls for an urgent realignment of funding from multilateral development banks, including the World Bank, to stop underfunding climate adaptation and help vulnerable nations build resilience to climate impacts while pursuing sustainable development.

Despite contributing less than 0.5 percent of global emissions, low-income countries – with per capita income of $1145 or less – are among the most vulnerable to climate change, facing severe consequences such as extreme weather, food insecurity, and economic disruption. Between 2000 and 2024, the World Bank provided only $14 billion in adaptation finance to these countries. The study argues that by redirecting more climate finance to adaptation projects, the multilateral development banks could help these nations strengthen infrastructure, boost economic resilience, and better prepare for the impacts of climate change

"The current allocation of climate finance risks pushing low-income, low-emitting countries further into debt for projects that don’t meet their most urgent needs," said Vijaya Ramachandran, a lead researcher on the study. "More funds should be directed toward adaptation in low- and lower-middle income countries where it could strengthen infrastructure, improve economic stability, and protect lives in nations with low emissions already struggling with the impacts of climate change."

Study Details and Methodology

The study, Adaptation Finance and the Multilateral Development Banks: From Concepts to Practice, was conducted by the Working Group on Climate Adaptation Finance, a team of

climate and development experts from around the world convened by the Breakthrough Institute, a global research center that identifies and promotes technological solutions to environmental and human development challenges. It is based on a comprehensive review of over 2,500 World Bank-funded climate projects between 2000 and 2024, and additional data from multilateral development banks (MDBs), to demonstrate how the MDBs can better align their climate finance strategies with the needs of low-income countries.

Key Findings

The study reveals that adaptation spending is not prioritized sufficiently in low- and lower-middle-income countries that are most vulnerable to climate change.

● Of the total amount of $177 billion spent by the World Bank on climate projects for all countries between 2000 and 2024, 58 percent was directed to mitigation while adaptation projects received 42 percent.

● Climate adaptation underfunding is even more acute in low-income countries. Lower-middle-income countries received just over $42 billion in adaptation financing, while low-income countries received only $14 billion.

● Spending on mitigation-related projects totaled $45 billion for lower-middle-income countries and $12 billion for low-income countries, even though they are relatively low-emitting.

"MDBs must prioritize concessional funding for adaptation over mitigation in low- and lower-middle-income countries, with a preference for grants wherever possible," the report notes. "Scaling energy access, paving roads, and other vital components of development in poor countries are key to making countries more resilient and will not contribute significantly to total global emissions."

Additional findings include:

● Skewed Priorities: While adaptation funding has increased slightly, it remains inadequate given the scale of the climate challenges these nations face.

● Misallocation of Funds: A disproportionate amount of climate finance has been directed toward mitigation, even in countries that emit very little greenhouse gas. Mitigation projects are most relevant when they are consistent with long term development needs.

● Rising Debt Burden: Low-income nations are accumulating unsustainable debt; mitigation projects that do not address their most urgent needs likely contribute to this problem.

Debt and Climate Vulnerability

The report also highlights the growing debt burden faced by low-income countries. In Africa, for instance, external debt stands at $1.15 trillion, with $163 billion in debt servicing expected in 2024—nearly three times the amount from just a decade ago. These countries are taking on additional loans for mitigation projects that do little to protect them from the immediate impacts of climate change nor align with their other development priorities.

“The MDBs must not exacerbate the debt burden for countries that can least afford it,” said Moussa Blimpo, a member of the working group. “The World Bank and other multilateral development banks must overhaul their climate finance strategy in low-income countries, prioritizing adaptation to not only build climate resilience, but also to build capacity to adopt clean energy technology at scale and foster long-term economic growth.”

Recommendations for Multilateral Development Banks

The study calls for a fundamental shift in how the World Bank and other multilateral development banks approach climate finance. Key recommendations include:

● Rebalancing Portfolios: Prioritize affordable finance for adaptation projects in low-income countries, rather than mitigation.

● Clear Criteria for Mitigation: Multilateral development banks must set clear criteria about mitigation-related projects to ensure consistency with long-term development needs.

● Support Development Goals: Adaptation finance should be structured to support broader economic development goals like infrastructure and public services.

● Address the Debt Burden: Multilateral development banks should offer more grants and concessional financing to low-income countries to prevent further debt accumulation.

"Focusing on adaptation first and foremost is a way to help poor countries grow, generate more jobs, become resilient, and be able to adopt zero or low-carbon technologies," the report concludes. "Vulnerable countries must have the resources they need to adapt to climate and weather shocks, while also building capacity to prevent losses from future weather events."

To read the full study, Adaptation Finance and the Multilateral Development Banks: From Concepts to Practice, click here.

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