Climate Finance Innovation in Emerging Economies 3 Stories

A young mother in Addis Ababa receives a mobile cash deposit on her phone. For the first time, she is not dependent on an allowance from her husband. 

In Uttar Pradesh, a dairy farmer sleeps through the night as monsoon rains pound the roof, knowing her cattle are safe in a shed she took out a loan to build.

In Rio de Janeiro, a child studies into the evening under lightbulbs buzzing with steady power from community solar panels.

Around the world, these moments are made possible by climate finance.

The people behind climate finance initiatives

While the idea of climate financing might evoke images of glossy meeting rooms and high-level agreements, the reality on the ground is distinctly human – effective climate financing makes tangible differences for people every day. It can mean dinner on the table for families living in poverty or staying warm through a bitterly cold winter for communities that struggle to heat their homes. This can be through loans to modify homes, financing for community energy or water projects, or myriad partnerships or investments that fuel mitigation and adaptation to climate change. 

The most impactful climate financing is tailored to the places and people it’s meant to support. For example, while small farmers might benefit from low-interest loans for sustainable equipment, governments might benefit from debt swaps, green bonds or access to mixed financing to fund major infrastructure projects for the transition to renewable energy. 

Emerging economies are particularly in need of innovative financing solutions, as funding for climate adaptation consistently falls far short of needs. In 2021, less than 3% of the global total in climate financing went to or within the least developed countries.

Today, climate innovators in these regions are financing their own future, evidence of the power that targeted, effective climate financing can have, aligned to both global goals and pressing local needs.

Empowering women-led SMEs in Uganda

Women stand on the front lines of climate change, but often have less access to resources to help adapt and cope. Women who own agricultural businesses are doubly affected, with their livelihoods vulnerable to weather events, and with less ability to secure loans or credit. 

The InvestHER Climate Bond in Uganda bridges this gap through social bonds. Inspired by successful models in India and Senegal, the program empowers women-led agricultural SMEs by facilitating loan access for five or more years, empowering these businesses to develop and scale climate-resilient solutions. This fosters their growth and job creation, and it strengthens rural communities' adaptation to climate change.

InvestHER goes beyond just capital, partnering with bond issuers, investors and local organizations to facilitate loan access, measure impact and offer technical assistance. This comprehensive approach promotes women's economic empowerment, enhances food security and fosters climate resilience in Ugandan agriculture.

Building resilience in the Mongolian desert

A landlocked nation with a rich history, Mongolia is characterized by vast steppes and semi-deserts. It was ranked as the eighth most vulnerable country in the world to climate change and is exposed to a multitude of natural hazards. Chief among these are Dzuds – a local term for extremely heavy snow that deprives grazing animals of their only food source – as well as droughts and floods. 

Nearly half of the population lives in the capital, using coal for heating – one of the worst fuels for the environment. Moreover, nearly a third of Mongolia’s population depends on animal husbandry, an occupation particularly exposed to climate change. The nation has also experienced a worrying 2.1°C increase in average air temperatures over the past 70 years, making it one of the countries most affected by climate change globally.


||

Caption: Ulaanbaatar

In response, the Mongolia Green Finance Corporation, a $49.7-million climate finance fund, was established to provide businesses and households with loans for more energy-efficient buildings. Loans to fund thermal insulation in homes, energy efficiency upgrades for businesses, and mortgages for green affordable housing are all channeled through partnering financial institutions.

By financing these green initiatives, the program anticipates a significant reduction of 3.8 million tons of carbon dioxide equivalent emissions and lower air pollution levels. Designed for long-term impact, the fund is attracting new capital and expanding services to other sectors. 

Safeguarding the rainforest in Southeast Asia

Rainforests are one of our strongest shields against climate change, making safeguarding and regrowing our forests one of our best investments in the future.

One company took this thought literally, inspired by the bond model governments and businesses have used to fund major projects that pay dividends in the future, such as railroads or manufacturing plants. Forest Carbon Pte. Ltd has designed a Model Forest and Biodiversity Bond to appeal to environmentally conscious investors. The money raised would fund transparent projects to halt deforestation and plant new trees.



Caption: Forest Carbon Pte. Ltd.

“The preservation of the world's remaining intact ecosystems is a critical challenge for our lifetime. Equally important to restoring degraded land, protecting tropical forests helps mitigate the dual crises of unprecedented biodiversity loss and accelerating global warming,” said Forest Carbon CEO Jeffrey Chatellier. “These efforts remain significantly underfunded, and our bond addresses this financing gap by blending capital across the risk and return spectrum, ... creating opportunities for commercial investors and development finance institutions to participate and directly finance our work on the ground in Southeast Asia."

The initial bond aims to raise $10 million to protect over 150,000 hectares of forests. If successful, the model could be scaled up to raise $500 million globally, safeguarding millions of hectares of forest ecosystems. This would be a gamechanger for fighting climate change by storing carbon, and for protecting wildlife habitats and benefiting local communities through project revenue sharing.

The road to “the finance COP”

Despite the concerning gaps and disparities in current climate finance flows, these and other stories offer hope. From community-based adaptation projects empowering local populations to national climate funds unlocking investment, these tailored approaches demonstrate the transformative power of targeted financing to improve lives and resilience. 

With COP29, which will take place in Baku, already becoming known as “the finance COP,” there are growing expectations for a greater commitment to climate finance.

Though the challenges are immense, these innovative models offer the opportunity to reshape our climate reality through strategic, impactful financing. And it has never been more imperative to catalyze the scaled investment required to safeguard the future of vulnerable communities – and our planet itself. This year’s COP is a chance for the world to meet the moral and economic imperatives of adaptation through bold, sustainable investment in emerging economies and beyond.