With 2024 about to be declared the hottest year on record, and fresh from agreeing a new finance goal in Baku, the political outlook for 2025 looks very different to that of this year. The new political conditions will bring major challenges to the climate agenda but potentially also opportunities to make progress on finance issues.
Geopolitics will continue to shift in coming months, with many large developed economies either facing political transitions or elections, including the US, Canada, France, and Germany, as well as a new Commission in the EU and a new more right-oriented Parliament.
In 2024’s G20, Finance Ministers made notable progress on their change agenda, though not as much as some had hoped. Brazil’s Presidency aimed for transformation of the International Financial Architecture, which together with the creation of Taskforce CLIMA created high-level political discussion space. This year, Finance Ministers discussed the macroeconomic impacts of the climate transition, set out goals and a monitoring process for reform of Multilateral Development Banks (MDBs), and agreed principles for transition planning (both at national level, and at firm level under co-leadership from the US and China), energy transitions, and country platforms.
We do not yet know the extent or manner in which the 2025 South African Presidency will pick up this agenda. Even if political space is reduced for G20 discussion of climate, a focus on MDB reform and measures to address debt distress in developing countries is likely to continue. It is likely that different coalitions may also come into play, to address reforms and in relation to provision of new capital.
2024’s COP29 was dominated by discussions on climate finance with the setting of a New Collective Quantified Goal with a climate finance baseline for developing countries of $300bn per year by 2035, and a commitment to create by COP30 a ‘Baku to Belem Roadmap’ for mobilising $1.3tn per year. The 2025 Roadmap will provide an opportunity to set out a vision for how a range of financing levers can channel finance at scale to the poorest countries.
The Finance in Common meeting in February will be an important milestone for considering the role of the wider public bank ecosystem within this vision, with the fourth Finance For Development Conference in June/July providing a window to consider the deep intersection of climate and development finance. The IMF is set to refresh its Climate Strategy in 2025 and to continue working with the World Bank on its Debt Sustainability Framework review which finishes in Q1 2026.
Increased awareness of the macro-economic impact of climate risks is spurring dialogue between state and private actors in developed countries, especially in relation to insurance and financial stability, and in relation to the challenges of mobilising finance at scale to developing countries which includes the treatment of climate risk by credit ratings agencies. The trade-offs between risk management, finance mobilisation, and fairness will come into sharp relief in 2025 including in the context of sovereign debt and debt distress.
Having agreed an underwhelming new global goal in Baku, countries will now need to set about scaling up high-quality public finance for adaptation while also exploring solutions to these broader finance mobilisation challenges.
Some overarching questions next year are likely to include:
- How can the international community identify and protect the climate-vulnerable while also marshalling finance for investment in their resilience?
- How can leading countries demonstrate in practice some of the ideas for financing climate transitions (e.g. country platforms) that they have so far supported mainly in theory?
- How can finance from a wide range of sources be increased for climate mitigation and resilience, and in response to climate impacts, especially for necessary investments in global transition which will rely on public funds?
- How can ongoing challenges within the international financial architecture reform agenda – whether boosting the MDBs, increasing national ownership of transition planning, or taking action on debt – be progressed in a more challenging political context?
2025 will be a different political environment from 2024, but there is no doubt that momentum for reforms which support financing global transition will still be on the agenda.
