Bilateral concessional climate finance

Bilateral grants and highly concessional finance remain critical for climate investments with limited commercial returns, particularly in vulnerable countries. As aid budgets tighten, providers are increasingly using private-sector instruments, other official flows and export credits to attract additional investment. These tools can complement concessional support but cannot replace it where debt constraints, limited fiscal capacity or weak project revenues make market-based financing unsuitable.

Status

Bilateral concessional climate finance is diverging from the scale-up needed through 2035. Developed-country bilateral public climate finance declined in 2024, while aid cuts threaten grant resources. Meanwhile, private-sector instruments, other official flows and export credits are becoming more prominent within bilateral finance. These can back commercially viable investments but cannot make up for reduced concessional support. Commitments to least developed countries have fallen, and cleaner public-finance portfolios have yet to produce proportionate increases in climate-positive investment. This mismatch leaves debt-constrained countries and projects without commercial revenues exposed to shrinking access to affordable climate funding.

Scale

Magnitude relative to the need

Stalled

Bilateral climate finance is falling short of the expansion needed through 2035. The OECD estimates 2025 financing at roughly USD 40 billion (OECD, 2026e). IHLEG's medium-ambition pathway calls for USD 50 billion by 2030 and USD 80 billion by 2035. Continuation of current trends would yield only USD 40 billion and USD 60 billion in those years, respectively. Recent cuts to official development assistance further weaken the resources available for grants and highly concessional funding. Expanding other bilateral instruments may increase total financing, but does not close the gap in affordable, non-market-based support.

Speed

Pace of reform against what's needed

Stalled

Instead of growing, developed-country bilateral public climate finance totaled USD 43.9 billion in 2024, 12% below its USD 50.2 billion level in 2023 (OECD, 2026e). Across all sectors, DAC official development assistance (ODA) dropped 23.1% in real terms in 2025, with the OECD projecting a further 6.9% reduction in net ODA disbursements in 2026 (OECD, 2026a; OECD, 2026b). Other bilateral climate-related commitments rose from USD 3.4 billion in 2022 to USD 9.3 billion in 2024, although separate reporting of private-sector instruments began only in 2023. These market-oriented flows do not demonstrate faster concessional delivery (OECD, 2026f).

Reach

How far it extends across countries and institutions

Slow

Bilateral support is declining for vulnerable recipient countries. DAC members' climate-related ODA commitments to least developed countries (LDCs) shrank to USD 10.0 billion in 2024 from USD 12.7 billion a year earlier, a 21% real-terms fall; their share reached 20.3%, down from 22.1% a year earlier (OECD, 2026f). Other bilateral climate-related finance tends to favor more bankable markets; Türkiye and India led among identified recipients in 2022–24. This raises particular concerns for small island developing states (SIDS), fragile and debt-vulnerable countries, and adaptation or capacity-building priorities with limited revenue streams.

Action fronts

Climate finance reform advances on five fronts, from replenishing the funds that already exist to reshaping how the whole system works. These are the fronts where Bilateral concessional climate finance is making headway.

Replenishing
Rebalancing

The Path Forward

Restoring bilateral grants and highly concessional finance will be key, with funding directed to LDCs, SIDS, fragile and debt-vulnerable countries, adaptation, resilience and institutional capacity.

Providers should explore private-sector instruments, equity, guarantees and export credits to mobilize additional investment without displacing grants for less bankable priorities. Initiatives including the OECD Climate Change Sector Understanding, Clean Energy Transition Partnership and Net-Zero Export Credit Agencies Alliance should translate portfolio commitments into greater low-carbon investment. Reporting must distinguish terms and grant-equivalent values while tracking recipients, private mobilization, and realized outcomes.