Component 1
Mapping sources of finance for prioritized investments
To successfully catalyze finance for the identified priorities, climate investment plans need to include a comprehensive mapping of investment needs against available sources. The mapping exercise will help to identify different financing options and their characteristics, guiding optimal matchmaking.
While countries have the flexibility to use various instruments to define their climate investment plans, certain types are more familiar and understandable to climate financiers. These include NDCs, NAPs, and LT-LEDS Investment Plans, and Adaptation Investment Plans. These documents, which have been designed through robust stakeholder consultations, tend to be framed and structured with a stronger focus on climate and development objectives and align with widely recognized formats, facilitating smoother interactions with funding entities. Countries might also opt to integrate climate into broader national and sectoral investment plans by mainstreaming or climate-proofing them. When doing so, it is important to include certain elements for climate financiers, such as a strong climate rationale, prioritization logic, and a clear connection with climate and development plans and policies.
Step 1
Map the climate finance ecosystem
Comprehensively map available international and national public and private climate finance sources. Begin by gaining initial insights into the investment criteria, risk profiles, and characteristics (such as the level of concessionality) associated with various potential sources of finance. Consideration of wider macroeconomic and financial cycles will also factor into this mapping and analysis. The cost of capital, availability of credit and equity, as well as the availability of concessional public international finance, are all affected by cyclical factors and, as such, will influence the availability of different sources of finance at different times.
Example: As part of its NDC Climate Finance Plan, the government of Tajikistan conducted an assessment of the global climate finance architecture. This exercise helped identify various financial streams, including government budgets, capital markets, and national financial systems, along with their associated funding sources such as development assistance agencies and bilateral financial institutions. Additionally, the assessment explored potential financial instruments and mechanisms, including carbon markets and ODA financing, to support climate action initiatives.
Step 2
Develop a preliminary mapping of how prioritized investment needs may match different potential finance sources
When mapping investment needs to different financial sources, ask what the risk-reward profile of the activity is. Determining the potential commercial viability of prioritized investment needs based on prefeasibility assessments is highly beneficial at this stage, for example. Market assessments and financial analyses can help determine the revenue generation and returns of prioritized investments. In addition, it is essential to assess other risks or barriers to the investment and the nature of these risks (technology, policy, finance, etc). This will aid in assessing the potential for public, blended, or private finance—that is, whether the investment is viable for private investment if de-risking, concessional finance, and blended finance is required, or whether it can only be funded through grants and other public funding. Diverse sources of finance, based on the given risk appetites and financing instruments, can then be weighted for each investment need.
Subsequently, a prioritization is conducted to identify the most suitable source of finance. Factors such as revenue generation, cost-benefit, country readiness, opportunities for a blended approach, and available technical cooperation support should be considered. A draft financial plan will include a hypothesis on which investment needs may be best served by national budgets, international public or blended finance, or national or international private finance.
Example: As part of its NDC Climate Finance Plan, the Government of Tajikistan developed sectoral roadmaps outlining concrete steps for financing sectoral targets. This roadmapping exercise was closely linked to the lead and supporting agencies responsible for implementing actions and achieving the country’s climate commitments, ensuring a coordinated approach to climate finance and policy execution.
Support resources
The following resources can be considered. Explore the NDC Partnership Knowledge Portal Climate Toolbox for additional mapping sources of finance for prioritized investments resources.