MDB Climate Finance Hits Record $163bn, But World Bank Retreat Raises Doubts

Multilateral development banks channelled a record $163 billion into climate finance in 2025, up 19 percent from the previous year, with low- and middle-income countries receiving nearly $103 billion, a 21 percent jump, according to a new European Investment Bank report. Adaptation funding for climate resilience in poorer countries grew even faster, rising 31 percent to $35 billion and edging closer to the $42 billion annually estimated as needed by 2030. The record volumes arrive just weeks after the World Bank abandoned its flagship climate lending target, a decision advocates warn could weaken climate ambition across the entire MDB system.

 

Where the Record Finance Actually Went

 

The World Bank remains the largest single source of climate finance for developing economies, providing approximately $49.9 billion to low-income and lower-middle-income countries in 2025, far ahead of any other multilateral bank. Regionally, Latin America and the Caribbean received the largest share of climate finance directed at poorer countries at $22.7 billion, followed by Africa at $18.4 billion, South Asia at $16.0 billion, East Asia and the Pacific at $13.5 billion, and the Middle East at $10.4 billion.

Private capital mobilisation linked to MDB climate operations reached $116 billion, including $35 billion specifically in low- and middle-income markets, a figure the report frames as evidence of the banks' catalytic role in crowding in additional investment during what it calls the critical decade for climate action. That mobilisation function mirrors the mechanism behind other blended finance models, using public development bank capital to reduce risk and attract private investment that would not otherwise flow into these markets.

 

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Why Bigger Totals Don't Satisfy Civil Society Groups

 

Despite the record figures, civil society organisations argue the headline numbers obscure a more troubling picture underneath. Mariana Paoli, climate finance lead at Oxfam International, said the current MDB model still prioritises mobilising private investment into commercially viable projects, while the needs communities face most urgently, adaptation, resilience, loss and damage, and a just transition away from fossil fuels, require public, grant-based finance rather than instruments designed to attract private capital.

That distinction matters because grant finance and commercially oriented private capital mobilisation serve fundamentally different purposes. Grants provide direct support without requiring repayment or a commercial return, making them suited to adaptation projects in the poorest countries that offer little prospect of financial return, whereas capital mobilisation strategies work by making projects attractive enough for private investors to fund, which tends to favour revenue-generating projects like renewable energy generation over defensive measures such as flood barriers or drought-resistant agriculture that communities most urgently need. Paoli's warning is that celebrating record volumes risks overlooking whether the finance is reaching the people and sectors facing the most acute climate risk.

 

Why the World Bank's Retreat Is Reverberating

 

The report's record figures are complicated by a separate and more recent development: the World Bank's decision to abandon its flagship climate target, which had required 45 percent of its lending to deliver climate benefits by 2025. Advocates including Bertha Argueta Tejeda of Eurodad and Rebecca Thissen of Climate Action Network International argue this retreat has direct consequences for the collective MDB goal, agreed at COP29 in November 2024, to provide $120 billion annually in climate finance for emerging economies by 2030.

Because the World Bank was expected to be a major contributor to that collective target, scaling back its own commitment places pressure on other institutions, including the Asian Development Bank, the European Investment Bank and the African Development Bank, to fill the resulting gap. Tejeda and Thissen frame this as creating structural uncertainty about the future role multilateral banks will play in climate finance more broadly, beyond simply affecting one institution's individual figures.

 

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A Debate Over Where Climate Finance Should Flow

 

The World Bank's pullback has reopened a broader question about whether climate finance architecture should rely primarily on multilateral development banks at all. Tejeda and Thissen argue for renewed emphasis on dedicated multilateral climate funds, such as the Green Climate Fund, the Adaptation Fund, the Global Environment Facility and the newer Fund for Responding to Loss and Damage, which they say provide a higher share of grant finance, more representative governance structures, and greater decision-making power for Global South countries compared with MDBs, whose governance and lending priorities are shaped more heavily by their largest shareholder governments.

They point out that the new collective quantified goal on climate finance and the Baku to Belém Roadmap agreed at COP29 and COP30 effectively shifted the emphasis of future climate finance toward MDBs and away from bilateral and dedicated climate fund channels, a shift they argue was made without adequately addressing the tension between relying more heavily on institutions that were simultaneously showing signs of climate retrenchment. This represents a genuine and ongoing dispute within the climate finance community rather than a settled question, with proponents of the MDB-centred model arguing these institutions offer scale and mobilisation capacity that dedicated climate funds cannot match, while critics argue that scale comes at the cost of the grant-based, locally led finance that vulnerable countries say they need most.

Whether other multilateral banks step up to compensate for the World Bank's reduced climate ambition, and whether the broader push toward MDB-centred climate finance architecture is reconsidered in light of this retreat, will shape how reliably the $120 billion annual target agreed at COP29 can actually be met by 2030.