Hidden flows of capital in climate-related projects

Finally carved out time to dig into the International Energy Agency (IEA)’s World Energy Investment 2025 report plenty of headlines have already made the rounds, but this Sankey on where the money actually comes from, how it’s structured, and who ends up with it hasn’t had its moment in the spotlight here’s what jumped out at me: 1 - commercial finance dominates - but it’s unevenly deployed ( ) 75 % of available capital originates from commercial sources ( ) yet commercial cash is overwhelmingly routed to projects in advanced markets and China, not the places with the steepest transition gap 2 - private sponsors call the shots ( ) they channel most of the commercial flows and lean heavily on debt, signalling comfort with predictable revenue streams ( ) households share is very small - retail participation in energy finance is still a rounding error 3 - public money punches above its weight ( ) domestic public finance is the main conduit for state spending, filling gaps that the private sector ignores (grids, storage, social tariffs) ( ) international public finance is a thin trickle - precisely the reverse of what EMDEs need 4 - debt is king, equity is queen, grants are pocket change ( ) debt funds everything from fossil fuels to renewables, underscoring how capital-intensive today’s “clean” solutions remain ( ) grants are so small they barely show on the chart - donor rhetoric about concessionality isn’t yet matched by scale 5 - geographic concentration is stark ( ) advanced economies: 45 % ( ) China: 28 % ( ) other EMDEs: 27 % ---- if we’re serious about a just transition, someone has to explain how 6 % of EMDE GDP is supposed to be financed at lending rates two-to-three times higher than in the OECD follow the money - it still flows along the path of least resistance, not greatest need closing the climate finance gap means de-risking EMDE pipelines, deepening local capital markets, and scaling concessional tools beyond pilot size link to the report: https://lnkd.in/gjA_fsQ9

Canada’s New Budget Has Billions in Fossil Subsidies Disguised As Climate Action Canada’s new budget extends full carbon capture and hydrogen credits to 2035, giving industry more time and certainty. On the surface, it looks like a balanced climate investment, but the distribution tells another story. The majority of the value—about 85%—is headed toward oil and gas projects, while a small number of genuinely hard-to-abate industrial cases receive only a fraction of the support. CleanTechnica article linked in comments because LinkedIn's algorithm. The reasonable projects are the ones where carbon capture actually fits the physics. Heidelberg’s cement plant in Edmonton captures pure process CO₂ from limestone calcination, a stream that can’t be avoided by switching fuels. Linde’s planned hydrogen supply to Dow’s net-zero ethylene plant uses capture to clean up feedstock for chemicals rather than energy. Air Products’ Edmonton complex makes hydrogen for industry and logistics, not passenger transport, and captures the concentrated CO₂ from its reforming process. These are targeted, arguable uses of capture—pure streams, short transport, durable value. Then come the ones that strain credibility and the budget. Pathways Alliance’s oil sands CO₂ hub could draw over $7 billion in tax credits if it meets schedule, locking in decades of fossil extraction under the banner of climate action. Shell’s Polaris project bolts carbon capture onto refining and hydrogen production at Scotford, maintaining the fossil supply chain rather than transforming it. Entropy’s Glacier project near Grande Prairie captures CO₂ from the combustion exhaust of a natural gas processing plant—an extremely dilute and expensive source of emissions that would vanish altogether if the energy were electrified. Even Varme’s waste-to-energy plant complicates something simple: plastics already sequester carbon when buried, so burning them and trying to recapture the emissions just adds cost, pollution, and complexity. Extending the credits to 2035 mainly benefits the largest fossil-linked projects, not the most effective decarbonization pathways. The smart money should follow physics and efficiency: capture the CO₂ we can’t eliminate, not the CO₂ we deliberately create by burning fuel.

There’s a difference between having offtake interest and having real demand. Many carbon removal projects present the same story: Offtake signed → revenue secured → project de-risked. My experience shows that the signature means very little without understanding who stands behind it. In today’s market, there are two very different capital logics at play and confusing them is dangerous. Here’s the distinction: 1️⃣ 𝐓𝐡𝐞 𝐬𝐩𝐞𝐜𝐮𝐥𝐚𝐭𝐨𝐫 𝐦𝐢𝐧𝐝𝐬𝐞𝐭 Speculators look for optionality. They want early access to volume, exposure to future price appreciation, and the flexibility to step away if conditions shift. They often sign non-binding LOIs or conditional offtakes linked to their own future fundraising. On paper, this looks like demand. But there is no capital allocated behind the signature. If the market softens, compliance rules change, or credit prices move, they can walk away with limited consequences. Building industrial capacity on that type of offtake is fragile. 2️⃣ 𝐓𝐡𝐞 𝐢𝐧𝐟𝐫𝐚𝐬𝐭𝐫𝐮𝐜𝐭𝐮𝐫𝐞 𝐢𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐦𝐢𝐧𝐝𝐬𝐞𝐭 Infrastructure capital behaves very differently. It looks for long-term contracted cash flows backed by counterparties with balance sheet strength. Capital is allocated before public announcements. Due diligence happens before signatures. Risk is priced and structured. This capital is designed to stay through cycles, not to chase momentum. When infrastructure investors see an offtake, they immediately ask: Is this funded? Is the counterparty creditworthy? Is the obligation enforceable? Without those elements, the document has limited value. 3️⃣ 𝐓𝐡𝐞 𝐝𝐚𝐧𝐠𝐞𝐫𝐨𝐮𝐬 𝐠𝐫𝐞𝐲 𝐳𝐨𝐧𝐞 The most fragile space in carbon removal today is not speculation itself. It is the grey zone where offtakes are signed, press releases are issued, but no money is actually committed. Developers interpret this as validation and banks interpret it as conditional. That mismatch is where financing gaps appear. An unfunded offtake is not revenue security. It is exposure disguised as certainty. 4️⃣ 𝐖𝐡𝐲 𝐭𝐡𝐢𝐬 𝐦𝐚𝐭𝐭𝐞𝐫𝐬 Carbon removal is increasingly positioned as infrastructure. Infrastructure requires predictable cash flows, creditworthy counterparties, and long-term alignment between supply and demand. If your demand base is speculative, your financing structure will also become speculative. And speculative financing does not build resilient industrial assets. 5️⃣ 𝐌𝐲 𝐯𝐢𝐞𝐰 I see more and more projects celebrating offtake announcements that are not backed by committed capital. That is a structural risk. Interest is not funding. A signature is not a balance sheet. If the buyer cannot demonstrate capital behind the contract, the project is not de-risked it is exposed. Carbon removal wants to be infrastructure, but infrastructure requires infrastructure capital. That distinction matters more than ever.

Three African countries are in advanced talks with The Nature Conservancy for debt-for-nature swaps worth a combined $500 million. One deal is expected to close before year end. The context is as interesting as the numbers. These transactions convert sovereign debt into conservation commitments. A country's loan obligations are restructured; the freed fiscal space is redirected into marine reserves, forests, or freshwater systems. The economics are not charitable, they are actuarial. The deals work because standing ecosystems generate measurable, compounding economic services: carbon sequestration, fishery replenishment, watershed protection. The question has always been whether that long-term value can be guaranteed upfront in a form that lenders will accept. Until recently, the answer required US government backing. When that support dried up after the change in administration in Washington, it looked like the mechanism might stall. What is actually happening is more interesting. TNC is rebuilding the financing stack with multilateral development banks, private insurers, and institutional investment funds, expanding the scope beyond ocean conservation to forests and freshwater within the same structures. Conservation finance is not being abandoned. It is being privatised. This matters. When institutional capital leads rather than government guarantee, the terms of conservation commitments shift. Private lenders price duration and certainty differently. They are making a bet that sovereign conservation commitments are more durable than the political cycles that produced them. The model proven in 2023, $163 million in marine conservation generated from a single debt conversion, is now being replicated across three sovereigns simultaneously at three times the scale. A template is becoming a market. Worth watching closely. Not only as environmental policy, but as a structural shift in how sovereign debt gets restructured and what obligations attach to it. #ClimateFinance #DebtForNature #EmergingMarkets #AfricaInvestment #Governance #ClimateAction #ClimateChange

The single biggest lever for stopping climate breakdown is not the next election or a new law in one country. It’s the flow of money. Banks, investors and insurers decide—every day—where capital goes. Those capital decisions translate directly into pipelines, power plants, mines, refineries and cars that either lock in more greenhouse gases or fund the clean systems we need. If you want to understand why the global financial sector matters more than national politics for the pace of warming, look at what the money is actually doing. According to the latest Banking on Climate Chaos research, global banks poured about $869 billion into coal, oil and gas in 2024 — a 23% jump from the year before. Since the Paris Agreement was signed, banks have financed fossil fuels to the tune of roughly $7.9 trillion. A single major bank, for example, provided over $50 billion to fossil-fuel companies in 2024. Capital builds infrastructure that lasts decades. A bank loan or bond issuance funds projects that operate for 20–50 years. National laws can change, but once a pipeline or power plant exists it continues emitting unless there is massive, expensive retrofitting or early retirement. That’s how finance locks in emissions. Global finance dwarfs any single country’s policy. Global banks and institutional investors manage tens of trillions of dollars across borders. Their decisions move capital at a scale national budgets and regulations rarely match. Investors allocate capital quickly and across jurisdictions. While politics involves slow legislative cycles, private finance can shift flows overnight—either accelerating fossil projects or cutting them off. When banks and insurers price coal, oil and gas as risky or uninsurable, projects stall. Conversely, cheap finance makes fossil expansion profitable. Changing capital costs changes what gets built more effectively than slogans or individual laws. Because capital is fungible and global, influencing key financial markets and major banks can change outcomes across many countries simultaneously—even where national governments block action. How capital flows increase emissions? Banks provide loans, buy bonds and underwrite debt for fossil-fuel companies. That money funds exploration, extraction and infrastructure. Pension funds, asset managers and insurers invest in companies, giving them the market valuation and access they need to expand. Projects require insurance to operate. If insurers cover a coal mine or pipeline, it reduces project risk and enables construction. Financial backing lowers the cost of capital, attracting more private investors and making large carbon projects bankable. Pressuring and reforming the global financial system is not a substitute for politics; it is the most effective lever we now have to make those politics—and the planet—follow. https://lnkd.in/d9tDW9bk

Rethinking Blended Finance: From Vertical Stacks to Horizontal Flows In my thoughts on climate finance recently, there is something that has been bothering me. Much has been said about “stacking” different layers of capital—concessional, development finance, and commercial—into blended structures. This vertical model has been useful for making projects potentially attractive for commercial capital, ensuring that varying risk and return expectations can align to finance the same project, at the same time. But what if we went further? Projects don’t have the same needs at every stage. Early phases often require concessional or development finance to de-risk innovation and navigate regulatory hurdles. Later, as revenues stabilize, commercial capital can flow in with confidence. Instead of stacking capital just vertically at a single moment, perhaps the next frontier is deploying it horizontally across time—aligning each type of capital to the stage of the project where it adds the most value. The key is orchestration: this isn’t about separate funding moments, but about designing a capital timeline from the beginning. Concessional, development, and commercial investors would know their roles upfront, creating a coordinated pipeline where capital evolves as the project matures. As noted at the recent UN Financing for Development conference, blended-finance flows last year totalled only $18.3 billion—far below the $1.3 trillion developing countries need annually for climate finance . Intentional orchestration—rather than ad hoc blending—is precisely what can unlock scale. Insights from prominent climate finance forums echo that blended finance must be specific and designed by sector, geography, and project lifecycle—not generic layering. In a world where climate solutions demand both speed and scale, maybe it’s time to reimagine blended finance not just as a stack, but as a symphony. 🎶

We call it "blended finance." But in water, what's actually getting blended is public risk with private reward. I've been designing a performance-based contract in Jordan - one where the operator only earns if they reduce water losses - and it keeps throwing the rest of the sector's logic into relief. Because the standard model has a 34% failure rate in water. The IFC's own number. The highest of any infrastructure sector. The World Bank Group reports $17.4 billion "mobilized" for African water investments. But that figure includes investments they've merely "influenced": a weaker standard than anyone would accept in a project audit. The Bank's own evaluation arm found IFC and MIGA contributed just 7% of $30.3 billion in water support. The rest was public money. In low-income countries, every public dollar of climate finance attracts $0.37 in private capital. Thirty-seven cents. ODI called the entire "billions to trillions" agenda "completely unrealistic." CPI's latest tracking shows 98% of adaptation finance comes from public sources. In Africa specifically, half of all private climate finance goes to just three countries. The thing is, we have a continent-wide record of what happens when private capital does show up in water. Tanzania's Dar es Salaam PPP lasted two years: the operator performed worse than the public utility it replaced, and 98% of investment went to areas where the richest 20% lived. Ghana saw tariffs jump 80–95% with zero reduction in water losses. Cameroon's private operator delivered 2 percentage points of access improvement in seven years. The public utility before it had managed 24 points in eighteen. Guinea's operator raised tariffs from $0.12 to $0.83 per cubic metre. And when these contracts fail? Mozambique's government had to compensate the departing operator for foregone profits. Tanzania's Biwater filed an international arbitration claim. The public pays on the way in, and pays again on the way out. But performance-based contracts, where the operator earns based on actual results, are 68% more effective at reducing water loss. Phnom Penh's public utility cut non-revenue water from 72% to 6% without any privatization. Uganda's NWSC went from 51% to 33.5% as a reformed public entity. So basically we know what works. We just keep choosing the model that protects investors instead of the one that fixes pipes. Africa needs $30 billion annually for water infrastructure. Only 3–5% of global climate finance goes to water, despite water representing 17% of the continent's stated adaptation needs. That gap won't be filled by blended finance where 57–73% of capital is public anyway. At the end of the day, if the public carries the risk, the public deserves the return. Is that ideology? Hardly.

Climate finance, simplified. The world is not short of money — it’s short of aligned, well-directed capital at scale. Here’s the system — stripped back to what matters: --- 1️⃣ Sources → where the money comes from • Public finance (governments, concessional funding) • Private finance (banks, institutional investors, corporates, equity) • International finance (DFIs, MDBs, climate funds) • Blended finance (public + private catalytic structures to crowd in capital) • Philanthropic capital (foundations, NGOs, first-loss / risk-bearing capital) 👉 Different mandates. Different risk appetites. 👉 One shared objective: mobilize and scale capital into climate solutions --- 2️⃣ Finance mobilized → how it works Capital is: • Pooled → aggregated across sources to reach scale • De-risked → through guarantees, concessional layers, policy support • Directed → toward bankable, high-impact opportunities ➡️ This is where financial engineering meets climate outcomes Success here depends on: • Policy certainty • Risk-return alignment • Strong pipelines of investable projects • Transparent data and credible metrics --- 3️⃣ Uses → where it goes • Mitigation → decarbonizing energy, industry, transport • Adaptation → building resilience to physical climate risks • Nature → protecting and restoring ecosystems & carbon sinks • Sustainable development → infrastructure, jobs, inclusive growth • Just transition → ensuring equity across regions, sectors, and communities 👉 This is where strategy translates into real-economy impact 👉 Allocation decisions here will define the pace and fairness of the transition --- 4️⃣ Outcomes • A stable climate → limiting warming and systemic risk • Resilient communities → stronger adaptive capacity and livelihoods • A thriving planet → restored ecosystems and biodiversity • Sustainable prosperity → long-term, inclusive economic growth 👉 These outcomes are interconnected — not trade-offs, but multipliers --- The takeaway Climate finance is not just about funding projects. It’s about allocating capital with precision, discipline, and intent. The real gap is not capital availability — it’s capital allocation efficiency. The winners in this space won’t just raise capital — they will: • Understand the full system • Navigate risk intelligently • Structure capital effectively • Deploy it where it drives the highest impact That’s how climate ambition turns into real-world outcomes. #ClimateFinance #SustainableFinance #GreenFinance #BlendedFinance #ClimateStrategy #EnergyTransition #NetZero #ClimateAction #ClimateInvestment #ImpactInvesting #ESG #Sustainability #TransitionFinance #ClimateRisk #Adaptation #Mitigation #NatureBasedSolutions #JustTransition #DevelopmentFinance

Nature-negative finance flows of 7.3 trillion in 2023 (trillion US$) In 2023, financial flows with a direct negative impact on ecosystems totaled US$7.3 trillion. Private finance accounts for US$4.9 trillion, deployed mainly through bonds, loans, and equity. These flows are concentrated in utilities, industrials, energy, and basic materials; sectors characterized by capital intensity, long asset lifecycles, and limited short-term flexibility. This matters because capital allocation in these sectors determines production models and technology choices for decades. Once financed, infrastructure and industrial assets constrain transition pathways and shape future cost structures, making later adjustments more complex and expensive. Alongside private capital, public finance contributes US$2.4 trillion through environmentally harmful subsidies. Fossil fuels represent the largest share, followed by agriculture and water. These subsidies lower operating risk and improve project economics for nature-negative activities, indirectly reinforcing private investment decisions in the same sectors. The combined effect is structural persistence. Public subsidies stabilize returns while private capital scales deployment, creating feedback loops that favor incumbent models and slow the reallocation of capital toward lower-impact alternatives. For businesses and financial institutions, this configuration translates into transition exposure. Capital remains tied to activities increasingly subject to regulatory reform, disclosure requirements, and physical risks linked to ecosystem degradation. The longer reallocation is delayed, the higher the adjustment costs and the greater the risk of asset impairment. From a capital markets perspective, the central issue is allocation efficiency under tightening environmental and regulatory constraints. The data suggests that closing the nature finance gap depends less on mobilizing new capital and more on redirecting existing flows in high-impact sectors.