A tale of two priorities

Read this article to understand:

• Why climate finance matters for investors
• The importance of delivering on financial commitments to developing countries
• Key considerations for putting finance on the path to achieving Article 2.1.c

Ten years ago in Paris, virtually all the countries in the world collectively agreed to make financial flows – and therefore the allocation of investors’ money – align with the climate mitigation and adaptation goals of the Paris Agreement.¹

This commitment to align financial flows with climate-change mitigation and resilience, embodied in Article 2.1.c of the Paris Agreement, matters hugely from an investment standpoint. Investors need to understand how and where investment could start flowing differently, to identify the opportunities and risks and make informed capital allocation decisions.

Fundamentally, although impacts are already being felt and are increasing, if humanity fails to tackle climate change, it will have devastating consequences in the long run. These could destabilise economies, cause mass migration as some areas of the world become uninhabitable, and make other places uninsurable due to repeated floods or fires. As well as the critical social and environmental impacts, this puts pensions and other long-term investments at risk as impacts and losses compound, some companies lose revenues, and physical risks rise.²

Yet finance is continuing to flow to activity that is currently driving and arguably accelerating those impacts. Its current stock and flows are supporting a trajectory of 2.7 to 3.4 degrees Celsius of warming by 2100, as well as continuing nature loss and a growing risk of crossing tipping points that will make impacts irreversible.³ Financial flows are supporting economic activity producing emissions that continue to rise, driving the current increase in climate impacts and risks, such as more floods and wildfires.

As the asset manager of a large insurer, we are acutely aware of the threat this poses. This is not only in the short-term, in terms of the financial impacts of these events, including risks to our clients’ investments, but also in the long term, to the broader business model of insurance.

To mitigate those risks and preserve their clients’ assets, investors have a vested interest in getting behind efforts to tackle global warming and nature loss, and to build resilient companies and economies. The key questions to achieve this are where and how to redirect financial flows.

Where: Getting flows to developing countries

Finance will continue to be a focus at COP30 in November, with discussions on how to implement the New Collective Quantified Goal on Finance (NCQG) agreed in Baku at COP29. This NCQG set a new goal of $300 billion per year from 2035 on for developing countries, alongside a broader target of $1.3 trillion per year for climate action in these same countries, also from 2035.

In support of this goal, Azerbaijan and Brazil (the last and next hosts of the climate COPs) are leading a year-long process: the “Baku to Belém Roadmap to $1.3 trillion”.⁴ The roadmap has rightly garnered attention, with the Brazilian presidency and many other countries and civil society groups focusing on it, and over 200 submissions responding to their call for input.

This mobilisation of finance is central to the justice of the transition. Most of the world’s greenhouse gases have been emitted by developed economies including the UK. Many developing countries are very low or even negative emitters, while the G20 group of the world’s largest economies still represented 77 per cent of global greenhouse-gas emissions in 2023 (although this includes some emerging market economies who remain classified as developing countries under the UNFCCC).⁵

At the same time, emerging markets and developing economies will bear the brunt of climate impacts (see Figure 1), as well as being home to the vast majority of world’s natural resources and biodiversity.⁶ They need financing to adapt to climate change, protect nature and biodiversity, and crucially, for their own economic development.

Figure 1: Largest emitting nations versus most vulnerable nations to climate change

Source: IPCC, Energy & Climate Intelligence Unit, as of April 2022.

This development will also require multiplying countries’ access to energy, particularly electricity. This means developing countries will also account for the largest share of the increase in investments needed for the energy transition.⁷ The question is whether that electricity comes from fossil or clean sources. Financial flows should be redirected towards developmental choices that are also low carbon, and that bolster countries’ resilience.

How: Making Article 2.1.c a reality

Greenhouse-gas emitting activity currently accounts for the vast majority of the $115-$120 trillion of global GDP each year. If this remains the case, then $1.3 trillion a year starting to flow fairly among developing countries will be like blowing a peashooter at a hurricane.

The consistency of financial flows with climate mitigation and resilience is hard to track, as evidence remains scarce. In a 2024 paper, researchers at the OECD found less than 15 per cent of investments in the real economy, public and private equity, and public and private debt could be said to align to either high- or low-carbon activities.⁸

But that does show there is a lot to play for. There’s more to it than just shifting incentives away from financing high-carbon activity (important as that is). The 85 per cent of activity that is currently neither high- nor low-carbon but remains inconsistent with the goals of Paris also needs to be addressed.

That raises a broader question on the need to reform incentives in the global economy because, ultimately, finance will always flow to the most lucrative activities.

New technologies, efficiencies and shifting consumer demand can help low-carbon activities become more profitable than high-emissions ones. But, unlike previous economic transitions, this whole-of-economy shift needs to happen in a race against time and ecological limits. Without strong action from governments to reshape economic incentives and market fundamentals, this economic transformation will likely happen too slowly to avoid huge negative ecological, societal and financial impacts.

Thoughtful policy interventions in the real economy will be key to define what becomes profitable for companies, and therefore what finance will flow to. We have been advocating for this in our engagement with the UK government, but also other sovereigns.^{9, 10}

The good news is that, instead of asking participants to come up with new headlines, the Brazilian hosts of COP30 are focusing on working out ways to make existing commitments a reality. The Roadmap can lay out a clear, time-bound, specific and measurable action plan for transformational change. In turn, that can not only scale finance for developing countries, but also be the foundation of actions that will redirect finance decisively towards the achievement of the mitigation, adaptation, sustainable development and poverty eradication aims of the Paris Agreement. This is ultimately what Article 2.1.c is all about.¹¹

Building up to Belém

It is also part of a growing trend recognising the role of the private sector in increasing flows of finance to emerging and developing economies. For a long time, developed countries have emphasised that the private sector can play a role in dramatically scaling the public funds they have promised. But they have had limited success so far, which has led to distrust from developing countries over the role the private sector can play.

For the $1.3 trillion ambition and beyond to be achieved, a real focus is needed on what it will take to bring private and public flows to developing countries. That will include both creating incentives and shifting barriers.

The beauty of this is that many of the same things that will deliver money flows to emerging markets – creating good financial and climate investments while supporting their economic development – are also those that will deliver the climate transition everywhere.

The build-up to COP30 in Belém offers a golden opportunity. As emphasised by Brazil, in the UN Secretary General’s speech on July 21, 2025, and at the recent development conference in Seville, continued commitment to multilateralism and dialogue will be key to achieving these goals.^{12, 13}

Reconciling priorities

One key stumbling block is that, a decade after the Paris Agreement, the tension between Article 2.1.c and Article 9 of the Paris Agreement continues to go unresolved:

• Article 2.1.c states that the Paris Agreement aims to make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”
• And Article 9 states “developed countries shall provide financial resources to assist developing countries with mitigation and adaptation in continuance of their obligations”.

Because it was a negotiated text, Article 2.1.c doesn’t say which finance flows should be consistent with the low-emissions and resilience pathway. And while there is a general agreement it means “all flows”, some developing countries think accepting this would let developed countries off the hook for their promise to provide financial resources to support them under Article 9.

But developing countries’ development, stability and economic prosperity are dependent on a transition everywhere, and that must be part of the transition’s design. In turn, developed countries should acknowledge their dependence on developing nations’ resources, rather than thinking about how fast they can extract profit from them. This needs to be a transition grounded in sharing opportunities, finance, and resources more fairly. The key is to work out how to maintain western living standards, but in a low-carbon way, and in a manner that creates jobs, economic prosperity and geopolitical stability, including in developing countries.

Investors, corporates, and negotiators all need to recognise that those seemingly competing interests can, in fact, be complementary – and that pursuing one does not necessarily mean deprioritising the other. There is a need to simultaneously focus on how to get money to flow at much greater scale to developing countries, and to take measures make all financial flows consistent with climate mitigation and adaptation.

Although the “Baku to Belém roadmap” is essential, it is connected and complementary to the issue of how to make Article 2.1.c happen. Both will form part of key processes at COP30 in Brazil and beyond, and many of the same levers can be pulled to benefit both. Finance for developing countries is its own important aim under the UNFCCC and Paris frameworks, but it is also a sub-set of the lager goal of shifting finance flows.