An Expert’s Guide to Climate Finance for Local Action

As climate impacts intensify, local governments are under growing pressure to deliver more resilient infrastructure and public services. While many have created plans for water security, flood protection, or sustainable energy, one barrier remains the same: How to pay for it all?

Dr. Catarina Fonseca, The Hague Academy’s expert in climate and water finance, teaches about practical ways to mobilise resources for climate-resilient and sustainable service delivery. She explains that understanding how climate finance works is the first step to unlocking opportunities.

“Many local governments don’t realise the range of financial instruments available to them—or that they can design finance strategies to access these funds,” she notes.

What Is Climate Finance?

Climate finance refers to money from public or private, national or transnational sources that support actions that either adapt to or mitigate climate change. Adaptation efforts like flood management projects prepare for climate impacts, while mitigation efforts aim to reduce greenhouse gas emissions that accelerate climate change.

Unlike general development finance, climate finance is explicitly linked to climate priorities and the concept of additionality—that is, it pays only for the additional costs needed to adapt a public service or reduce its carbon emissions, not for the cost of the basic provision itself.

In practice, this means that while building a new water treatment plant might not qualify for climate finance, upgrading it to handle increased flooding or drought conditions could.

This also means that local development practitioners working on climate-resilient service provision have access to funding and financing opportunities outside of those they already know.

Instruments for Climate Finance

First, Catarina mentions practical distinction between funding, which is money that does not have to be paid back, and financing, which is money that does. There is no single source of climate finance, and practitioners can utilise instruments from public, private, and blended sources that offer both financing and funding opportunities.

‘The challenge is combining both public and private financing and funding opportunities smartly so that public services remain sustainable in the long run.”

Public instruments include:

• Grants funding and concessional loan financing from donors or international institutions.
• Green, blue, or resilience government bonds that borrow money from investors for specific environmental projects.
• Debt swaps, where a portion of government debt is reduced in exchange for climate investments.
• Debt guarantees from third-party institutions to incentivise potential investors by de-risking investments.

Private and corporate instruments include:

• Commercial loans and equity investments from private entities that would benefit from sustainable infrastructure or service provision.
• Insurance mechanisms that help manage climate risks, such as drought or flood coverage.
• Carbon credit tokens from reduced emissions that can be traded at market value.

However, one of the largest sources of climate finance is in fact private: investments from households in energy efficiency and other self-supply investments that reduce greenhouse gas emissions.

Climate Funds Opportunities

Global climate funds channel resources from donor governments and multilateral banks into climate-related projects.

• The Green Climate Fund (GCF), the largest, provides grants, concessional loans, guarantees, and equity to help countries implement their climate strategies. Funding is channelled through accredited national or international entities, which means local governments usually need to partner with a national ministry or development bank to access it.
• The Global Environment Facility (GEF) supports both mitigation and adaptation through sub-funds like the Least Developed Countries Fund (LDCF).
• The Adaptation Fund focuses on concrete, community-level projects that build resilience.
• The Climate Investment Funds (CIF) works with regional development banks to deliver concessional finance for clean energy and resilience.
• Finally, there is the recently launched Loss and Damage Fund to help communities recover from climate disasters.

Projects financed by these funds must align with national climate priorities, demonstrate measurable impact, and often require co-financing from other sources.  The process can take time and requires strong climate related data, clear design, and coordination between ministries and local actors.

“Local governments can join forces with national climate platforms, or create their own, to prioritise and propose project concept ideas that combine different sectors: energy, water security, environment.” – Catarina Fonseca

Financial and Climate Sustainability

To address their climate finance needs, practitioners can start by mapping their financial flows, identifying funding gaps, and developing finance strategies that utilise the range of finance instruments available to them. As course participant Khalid Alghami shares:

“Even if we’re not directly managing the money, understanding the financial side of water is essential for making smarter, more sustainable decisions.”

Do you recognise the challenges of financing climate adaptation and water resource management? Join The Hague Academy’s Local Climate Response or Water Governance course to learn from Dr. Catarina Fonseca and other experts and organisations.