Integrating social and economic priorities into climate finance

Introduction

As the world faces converging crises—climate instability, biodiversity loss, rising inequality, conflicts, and political turmoil—how climate finance is designed and delivered matters more than ever, especially as fiscal space is increasingly constrained by mounting debt. While international attention has rightly focused on scaling up finance for mitigation and adaptation, this has come at the expense of a focus on quality, efficient allocation, and integration of that finance. Too often, public climate funding is designed in isolation from the broader social and economic objectives it could help advance—including poverty reduction, gender equality, and care. (See: Onaran and Oyvat; Grown, De Henau, Martinez, and Ilkkaracan).

This paper argues that public climate finance can be made more effective and efficient by aligning it with these interconnected priorities. Doing so not only improves climate outcomes but also strengthens economic and social resilience, especially in developing countries where fiscal pressures are rising and international aid is declining. This means that these social and economic objectives are not just add-ons to climate policy; they are an integral part of successful climate action.

The following sections explore the current landscape of climate finance, the case for a more integrated and inclusive approach to public spending, and examples of how such approaches are already being put into practice.

The climate finance landscape

The term “climate finance” broadly refers to funds directed toward reducing greenhouse gas emissions and building resilience to climate change impacts. Core areas identified by the Independent High-Level Expert Group on Climate Finance include the clean energy transition, adaptation and resilience, loss and damage, natural capital, and ensuring a just transition.¹

Global climate finance reached $1.9 trillion in 2023,² more than doubling since 2018, yet it remains far below what is needed to meet the 1.5°C goal, requiring a five-fold increase by 2035.³ Global climate finance has been affected by recent U.S. policy decisions, including the suspension of climate aid, withdrawal from the Paris Agreement, cancellation of a $4 billion pledge to the Green Climate Fund, and the end of reporting to the U.N. on climate finance. These shifts have placed close to 10% of global climate finance at risk.⁴

In 2023, climate finance predominantly came from private sources (66%) while public finance accounted for the remaining 34%. National development finance institutions (DFIs) made up the largest share of public finance (22%), followed by governments (21%), multilateral DFIs (18%), and state-owned enterprises (17%). However, public finance remains heavily skewed toward mitigation—85% in 2023—with just 9% for adaptation. In least developed countries (LDCs), public finance accounted for 88% of all flows, compared to 43% in emerging markets and developing economies (EMDEs excluding China and LDCs). Adaptation finance in these regions is overwhelmingly public, with multilateral DFIs as the main contributors. Yet despite recovering from a pandemic-related dip, public commitments to adaptation remain opaque and inadequate.⁵

Sectoral imbalances persist. In 2023, 72% of climate finance went to energy and transport—sectors dominated by men—while critical adaptation sectors like agriculture, forestry, and land use received just 2%, despite their role in food security and biodiversity.⁶ These gaps have clear implications for gender equality, as women—especially in small-scale agriculture and informal livelihoods—remain excluded from the financing they need to adapt and participate in the new green economy.

Geographic disparities deepen these inequalities. EMDEs (other than China, but including LDCs) received just 20% of global climate finance, despite facing the highest climate risks and infrastructure needs. Private finance is highly concentrated in advanced economies, with only 15% flowing to EMDEs (other than China but including LDCs). Domestic finance is similarly uneven: While China mobilized 99% of its climate finance internally, LDCs managed just 7%, remaining heavily dependent on external sources.⁷

The structure of finance is another challenge. Over 90% of total flows was provided in the form of debt or equity, expecting market-rate returns on investment in 2023. Concessional finance (such as grants or low-cost debt)—critical for low-income, highly indebted countries—makes up only 7% of total climate finance, dropping from 12% in 2022. Between 2018 and 2022, 84% of adaptation finance to EMDEs (excluding LDCs but including China) came as debt.⁸ This not only restricts fiscal space but disproportionately affects women, who face greater barriers to credit and are more exposed to the harms of austerity.⁹

Misalignment between financial instruments and the nature of investments also limits impact. High-risk, low-return areas such as adaptation, nature-based solutions, loss and damage, and just transition efforts require more public and concessional finance, as they often generate public goods, have limited revenue streams, and face high upfront costs and long payback periods, making them unattractive to private investors. Yet most capital continues to favor commercially viable mitigation projects, particularly renewables. The result is a mismatch that hampers both resource mobilization and resilience-building. At the same time, transparency and accountability in climate finance remain weak, undermining trust and effective delivery.¹⁰

Furthermore, finance rarely reaches the local and community level, where it is most needed. Locally led, socially inclusive initiatives continue to be overlooked, despite their critical role in driving effective adaptation. The persistent underfunding of women-led and grassroots projects limits the ability of communities to shape and benefit from climate action.¹¹

Despite growing recognition of the links between gender equality, social inclusion, and development, and effective climate action, these considerations remain largely absent from climate finance. This is exacerbated by a fragmented financial architecture that fails to integrate climate and development goals, often forcing trade-offs that undercut both equity and impact.¹² Women entrepreneurs, low-income women, and marginalized groups—especially in sectors like small-scale agriculture, informal work, and care—face limited access to resources and bear disproportionate burdens, while most finance flows to male-dominated sectors. This not only entrenches inequality but weakens the overall effectiveness of climate responses, as key barriers—such as lack of credit access or the strain of unpaid care work—go unaddressed.¹³

Recent international reform initiatives aimed at reshaping the global financial architecture—including the Bridgetown Initiative, V20 Accra-Marrakech Agenda, and the Paris Pact—have acknowledged some of these systemic issues but fall short of addressing gender inequalities and social disparities in access to climate finance. While highlighting the need for more climate finance and a more inclusive and resilient financial system, these proposals lack explicit, actionable strategies targeting structural drivers of inequality. Without deliberately integrating gender equality and social equity into finance reform agendas, these initiatives risk reinforcing existing vulnerabilities rather than resolving them.¹⁴

Addressing these gaps requires not just more finance, but better finance—tailored to different needs, rooted in justice and inclusion, and aligned with long-term climate and development goals. The next section explores how a broader understanding of efficiency can help redirect public finance to achieve better outcomes across climate, economic, and social goals.

The role of efficiency of public (climate) finance

While a large proportion of climate finance will come from the private sector, public domestic resource mobilization will be foundational. Improving the efficiency of public spending will be essential to ensure that governments—particularly in developing countries—can meet pressing climate and development goals despite limited resources.¹⁵

Efficiency, however, should extend beyond the traditional economic paradigm, which typically emphasizes immediate cost-effectiveness and short-term returns. Such traditional frameworks of economic efficiency—from integrated assessment models (IAMs) and neoclassical approaches to cost-benefit and utilitarian analyses—typically focus on quantifiable, short-term outcomes, at the expense of preventive investments like climate mitigation and adaptation,¹⁶ and care infrastructure. This is in spite of their potential to avert devastating future impacts and economic disruptions, and therefore to save money and increase economic resilience in the long run.¹⁷ For instance, investments in renewable energy or decarbonized transport may initially appear expensive due to high upfront costs and delayed returns. Similarly, climate adaptation measures such as flood defenses or drought-resistant agriculture are often perceived to provide benefits that only materialize if and when climate shocks occur. Yet these preventive investments are essential precisely because they reduce the probability and severity of such events, helping to protect economic stability, prevent large-scale humanitarian crises, and avoid costly recovery efforts (the so-called “avoided losses”). They also generate a wide range of additional economic, social, and environmental benefits, such as improved health, reduced poverty, and strengthened care systems—benefits rarely captured fully by traditional economic and growth modelling approaches. In many cases, these co-benefits exceed the value of avoided losses, meaning that the viability of many adaptation investments does not depend on the disaster actually occurring.¹⁸ A broader perspective on efficiency, therefore, accounts explicitly for the value of both mitigation and adaptation as forward-looking measures that safeguard long-term economic resilience and societal well-being.

Integrated approaches that link climate action to broader social and economic priorities can make public climate finance more efficient. Climate policies are often developed separately from social protection,¹⁹ gender equality,²⁰ and poverty reduction objectives.²¹ This fragmented approach risks, among others, maladaptation,²² social backlash,²³ and the entrenchment of existing inequalities and vulnerabilities,²⁴ ultimately undermining long-term resilience and increasing future public costs.

By contrast, investments that integrate these multiple dimensions can deliver synergistic outcomes, achieving more with limited public resources. For example, funding care infrastructure—including healthcare, childcare, eldercare, and educational services—can not only reduce women’s disproportionate unpaid care burden but simultaneously enhance community resilience to climate-related shocks by supporting healthier, more productive populations.²⁵ Recent research highlights how investing in social care²⁶ infrastructure bolsters economic resilience, reduces dependency on crisis-driven expenditure, and promotes inclusive growth, ultimately lowering total public spending over time.²⁷ Likewise, aligning climate adaptation with poverty reduction can enhance resilience in vulnerable communities, reduce long-term economic losses, lower the need for reactive emergency spending, and improve the political acceptance of climate policies.²⁸ Similarly, integrating social protection into climate policies leads to more effective adaptation and mitigation responses, while also providing an opportunity for gender equality by strengthening the social and economic resilience of women and girls.²⁹

Adopting this integrated vision requires deliberate adjustments in public budgeting, planning, and evaluation frameworks. Public finance systems can be more effective when they prioritize investments that generate multiple co-benefits simultaneously, spanning climate resilience, gender equality, social care,³⁰ and poverty reduction.³¹ By broadening the traditional concept of efficiency to fully encompass these interlinked social, economic, and environmental dimensions, governments can leverage limited resources, enhance long-term returns on public investments, and address the compounded challenges of climate change and sustainable development.

Rethinking efficiency in action

Governments around the world are increasingly recognizing this broader definition of efficiency and are starting to align climate finance with other social priorities, including the Sustainable Development Goals (SDGs).³² In fact, some finance ministries emphasized in recent interviews with the authors, conducted for a separate project, that incorporating gender and social considerations is not just considered a social equality issue—it is part of robust economic analysis and sound economic strategy. These ministries are increasingly making the case, both internally and externally, that it enhances overall productivity, resilience, and growth, enabling their economies to better withstand external shocks and sustainably support development objectives. Finance ministries are exploring different strategies to integrate priorities and maximize the impact of scarce resources. While integration will look different in every country, there are emerging best practices to learn from.

Strategy development processes can be a key entry point to overcome the fragmentation of public spending. Aligning climate finance streams within cohesive frameworks that explicitly connect climate objectives to broader social and economic goals is a starting point. This is particularly urgent given that climate change impacts disproportionately affect vulnerable populations, exacerbating inequalities and undermining sustainable development. The ongoing update of Nationally Determined Contributions (NDC) provides an opportunity for countries to think more strategically about how climate policy can be integrated with other political priorities. To date, many NDCs remain too narrowly focused on emission reductions. While references to gender in NDCs are growing (though most plans are vague and continue to lack accompanying actions, targets, and indicators), social protection and care linkages remain scant.³³ Like NDCs, National Adaptation Plans (NAPs) could also benefit from greater integration of social protection and care considerations.³⁴

An effective strategy to combat fragmentation can be to frame national climate plans—not merely as narrow climate commitments but as comprehensive sustainable development strategies.³⁵ Some countries are moving in this direction by developing Integrated National Financing Frameworks (INFF) that link climate actions with SDGs and other social and economic priorities.³⁶ Similarly, Climate Prosperity Plans (CPPs) align climate action with development goals like poverty reduction and job creation, helping shift the focus from vulnerability to prosperity to attract finance for inclusive, low-carbon growth.³⁷ For effective implementation, these plans can then be integrated into all aspects of the budget cycle and medium-term expenditure frameworks.³⁸

The Maldives offers a compelling example in integrating gender equality and climate finance as part of such a strategy process: After recognizing that gender equality and climate resilience were fundamentally intertwined issues, in 2023 the government adopted its INFF, a gender-responsive climate finance strategy, which aims to support the financing of the country’s NDC as well as other national and sectoral development plans, from both domestic and external sources.³⁹ The strategy sets out a number of actions, including (but not limited to) the joint integration of gender and climate considerations into budgetary practices, public procurement, and fiscal policies (including fossil fuel subsidy reform), and strengthening the collection of climate-relevant and sex-disaggregated data. By explicitly combining these priorities, the Maldives aims to enhance policy coherence, improve the efficiency, effectiveness, and equity of public spending, ensuring that climate action simultaneously advances gender equality and broader economic resilience.

Another approach is to design fiscal instruments that explicitly integrate climate action with social equity goals. By embedding social considerations into climate-related revenue and expenditure policies, governments can enhance both the effectiveness and public acceptability of their climate strategies. In many countries, a first step toward improving integration and efficiency is to reduce existing inefficient expenditures and redirect resources into higher-priority areas. Significant inefficiencies persist in current public budgets, particularly through expenditures that undermine climate and development objectives.

Fossil fuel subsidies are a major inefficiency, diverting substantial resources—$1.3 trillion in 2022—toward activities that accelerate climate change and biodiversity loss.⁴⁰ Reforming these subsidies offers a critical opportunity for finance ministries to redirect funds toward sustainable development, including renewable energy, poverty reduction, and just transition programs.

Since 2012, Morocco has phased out most fossil fuel subsidies, reducing spending from $5.2 billion in 2011 to $1.1 billion by 2016.⁴¹ The fiscal savings were redirected to large-scale investments in solar and wind, with renewables reaching 37% of electricity installed capacity by 2024.⁴² Subsidy reform was also explicitly integrated into Morocco’s NDC, aligning energy policy with its Paris Agreement goals. While challenges remain—including delays in renewable deployment and continued investment in fossil fuels—these reforms have laid a strong foundation for accelerating the country’s energy transition by redirecting inefficient fossil fuel spending toward climate action.⁴³ Implementing targeted measures to improve the employment of women in the range of jobs being created could now help improve gender equality while advancing climate action.

India’s Pradhan Mantri Ujjwala Yojana (PMUY) further shows how subsidy reforms can also co-benefit gender equality.⁴⁴ Although liquefied petroleum gas (LPG) remains a fossil fuel, the scheme improved access to cleaner cooking fuels by covering upfront connection costs to low-income women, reducing health and time burdens, and enhancing women’s agency within households. Similar reforms explicitly promoting renewable energy or sustainable biofuels would offer even greater co-benefits for gender equality, health, and environmental sustainability.

Meanwhile, Ireland has taken a leading role in the integration of just transition measures into its carbon pricing policy. Recognizing that carbon pricing increases the energy poverty of vulnerable households, and in line with evidence that suggests that climate policies that integrate social protection measures garner greater acceptability, Ireland’s carbon pricing scheme explicitly earmarks revenues to finance just transition measures.⁴⁵ Revenues from the carbon tax are, among others, hypothecated toward social welfare payments, with a focus on children in energy poverty, and a national retrofitting program—measures that are estimated to have made Irish households in the bottom five income deciles better off than they would have been without the carbon tax.⁴⁶ While sex-disaggregated data is so far missing,⁴⁷ the carbon tax is likely to have had a positive impact on gender equality, as women more frequently experience (energy) poverty,⁴⁸ including as heads of lone parent households.⁴⁹

Beyond national policy, integrating social priorities into climate policies also requires a focus on the local level.⁵⁰ For instance, local-level nature-based solutions such as community gardens are a cost-effective measure to reduce urban heat islands, provide ecosystem services, and increase storm water retention, while also improving responses to natural disasters and food security, thereby playing a key role in strengthening both adaptive capacity and community resilience.⁵¹ Meanwhile, investment in a universal resilient care system—usually organized at the local level—is crucial for strengthening community adaptation.⁵² Climate finance for adaptation and resilience, therefore, has a key role to play in supporting care systems, infrastructure and services. However, most local-level adaptation or disaster risk and preparedness plans do not consider the role of the care sector.⁵³ Some cities, such as Quezon City in the Philippines, are starting to change this.⁵⁴ In Quezon City, policymakers are recognizing that caregivers are effectively front-line responders during natural disasters and are exploring how they can be better integrated into planning processes and supported during emergencies. National-level guidance, as well as capacity and financial support, will be essential to ensure that such initiatives become the norm rather than the exception.

Conclusion

Integrating social and economic priorities into climate finance is essential—not only to achieve critical climate goals but to strengthen economic resilience, address structural inequalities, and achieve broader sustainable development goals. Despite growing global climate finance, major gaps remain. Persistent inefficiencies, including sectoral imbalances, heavy reliance on debt-based finance, and inadequate alignment with the needs of vulnerable populations, further undermine effectiveness, disproportionately impacting women and marginalized groups.

Addressing these challenges demands a fundamental reform of the global climate and development finance system. But it also requires rethinking of efficiency in domestic public finance. This means moving beyond narrow, short-term cost-benefit analyses to explicitly value preventive investments—such as climate mitigation and adaptation—and recognizing their extensive co-benefits for gender equality, poverty reduction, social protection, and care infrastructure. Aligning climate finance with social and economic goals can stretch limited public resources further and tackle the root causes of inequality.

Experiences from countries such as India, Ireland, and the Maldives demonstrate how countries are creatively addressing care, energy poverty, and social protection in their climate policies. In fact, these measures are not “add-ons” to climate policy but an integral part of successful climate action, enhancing efficiency, equity, and resilience. As fiscal constraints tighten and climate risks escalate, adopting such approaches to domestic public climate finance is no longer optional—it is imperative. Governments that proactively align their climate finance with social equity and economic resilience priorities will be best positioned to build inclusive, sustainable, and climate-resilient societies.