A dairy farmer collects her earnings from selling milk to a nearby dairy to be transported to market.
Credit: Narendra Shrestha / Heifer International

USAID’s Efforts to Close the Climate Funding Gap

By Sashi Jayatileke, Tedi Rabold

As temperatures and sea levels rise, people around the world are increasingly seeing heat waves, droughts, floods, cyclones, and wildfires upend their lives, with disproportionate impacts on the poorest and most marginalized communities. Addressing global development and growth challenges demands the combined efforts of technical experts across fields and the expertise and resources of private-sector partners. Pursuing opportunities for engaging the private sector will require developing the tools and funding to successfully interact with businesses. 

Developing countries face significant barriers to securing climate finance due to the cost of capital, limited capacity for measuring and reporting data, high project risks and low return on investments, and undeveloped regulatory frameworks and political landscapes. Recent reports estimate that global climate-related finance will need to increase dramatically to $5 trillion annually by 2030 to be able to transition to a sustainable, net-zero world, that’s a 590% increase in financing. To address the enormous gap, USAID is launching a new Climate Finance Investment Network to catalyze strategic engagements with private sector or foundation partners. We seek to work with partners that are pursuing efforts to facilitate financing that is just and equitable for systemwide transitions that can lead to a net-zero futures.  We are also seeking to provide catalytic funding to kickstart investments in high risk sectors such as adaptation, sustainable transportation, energy efficiency, and in select cases clean energy.  By directly participating in the network, we will be able to quickly engage with private sector partnerships for low carbon assets and provide transaction advisory services to structure blended finance vehicles in higher risk sectors and contexts.

USAID’s 2022-2030 Climate Strategy emphasizes the need to increase finance for climate action to support the underlying conditions that enable systems change: supportive policies, innovations, strong institutions, leadership, and shifts in social norms. As part of the global effort to increase climate finance flows, the Strategy sets a target of mobilizing $150 billion in climate finance by 2030 from public and private sources. To meet these climate targets and incentivize investment, USAID is integrating climate finance throughout Agency programming and establishing key activities and mechanisms that engage the private sector, including:

  • The Climate Finance for Development Accelerator (CFDA) mobilizes financial flows and private sector actions by delivering catalytic facilitation and incentives for private sector actions, steering a learning and capacity building agenda to scale up successful approaches, identifying barriers to public financing, and communicating successes. This new mechanism was just launched in October 2022 and will enable USAID to partner more rapidly with climate finance actors globally.
  • Health, Ecosystems and Agriculture for Resilient Thriving Societies (HEARTH) coordinates partnerships to reduce deforestation and increase community resilience and business sustainability in climate-sensitive landscapes. HEARTH has so far leveraged $14 million in private sector funds and produced 154 awards with direct climate funding.
  • An $8.8 million contribution to the $65 million Water and Energy for Food Grand Challenge (WE4F), which supports more than 125 local small and medium enterprises to raise climate finance and helps farmers in Africa and Asia get access to climate-smart innovations. WE4F has helped 500,000 people save more than 500 million kWh of energy, produce more than 2 million tons of food, and reduce emissions by 57 million tons.

USAID is launching several new programs at COP27, including:

  • A Call to Action on Adaptation will focus on company-led commitments to tackle adaptation solutions in their own operations, products, and services, with private grant financing that puts organizational resources towards emerging adaptation challenges. 
  • The Climate Gender Equity Fund will leverage private capital and catalyze gender-responsive investment to maximize access to networks, skills, technology, and resources that women and girls need to scale and develop climate actions. 
  • The Sustainable Banking Alliance will launch in 2023 in Rwanda and Colombia and will assist banks in improving their ability to lend to green products and better understand carbon accounting.
  • The Green Finance Pilot is a collaboration with the U.S. Government’s Millennium Challenge Corporation that will improve capacity and enabling conditions that accelerate the use of green finance tools in lower income countries.

The funding gap is too significant, the risks are too high, and the returns are too low to entice the private sector to mobilize funds. USAID is leveraging its on-the-ground experience, convening power, technical capacity, and a grant-making mandate to address the funding gap by collaborating with partners to decrease risks and incentivize investment in climate adaptation and mitigation efforts for those in need.


USAID is seeking partners from the private sector and across the climate finance ecosystems to come together and work with our host country governments to achieve their ambitious NDCs, and our climate finance target. To learn more, visit the Work with USAID homepage.

Country
Colombia, Rwanda
Strategic Objective
Integration
Topics
Climate Finance, Climate Strategy, COP27, Economic Growth, Gender and Social Inclusion, Partnership, Private Sector Engagement, Systems Change
Region
Global

Sashi Jayatileke

Sashi Jayatileke is a Senior Climate Finance Advisor with USAID’s Center for Climate-Positive Development leading coordination and providing technical leadership on climate finance to USAID and its partners seeking to mobilize finance for climate goals. She also oversees the Climate Finance for Development Accelerator (CFDA), a USAID initiative to mobilize $2.5 billion in public and private climate investments by 2030 to fund a range of climate change mitigation and adaptation solutions focused on scaling up the transition to an equitable and resilient net-zero economy. Sashi brings two decades of experience in the development and implementation of projects focused on private sector development, impact investing, women's economic empowerment, and financial inclusion.

Tedi Rabold

Tedi S. Rabold is a science journalist specializing in writing and documentary video production about environmental conservation and public health. She currently provides communications support for various USAID environmental projects. She is also a registered U.S. Patent Agent and works as a trial and litigation support paralegal. Tedi holds a Master of Science in Science Journalism from Boston University and a Bachelor of Science in Biology from The George Washington University, with specialized studies in marine biology at James Cook University in Australia.

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