Climate change is already affecting our everyday lives, and mitigation and adaptation actions need to be taken now. Many technical advances have been made in climate solutions, but their implementation and scaling up need funding. Private financial institutions are still underrepresented among climate solution investors—what structured financial instruments and public-private partnerships will help incentivize the mainstream financial institutions to seek profitable investment opportunities in climate mitigation and adaptation solutions? On September 8, 2025, CAFIN held a workshop that focused on these questions. The workshop was co-organized with the UC Washington Center and was held in Washington, DC. Additional support was provided by UC Investments, UCSC Center for Coastal Climate Resilience, and the Institute for Social Transformation. The conference program can be found here.
Structured Finance to Fund Climate Solutions
Professor Adair Morse (UC Berkeley) kicked off the workshop by highlighting key factors we need to consider to attract private financial institutions to climate investment: stacking funds (deals including multiple stakeholders, including philanthropy and government), pooling projects, focusing on projects rather than firms and industries, and bank stewardship of their customers’ transition activities.
After presentations on the current state of private sector investment in climate transition, which documented existing incentives and challenges private investors face in funding climate solutions, conference participants discussed barriers that private investors face.
In contrast to a commonly held view that climate investment predominantly comes from impact investors, it is important to clearly delineate concessional and conventional investments to achieve substantial investment scale. Concessional investments are especially important at the research stage, for de-risking investment in scaling technologies, and for climate adaptation projects in low-income areas. For conventional investment, risk-return considerations have to be at the center of the discussion: investment profitability needs to be demonstrated, and the time profile of the investment needs to be attractive. For climate adaptation projects, an additional barrier is the lack of direct financial returns, as they provide a reduction of future losses rather than future income.
Caroline Flammer’s (Columbia University) keynote remarks focused on the urgent need for biodiversity funding and how it can be achieved through blended finance. The key question that applies to climate investment as well is how the conservation and restoration of biodiversity can yield financial returns for investors. This seemingly intractable question is now becoming more widely discussed. The key is to focus on private co-benefits of biodiversity protection and climate investments. These private co-benefits can bring private investors to the table along with government organizations and NGOs for blended or structured approaches to financing climate and conservation projects. For this to work, it is important to quantify direct financial returns to investors, indirect returns in the form of carbon or biodiversity credits, and to boost the returns with subsidies and de-risking that can come from NGOs and governments. Given the scarcity of concessional funding, it needs to be used as catalytic finance and for risk reallocation rather than for direct investment.
Such blended projects already exist, as was demonstrated by multiple presenters, both at the very local and at the country level. For example, The Nature Conservancy (an NGO) has collaborated with governments and financial institutions to broker debt-for-nature swaps for multiple countries. An important part of the discussion was focused on the governments of the Global South, which, in many respects, are leading in both climate mitigation and adaptation investments, frequently with creative funding coalitions.
Academia can contribute to helping accelerate funding for climate and biodiversity by including structured finance in the research and teaching agendas and by helping develop standardized metrics and frameworks for quantifying benefits. An example of measuring adaptation benefits was presented by Drishan Banerjee and Piyush Gandhi (UCSC), who focused on the importance of considering more than just direct physical benefits of disaster protection, but taking into account indirect benefits and uncertainty reduction.
The workshop concluded with brainstorming sessions on funding specific mitigation and adaptation projects that revealed the complexities of prioritizing projects, identifying stakeholders, and structuring blended financial instruments. This points to a substantial need for clear local and global priorities for climate and biodiversity funding, and developing frameworks that would reduce reliance on ad-hoc financial instruments that are frequently too complex and sometimes too political to be put together on a timescale that is needed by our biosphere.
Prepared by Galina Hale and Nirvikar Singh