International Development Committee

The UK’s International Climate Finance (ICF)

FCDO Written evidence

Introduction

Tackling climate change internationally is in the mutual interest of the UK and its partners – it strengthens energy security by reducing dependency on fossil fuels, enhances UK food security by protecting and stabilising food production and supply, accelerates the green financial transition, and generates domestic economic growth. Growth, resilience and the green transition are interlinked: for the UK alone, the net economic benefits and avoided costs from rapid global action to limit climate change are estimated at around 9.1% of GDP to 2050[1].

Climate and nature form one of the three priority areas where the UK’s Official Development Assistance (ODA) budget has been focused, reflecting partner needs and long-term UK interests. International Climate Finance (ICF) is just one of the UK’s key levers for addressing climate and nature challenges. Its impact will be significant yet small compared to the scale of the global need. It is therefore essential that UK ICF is deployed strategically to mobilise wider flows of climate finance and deliver objectives across mitigation, adaptation and nature. Climate and development are integrated challenges and must be tackled together.

The UK’s approach to ICF reflects its evolving development offer, which places strong bilateral partnerships at the core, based on honest dialogue about mutual interests, underpinned by agreement on common challenges. The approach prioritises UK investment in multilaterals, whilst using UK influence to drive reform of the global development architecture and strengthen its most important parts. This will be supported by the four essential shifts to our development partnerships (see below). There are important synergies between mitigation, adaptation and nature interventions that we seek to capitalise on to maximise co-benefits. Through this integrated approach, the UK aims to deliver transformational change and contribute meaningfully to global climate goals.

1. What impacts will the reduction of Official Development Assistance have on the UK’s ability to deliver its ICF commitments?
• What are the trade-offs associated with decisions to divert aid from ICF to other priorities, such as humanitarian crises?
• How does the UK’s ICF commitments and delivery compare with other countries in a similar situation?

Climate and nature remain top priorities for our ODA, alongside humanitarian and health. The UK is committed to providing ICF now and in the future, and to playing our part alongside other developed countries and climate finance providers to deliver our international commitments. The UK is on track to deliver our commitment of £11.6 billion of ICF by the end of FY 25/26 despite the overall reduction in ODA. In addition to this, UK ICF since 2011 has mobilised £10.5 billion of public and £10.4 billion of private finance. Detailed decisions on how the future ODA budget – including ICF – will be used are being worked through as part of the ongoing Departmental resource allocation process and will be communicated after this process has been completed.

Development, nature and climate are intertwined challenges. Programmes across every development sector increasingly consider - and address - risks posed by climate change, allowing us to deliver against both climate and wider development and humanitarian objectives. Increasingly, humanitarian need is being exacerbated by climate change, and there are a significant number of UK humanitarian programmes operating in the most highly climate-vulnerable countries. There are profound synergies between climate action and delivering the other SDGs which are far greater than any trade-offs (IPCC 1.5° Report)[2].

Leading donors, including the UK, are considering their future climate finance pledges, in the context of broader ODA cuts. Many countries are, like the UK, coming to the end of their current ICF commitments, including Australia, France, Germany, Spain, Ireland, Japan and New Zealand. ICF from other countries isn’t necessarily directly comparable to the UK, as support is provided and mobilised through many different types of financial instrument (e.g. grants, loans etc). The COP26 Presidency Compilation of 2021-2025 Climate Finance Commitments[3] provides a comparison of G7 countries’ 21/22-25/26 commitments.

2. How transparent is the UK Government about its ICF commitments?
• What processes are in place to oversee the UK’s ICF expenditure and impact?

Climate finance reporting is a core element of the Paris Agreement. Every two years the UK submits Biennial Transparency Reports (BTRs), as part of our Paris Agreement reporting obligations under the Enhanced Transparency Framework (ETF), to the United Nations Framework Convention on Climate Change (UNFCCC). The ETF ensures that Parties are transparent about financial contributions and how these funds are used which is crucial for building trust among Parties and stakeholders, as well as tracking progress. We also report regularly to the OECD as they track progress against the $100 billion climate finance goal.

In addition to meeting these international requirements, the UK also publishes details on climate finance on its Development Tracker website. This includes individual programme business cases, programme annual reviews and transaction details. We also publish annual portfolio level ICF results and ICF data is also included within our wider annual Statistics for International Development publication. The UK will continue to take measures to improve our transparency, building on our existing approaches that have received positive external assessments[4] and responding constructively to recommendations we have received.

The UK has well-established cross-government governance structures at both official and Ministerial levels for overseeing ODA and ICF spend. This includes the refreshed Ministerial ODA Delivery and Impact Board and the senior official-level ICF Management Board, which meets regularly to oversee policy implementation, ensure coordination across ICF spending departments, and promote learning, monitoring, and evaluation. These mechanisms aim to maximise value for money, assess impact, and ensure effective delivery of the UK’s ICF commitments.

3. How are the UK’s ICF programmes selected and, are they effective in meeting the long-term needs and priorities of low-income and climate-vulnerable countries?
• To what extent does the UK ensure that programmes are rooted in local participation, management and, decision making?

ICF is spent in ODA eligible countries that are highly vulnerable to climate change, including least developed countries and Small Island Developing States. Some ICF spend is also targeted at mitigation and sector transitions in middle-income countries (MICs) with high or rapidly growing emissions, as well as forest countries critical for carbon sequestration. MICs account for 60% of global emissions and 75% of the global population, including half of the world’s extremely poor.

As with all ODA spend, ICF programmes are selected through a rigorous process designed to ensure value for money and alignment with partner countries’ long-term priorities, such as those set out in Nationally Determined Contributions and National Adaptation Plans. Ensuring this alignment also fosters ownership and long-term impact. The selection process is embedded in business case development and approval, following the FCDO Programme Operating Framework[5] and HMT Green Book standards. Programmes are assessed for transformational impact, deliverability, co-benefits, additionality, and fit with wider HMG objectives, alongside factors like emissions profile and countries’ ability to self-finance.

UK ICF spend is not managed as a single fund with central decision making. Programme decision-making is undertaken by Posts, teams managing thematic or regional programmes or the teams managing our contributions to the multilateral climate funds and MDBs. Inclusivity and local leadership are prioritised, supporting greater participation of marginalised groups, including women and girls, Indigenous Peoples and local communities (IPLCs), and people with disabilities. For example, BRAVE’s climate resilience work in Pakistan has improved access to clean water for flood-affected villages, reducing the burden on women while enhancing household resilience for over 600,000 people. As part of our modern development offer, the UK will shift its emphasis to work increasingly in partnership with local actors, rather than through international interventions.

4. How effectively are FCDO, DESNEZ, DSIT and Defra coordinating their efforts to deliver the UK’s ICF commitment and maximise value for money?
• Is there sufficient cross-departmental monitoring and evaluation being conducted to measure programme impact on low-income and climate-vulnerable countries?
• How does the UK engage with multilateral banks and climate funds and, how is this shaping cross-departmental ICF strategies?

The UK has well-established cross-government governance structures at both official and Ministerial levels for overseeing ODA and ICF spend. This includes the refreshed Ministerial ODA Delivery and Impact Board and the senior official-level ICF Management Board, which meets regularly to oversee policy implementation, ensure coordination across ICF spending departments, and promote learning, monitoring, and evaluation. These mechanisms aim to maximise value for money and ensure effective delivery of the UK’s ICF commitments.

We recognise that cross-government coordination and portfolio oversight remain areas for improvement. For the next ICF period, governance and learning systems will be strengthened, taking forward recommendations from the recent ICAI review. A new strategic portfolio Monitoring, Evaluation and Learning (MEL) programme is being mobilised to improve oversight and sharpen learning across the ICF portfolio. This programme will conduct high-priority evaluations, centralise evidence, and update the KPI monitoring framework to reflect current UK priorities and global standards. These steps will help ensure smarter spending, better delivery, and demonstrate to taxpayers that their money is driving real change.

The UK is influential at the Multilateral Development Banks and climate and environment funds. We have continued to invest ODA at scale for climate goals across these organisations, including the Green Climate Fund, Global Environment Facility and Climate Investment Funds. We have long standing positions on the Boards and Councils of the largest dedicated climate funds, including the Green Climate Fund (which the UK co-chaired in 2024) and Climate Investment Funds (Chair in 2024 and 2025), and UK influence in these Funds was recently acknowledged by ICAI in its review of UK aid for the energy transition. This has enabled the UK to influence policy and secure funding for vulnerable countries, such as greater funding in the Green Climate Fund for fragile and conflict affected states.

5. How has the UK’s 2026-2030 ICF commitment been decided? Is it adequate to comply with the obligations of the Paris Climate Agreement and support its objectives?

Climate and nature are top priorities for our ODA budget, alongside humanitarian and health.  Our future ICF (ICF4) will be confirmed as part of the 26/27 Spending Review. Now that Departmental ODA allocations have been determined, detailed decisions on how the ODA budget – including ICF - are being worked through as part of the ongoing Departmental resource allocation processes, which will fully conclude the Spending Review process. We expect to set out our spending plans following the completion of resource allocation processes and intend to share details of our strategic approach for ICF4 in the coming months. 

UK ICF will be a significant but small contribution in comparison with the scale of the problem, so we need to use the UK’s ICF strategically to scale and mobilise the quantum of overall global climate finance to deliver our objectives across mitigation, adaptation and nature.  Our new Portfolio Monitoring, Evaluation and Learning programme will mean we will be conducting portfolio level impact assessments to ensure value for money in a 0.3% ODA spending context.  As UK ICF is just one lever in the UK’s overall approach to climate and nature, it is critical that all are brought together in pursuit of the same objectives.

Beyond ICF, since 2024, all new bilateral ODA programmes are aligned with the Paris Agreement. Our internal processes, such as the Programme Operating Framework[6], are designed to keep programmes in line with these commitments.

6. What lessons should the UK Government learn from the delivery of ICF between 2021-22 and 2025-26, including the effectiveness of multi-year commitments?

The UK systematically uses evaluations, annual reviews, and its updated evidence base to inform programme design and approvals, embedding lessons on effectiveness, value for money, and mobilisation into future commitments. Between 2021/22-2025/26 (ICF3), the UK adopted a broad approach to its ICF spend, with interventions across multiple sectors and countries. Moving into 26/27 (ICF4), and with the gradual reduction of the ODA budget, allows for a considered reprioritisation of programming and a rigorous approach to value for money. These decisions are guided by UK development expertise and informed by ongoing engagement with partners. Four essential shifts have been identified for our future development partnerships, moving the UK’s emphasis from donor to investor; from service delivery to system support; from grants to expertise and from international intervention to local leadership.

We undertook a synthesis of learning report[7] in 2023 which highlighted UK ICF’s unique placement to overcome barriers to transformational change, our willingness to take risks and offer concessional funding where others wouldn’t, and ability to influence other funders. It recommended stronger cross-sector coordination across interventions, combining technical and financial support to address complex policy challenges, greater investment in local governance capacity, mobilising private finance through early investment, and developing clear theories of change. These findings are feeding into our thinking for ICF4, as well as the four essential shifts to our development partnerships. 

The new strategic portfolio-MEL programme will improve oversight and sharpen learning across the ICF portfolio. A learning synthesis of ICF3 will be completed by the end of April which will help inform ICF4 programming going forward.

7. Is the UK using the right and most effective financial instruments to deliver ICF?
• What opportunities and risks do alternative funding instruments, such as private or blended finance, pose for the UK’s ICF?

The ICF portfolio uses a mix of financial instruments, tailored to meet specific needs. Where possible we use public ODA to develop markets, including for underserved areas like adaptation.  But such development can take time, not least as it typically also requires support for the wider enabling environment.

The mobilisation of greater amounts of private finance is therefore essential for achieving our collective climate goals, as set out, for example, in the Fourth Report of the Independent High-Level Expert Group on Climate Finance, launched shortly before COP30. Some instruments allow much greater risk to be taken – these can deliver greater impact particularly in nascent, lower income and fragile markets.  There are also circumstances where private finance is not appropriate, e.g. in the poorest or most fragile contexts, or for certain resilience investments.

We deploy a range of financial instruments including:

• Technical assistance: Technical assistance can be used to strengthen enabling environments, for example by helping governments, institutions, and businesses to create conditions for climate investment, such as energy sector reform, climate policy frameworks, and capacity building.
• Grants: These can incentivise and de-risk very early-stage, high-impact projects for example, clean cooking solutions, distributed renewable energy, and industrial decarbonisation initiatives. 
• Debt, equity and guarantees: In particular, British International Investment (BII), the UK's development finance institution, and the Private Infrastructure Development Group (PIDG) deploy a suite of financial instruments to support private sector development and deliver a range of climate and development outcomes. Instruments are selected based on the impact, risk, and financial return characteristics of individual investments as appropriate.  As specialist providers BII and PIDG build up dedicated expertise.
• We also support the listing of investments on public markets, such as the London Stock Exchange, through the Mobilising Institutional Capital through Listed Products (MOBILIST) programme.
• In addition, our contributions to Multilateral Climate Funds (most notably the Green Climate Fund (GCF), Global Environment Facility, and the World Bank administered Climate Investment Funds (CIF)), have helped create concessional multilateral resources enabling these funds to use blended finance. This enables MDBs and private sector actors to access scarce concessional finance for catalytic projects and help drive collaboration across the climate ecosystem.
• Contributions to MDBs: We provide capital injections to MDBs and contribute to replenishments of their concessional arms. MDBs are then able to leverage these flows and provide a range of concessional and non-concessional financial instruments to scale climate finance flows. A percentage of our contributions is scored as ICF in line with the climate finance targets of individual MDBs. UK contributions to date helped enable MDBs to provide over US$ 85bn of climate finance in 2024.

The UK is rightly focused on leveraging greater sums of private finance alongside mobilising increased investment by the multilaterals and our own bilateral finance. We will also look to make sure that grant finance and concessionality is focused on the most vulnerable countries or on those issues that could deliver a step change in the wider system. 

We also continue to encourage MDBs to optimise their balance sheets. One innovative route is by more quickly passing on investments at scale to private investors through approaches including originate-to-share and originate-to-distribute (e.g. such as the IFC’s recently launched Emerging Markets Securitisation Program).

8. Is the UK’s use of loans, that represented more than two-thirds of the global ICF commitment in 2022, appropriate and, what is its impact on low-income and climate-vulnerable countries?
• How can the UK utilise innovative mechanisms, such as debt relief, as alternative routes to fulfilling its ICF commitments?

The climate finance gap cannot be plugged by grant finance alone, and we should use our ICF spend to help unlock quality and accessible climate and nature finance from all sources. Grant and concessional finance should be targeted towards the poorest and most vulnerable, where the financial returns on investment prohibit non-concessional financing. Many climate projects, such as energy investments, generate sufficient returns to make loan finance affordable or to crowd in private investment.

We will continue to position ourselves as activist shareholders across the climate finance architecture to improve the scale, effectiveness and allocation of climate finance in an equitable and impactful manner. It is important to tailor the instrument to the specific objectives and context, to catalyse the biggest shifts and impacts and to avoid crowding out the private sector.

We do not include bilateral debt relief within our ICF commitment, however, supporting developing countries to tackle unsustainable debt is a key development priority of this government. Where we are a creditor, the UK has fully engaged in multilateral negotiations with debtor countries via the Paris Club and G20 Common Framework mechanisms to put their debt back on a sustainable trajectory. We stand ready to provide debt treatments to any country requesting one through our membership these mechanisms.

We are working with all our partners – including those in the Global South – to ensure all countries have the fiscal space to invest in development and climate. We are calling for efforts to strengthen and speed up debt restructurings via the G20 Common Framework, whilst also building the enabling environment for more sustainable and transparent lending. For example, the UK is actively engaging in the World Bank and IMF review of the Debt Sustainability Framework, pushing for more detailed incorporation of longer-term climate and nature risks and investments. 

The UK has championed the use of innovative instruments, including natural disaster clauses (also called Climate Resilient Debt Clauses), building on the leadership of countries like Grenada and Barbados. These clauses pause debt repayments when a shock hits, thus breaking the cycle of climate and debt vulnerability. We were the first bilateral creditor to offer these through UKEF and have lobbied for all creditors to offer them. At the WB-IMF Annual meetings, the Minister for Development announced that UK would subsidise the fees for the World Bank’s CRDC, to encourage faster take-up.

9. How should the UK’s ICF be spread between, mitigation, adaptation and loss and damage spend to respond to climate change most efficiently?

At COP30 in Nov 2025, the UNFCCC agreed to target efforts within the New Collective Quantified Goal of $300 billion and aim to triple the climate finance flowing to developing countries to build resilience to climate impacts by 2035.

We intend to share details of our strategic approach for ICF4 in the coming months and will seek to maintain a balance in spend between mitigation and adaptation, in line with the Paris Agreement. There are important synergies between mitigation, adaptation and nature objectives and interventions that we will look to capitalise on to maximise co-benefits.

As climate impacts worsen, the UK recognises the urgent need for loss and damage support in specific areas. The UK is an active Board Member of the Fund for responding to Loss and Damage, a new mechanism agreed at COP28, contributing £40 million and using its seat to secure a wide variety of sources of funding.  At COP28 the UK also committed up to £20 million for wider loss and damage funding arrangements, recognising that other instruments - early warning systems and disaster risk finance - are important to address loss and damage.