There is no shortage of money in the world for fighting climate change — the real problem is that this cash is simply not reaching the countries that need it most, the Economic Survey 2025-26 has warned.
Tabled in Parliament by Finance Minister Nirmala Sitharaman on Thursday, the pre-Budget document says the core issue is not lack of capital but a deep structural misalignment between huge pools of global liquidity and extremely low risk appetite among lenders and investors when it comes to projects in developing nations.
“Global capital markets are flush with funds, yet flows to sustainable development and climate action in the Global South remain badly constrained by entrenched risk aversion built into the global financial system,” the Survey notes.
This blockage shows up most clearly in two places: the conservative lending models of Multilateral Development Banks (MDBs) and tough prudential rules in rich countries.
MDBs still prefer safe, sovereign-guaranteed loans to protect their AAA ratings. This limits their ability to recycle balance sheets and pull in large-scale private money. High capital charges under Basel III and Solvency II make long-term infrastructure bets in emerging markets unattractive for banks and insurers in developed nations.
On top of that, big institutional investors want standardised, easy-to-trade securities — while climate projects in poorer countries are usually custom-made, small and illiquid.
The Survey calls the situation urgent and demands big-ticket reforms to fix it:
- Recapitalisation of MDBs
- Shift to “originate-to-share” model using guarantees, insurance and blended finance
- Recalibration of global regulations
- Strong governance to protect public money
It points to a recent game-changer example: In 2025, the Inter-American Development Bank and Brazil’s Central Bank set up a mechanism that unlocked up to $3.4 billion in long-term forex hedging. This tackles currency risk without piling more debt on governments — making projects far more attractive to private investors.
Without such active risk-sharing and a move away from pure risk avoidance, the Survey warns, energy poverty and climate vulnerability will keep rising in the developing world despite trillions sitting idle in global markets.
