Last year was significant in addressing the mounting triple crises facing humanity and the planet today; climate change, nature and biodiversity loss, and pollution and waste.

However, according to the World Resources Institute (WRI), 2025 is turning out to be the year to watch just one story that too often flies under the radar despite vast implications for the future as we know it: climate finance.

Aiming to fundamentally transform the way the world produces food, uses energy and designs its cities to create a better future, WRI applies research-based approaches seeking to meet people’s essential needs, protect and restore nature, stabilise the climate and build more resilient communities.

Ani Dasgupta, President and CEO of WRI last week hosted a webinar featuring resource experts who highlighted how climate finance affects everything from climate action to nature conservation and human rights.

“This transformation won’t be easy, but there are many tools to get us there… we have the power to unlock financial flows to some of the world’s most pressing challenges,” Dasgupta said, emphasising why financing the transition for people, nature and climate is a key story to watch this year.  For more than 20 years, WRI has identified annual “stories to watch”. These are moments, issues and decisions the institute believes will shape the trajectory of the world. In the past, WRI has highlighted dangerous heat in cities, major elections and their effects on geopolitics and food system reform.

However, this year is different. WRI says there aren’t stories to watch in 2025. There’s just one – climate finance, and this year is the bellwether (a leader or an indicator of trends) of the world’s ability to provide it at scale. To put it simply, 2025 is the year to care about finance for climate and nature.

At last year’s United Nations Climate Conference (COP29) in Baku, Azerbaijan, wealthy nations agreed for the first time in 15 years to increase the amount of money they provide for climate mitigation and adaptation in developing nations.

The new target, US$300 billion annually by 2035, is better than the previous goal of US$100 billion a year by 2020. But it’s still a far cry from what’s needed. That’s why leaders from all nations also agreed that all actors should work together to mobilise US$1.3 trillion per year by 2035 for the countries most vulnerable to the impacts of climate change.

Climate justice

The US$1.3 trillion recognises the gap between what developing nations can realistically provide domestically for things like clean energy development and climate-smart agriculture, and what will be needed from external sources.

“It will be extremely difficult to secure the US$1.3 trillion. But make no mistake. We must do it,” Dagupta asserted.

He emphasised the universally-accepted appreciation of what will happen without adequate climate finance. Resource-strapped communities will suffer the most from increasingly devastating drought, floods, wildfires and heatwaves, even though they’re least responsible for causing the problem.

“That’s why delivering the US$1.3 trillion isn’t just about finance – it’s about justice,” the WRI chief explained.

Dagupta noted that without significant emissions reductions from all nations, wealthy and developing alike, the world will not meet its decarbonisation goals, exposing everyone to the existential crisis that is climate change. According to him, finance from richer countries to developing ones isn’t charity but an investment in a safer world.

Ambition and finance are two sides of the same coin. One cannot get ambitious nature and climate policies without the finance to execute them. Finance and ambition are a virtuous cycle, and 2025 is the year to unlock both.

So, what’s needed to achieve the US$1.3 trillion goal, and what needs to be watched this year to see its coming to fruition? What’s the money for?

In short, states the WRI, the US$1.3 trillion must support two goals: building resilience in developing nations while also securing their low-carbon growth. The effects of climate change are growing ever-more costly and dangerous, but the risks aren’t evenly distributed.

Vulnerable nations, those with the fewest resources to respond, are projected to face more than half a trillion dollars in climate-related damages every year by 2030.

Meanwhile, finance for building resilience remains paltry, with a US$360 billion gap between what’s needed and what’s provided every year. Of the adaptation finance that is flowing, less than one-fifth reaches the communities who need it most.

At the same time, both low-income and growing economies need support to move beyond fossil fuels while also creating jobs and improving lives. Many low-carbon shifts will come with considerable benefits, such as cleaner air and energy security.

Key questions

It will however take time to make sure they happen at the speed and scale necessary and in a way that benefits all people, including those employed by the fossil fuel industry. For example, investments in the clean energy sector in developing countries need to increase by around 7 times by 2035, according to the International Energy Agency.

The WRI chief believes that answers to the following questions will show us whether the world is achieving these twin goals for climate finance:

First, will negotiators at the next UN climate summit (COP30) in Belem, Brazil commit to at least doubling adaptation finance from US$40 billion to US$60 billion per year?

Second, will the Loss and Damage Fund established in 2023 start disbursing funds? Third, as part of the global Paris Agreement on climate change, countries agreed to submit new climate plans in 2025. Will they be ambitious on both mitigation and adaptation, and come with clear investment plans?

Where will the money come from? WRI global action and finance programme director Melanie Robinson says US$1.3 trillion my sound like a lot of money, but not when put in perspective. Using the International Monetary Fund (IMF)’s average annual GDP growth rate of 2,8 percent, it’s less than 1 per cent of projected global GDP in 2035.

“The US$300 billion climate finance target can be met in three ways: bilaterally, where donor countries give directly to recipient nations, multilaterally, through development banks (MDBs) like the World Bank and multilateral climate funds like the Green Climate Fund, and through leveraged private finance,” Melanie says.

India has been successful in boosting the private sector’s confidence in low-carbon investments, and leveraging private finance by setting ambitious renewable energy targets, a clear roadmap, subsidised electric transport and advanced innovative financial instruments like green bonds.

Progress in 2025 will depend on member countries increasing their funding to the MDBs, despite political headwinds, the concept of international taxes, and the International Maritime Organisation’s consideration of a carbon levy on shipping.

It is hoped that world leaders will use June’s Finance for Development Conference to advance global finance reform and bring together climate, nature and development finance. Climate activists will also be keenly watching the repercussions of the US government’s new freeze on almost all foreign assistance, including all climate finance.

The WRI’s CEO Dagupta says the biggest thing to watch in 2025 is how the world will bring all these components at key forums such as the UN climate summit and G20 meetings, draw on all sources of finance, and make them work together as a system.