As the multilateral order comes under growing strain, several trends are becoming increasingly clear. International development assistance and climate finance appear to have peaked, even as global needs continue to evolve. At the same time, international institutions, faced with mounting pressure to prove their efficiency and cost-effectiveness, are reassessing their operations. But today’s climate finance challenges demand more than introspection; they call for structural change, decisive action, and – above all – coordinated leadership.

Climate finance is currently delivered through a broad array of institutions: multilateral bodies like the Green Climate Fund ( GCF ), the Global Environment Facility ( GEF ) and the newly established Fund for Responding to Loss and Damage ( FRLD ); multilateral development banks ( MDBs ); and an ever-expanding network of philanthropic, national and regional initiatives. Each was created to fill a perceived functional or political gap. Collectively, however, they form a sprawling and often unwieldy arrangement.

Institutional sprawl creates two major challenges. First, it fosters unhealthy competition. Many of these institutions draw on the same pool of donors, serve similar recipient countries and have overlapping mandates. The result is a bureaucratic maze and high transaction costs, with recipient countries often spending more time navigating the system than accessing its benefits. As a 2024 report by the G20’s climate-finance working group warned, fragmented and inefficient access mechanisms are among the most significant obstacles to effective climate action.

Second, and paradoxically, this competition also leads to inertia, because institutions, protective of their respective niches, become increasingly reluctant to depart from established practices. While differences in size and financial terms should enable climate funds and MDBs to serve distinct, complementary roles, in practice their policies and portfolios often converge. The FRLD is a striking example. When the need for a dedicated mechanism to address loss and damage became urgent, no existing institution was equipped – or willing – to take the lead, so a new entity had to be established.

But competition for resources and inertia regarding evolving challenges are only part of the issue. The deeper challenge lies in fragmented governance. Despite repeated calls to improve coordination, meaningful alignment remains elusive, largely because climate finance institutions operate under fundamentally different governance structures.

The GCF, GEF, FRLD, Adaptation Fund and Climate Investment Funds all report to separate governing bodies, each with its own mandate and varying degrees of alignment with the UN Framework Convention on Climate Change ( UNFCCC ). MDBs answer to their shareholders, while bilateral and philanthropic organizations are driven by domestic or private agendas. As a result, no single body is capable of overseeing or steering the entire system.

Fragmentation doesn’t just hinder strategic planning; it also distorts access. Each institution has its own rules, timelines and application requirements, creating a patchwork of uncoordinated and inconsistent processes. Recipient countries must navigate multiple systems, often with limited institutional capacity, making access to climate finance burdensome and uneven.

A recent synthesis report by the GCF’s Independent Evaluation Unit underscores the need for structural reform, finding that climate finance tends to flow to countries that already have access to traditional development financing. While this may seem intuitive, it is also deeply troubling. The implication is that countries with greater institutional capacity and experience with complex funding mechanisms are better positioned to secure climate finance, leaving the world’s most vulnerable regions systematically underserved.

If there is a broad consensus that access should be faster and simpler, why does it remain so difficult to achieve? The answer is that facilitating climate finance is not just a technical challenge. As the GCF synthesis report notes, real progress requires more than procedural tweaks. It calls for governance structures tailored to the specific needs of fragile and capacity-constrained countries, sustained investment in institutional capacity and an equitable distribution model.

In addition to creating inefficiencies, fragmented governance deepens inequality. Without sufficient specialization, a willingness to break with the status quo and a dose of institutional innovation, climate finance will continue to flow to countries with stronger institutions and fuller project pipelines.

What climate finance urgently needs is a coordinating mechanism, coalition or platform with the authority to review the current architecture and guide institutions toward more specialized, complementary roles – much like a conductor bringing harmony to an otherwise disorganized orchestra. And this is the fundamental challenge: the absence of a decision-making platform tasked with steering the evolution of climate finance architecture.

While the G20 has made climate finance a top priority and addressed several issues related to the broader financial architecture, its limited membership means it lacks universal representation. The UNFCCC can direct funds within its own financing mechanism, but it is slow-moving and lacks the mandate to regulate MDBs and other actors. Similarly, the UN Environment Assembly may not have the necessary speed, scope or reach to lead this effort effectively.

The upcoming Fourth International Conference on Financing for Development ( FfD4 ) is a rare opportunity to address the institutional sprawl that impedes effective climate action. As a UN initiative, it offers both legitimacy and universal participation. While not a climate summit, it is one of the few platforms where climate finance intersects with broader questions of development, debt, and institutional reform.

The FfD4 draft outcome document rightly urges international policymakers to prevent the further proliferation of climate funds, calling for greater integration among existing mechanisms. But it may need to go further by offering clear guidance on how the various components of climate finance can work together more effectively. Even if FfD4 does not resolve these questions, it could still play a pivotal role in identifying the coordinating force needed to ensure the coherence of climate finance.

The views expressed here are those of the author and do not necessarily reflect the positions of any entities they represent.

Archi Rastogi is an adjunct senior research fellow at the Lee Kuan Yew School of Public Policy at the National University of Singapore and the chief evaluation adviser at the Green Climate Fund’s Independent Evaluation Unit.

Copyright: Project Syndicate