What Now for UK Climate Finance?

The UK government has a decision to make. It is expected to set a new international climate finance (ICF) commitment to replace its current £11.6 billion pledge. Reports that it could be cut to £9 billion are being met by widespread dismay from climate advocates. If true, and that were all, that would indeed be disappointing. But it doesn’t have to be.

This blog examines what the numbers show—in the context of ICF performance, the shrinking aid budget, and the new $300 billion global target. It then sets out a practical six-point approach that fits within current spending plans but would better protect the UK’s credibility in climate negotiations.

Did the UK deliver on ICF3?

The UK’s last international climate finance commitment (ICF3) of £11.6 billion (over the five-year period 2021/22-2025/26) was announced in September 2019 and represented a doubling of the previous five-year commitment of £5.8 billion (ICF2, 2016/17-2020/21). Only climate finance that qualifies as ODA is counted toward the £11.6 billion total. The announcement was intended to strengthen the UK’s position as a global leader on climate change and to galvanise international action to increase future climate finance commitments ahead of COP26 in Glasgow at a time when progress towards achieving the then goal of $100 billion by 2020 was well off track. In this it largely succeeded. Although that target was not met until 2022, new commitments made ahead of COP26 projected total climate finance of $497–521 billion over 2021–2025. OECD data suggest those projections have so far been exceeded.

Despite sharp cuts to UK ODA (with the government announcing in November 2020 that ODA would be temporarily cut from 0.7 to 0.5 percent of GNI from 2021/22), and a surge in refugee costs financed out of this diminished ODA budget, the UK has retained its commitment to the £11.6 billion figure and looks on track to meet it. However, this is partly due to a change in methodology midway through the ICF3 period regarding how ICF is counted. The Independent Commission for Aid Impact estimated in February 2024 that this would account for £1.724 billion (15 percent) of the total. Carbon Brief’s more recent (June 2025) analysis reaches a similar conclusion.

This shifting of the goal posts was widely criticised. But given the scale of the cuts—with total ODA about £25 billion lower and in-donor refugee costs (IDRC) about £11 billion higher than anticipated over the ICF3 period—there was little room for manoeuvre. Indeed it is perhaps remarkable that the ICF3 pledge has been kept at all. However, this has clearly come at significant cost to non-protected parts of the ODA budget, which have effectively been cut by 43 percent—three times more than the 15 percent “cut” in ICF caused by the change in counting methodology.

Figures for ODA, refugee costs and ICF over the ICF3 period are set out in the table below. These show that ICF increased substantially both in absolute terms (to a projected figure of at least £3 billion in 2025/26) and as a percentage of ODA (to just over 20 percent). ICF’s share of ODA excluding refugee costs is even higher at 26 percent. It is possible that 2025/26 ICF figures will be somewhat higher than those reported here (which is just the residual required to meet the £11.6 billion target and is lower than the £3.4-3.8 billion projected when the rule changes were announced in October 2023).

ICF3 period: ODA, Refugee Costs and ICF (2021/22-2025/26)

Notes/Sources: * 2025/26 figures are projections. See here for details.

How does the UK compare with other countries providing climate finance?

Data from the OECD’s Creditor Reporting System suggest that the UK’s share of bilateral ODA with a climate policy marker (not directly comparable with the ICF/ODA ratios mentioned above but adequate as a relative measure) has been broadly in line with the DAC average over the last decade. That said, the UK (and indeed all DAC donors) are increasingly falling behind the climate finance ratios achieved by the multilateral development banks (MDBs), which have risen steadily to 45 percent by 2023 (and likely higher in 2024).

UK, DAC and MDB Climate Finance Ratios (%), 2016-2024

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Notes: Lines represent climate finance as a percent of total bilateral ODA or MDB operations. See here for details.

Climate finance commitments and the NCQG

The New Collective Quantified Goal (NCQG) agreed at COP29 in Baku replaced the current $100 billion goal with a new figure of at least $300 billion by 2035, set within a wider target of scaling up financing to developing countries from all public and private sources to at least $1.3 trillion per year by 2035. The OECD estimated that $116 billion was provided in 2022, which means that climate finance would have to nearly double by 2030 (to $230 billion) to be on track to meet this new target. But given the challenging global context and enormous pressure on aid and defence budgets, few countries have yet made new commitments and there were no significant announcements at COP30 in Belem.

ICF4 Proposals

So how should we view proposals to cut ICF4 to £9 billion? The government’s decision in February 2025 to further cut ODA from 0.5 percent of GNI to 0.3 percent in 2027 provides an extremely difficult backdrop. And refugee costs will continue to represent a significant drain on the ODA budget, even though absolute figures are projected to fall and changes agreed in the June 2025 Spending Review mean that FCDO’s budget will be better protected from volatility in refugee costs. The table below sets out projections over the next five years, along with the reported plans for ICF4. Total ODA is estimated to fall by £19 billion (28 percent) compared to the ICF3 period, with ODA excluding refugee costs falling by £13 billion (24 percent). In real terms, those cuts are even higher. An ICF4 figure of £9 billion represents a cut of £2.6 billion (22 percent), with ICF4 a marginally higher share of ODA overall (17.9 percent cf. 16.7 percent in ICF3). But the proposed trajectory (£6 billion in the first three years, £3 billion in the final two), if true, suggests that ICF will face even larger percentage cuts in the first year than the rest of the aid budget, and will decline significantly as a share of ODA in the final two years to just 14 percent in 2030/31.

ICF4 period: Projected ODA Refugee Costs and ICF (2026/27-2030/31)

Notes/Sources: See here for details.

Specific spending targets can constrain choices and reduce overall effectiveness of ODA spend, particularly when set in absolute terms that leave the remaining ODA budget especially vulnerable to cuts as occurred during ICF3. However, there can also be signalling benefits to making and protecting specific commitments—I previously showed that by encouraging more ambitious net zero commitments from all countries, the indirect benefits of climate finance (in terms of reduced emissions) may be ten times bigger than the direct benefits of those investments—and a judgement is required as to whether those benefits outweigh the costs. And it remains the case in the absence of a clear roadmap that developing countries are deeply distrustful of developed countries’ commitment to the NCQG. But set the target too high, and the costs and risks to the rest of the aid budget are not worth it. Too low, and the value of the signal may be more negative than positive.

An ICF4 figure of £9 billion is too low. It is inconsistent with government statements that climate change is one if its top development priorities. It compares unfavourably with others and will further damage the UK’s standing in climate negotiations. And it will undermine rather than inspire confidence in the NCQG and wider climate commitments. A UK figure of £1.5 billion in 2030 is nearly 10 percent down on the UK’s 2022 contribution (and around 20 percent down once core contributions to the MDBs—which weren’t counted in that 2022 figure and which the OECD will strip out from its bilateral estimates to avoid double counting—are excluded).

But quite apart from that, it doesn’t reflect the ever-strengthening evidence that good climate investments are good for development. Recent WRI research for example, which analyzed 320 adaptation and resilience investments across 12 countries totaling $133 billion, found that every $1 invested in adaptation and resilience generates more than $10 in benefits over ten years, typically generating annual returns of 20-27 percent. Evidence is also growing that climate change risks and damages are larger than previously thought, which would further increase returns to (and strengthen the case for) investments in both mitigation and adaptation. Climate damages are disproportionately borne by the poorest countries. And while there are concerns that multilateral commitments are further squeezing resources for bilateral spend, the fact that multilaterals have higher climate finance ratios than bilaterals means that significant multilateral contributions should make any climate finance target easier, not harder to meet.

Nevertheless, given the bruising experience of the last few years, a high degree of caution is entirely understandable even if not entirely warranted.

A way forward for ICF4

The likelihood of the UK government increasing its Spending Review commitments is zero. But the proposed figure of £6 billion over three years is not as bad as £9 billion over five years. And there are still a few things the UK government can say in any announcement that will help reassure both climate and development advocates alike. It should:

1. Focus any initial announcement on the three-year Spending Review period to 2028/29, and make clear that this £6 billion represents a floor, not a ceiling. Longer term commitments beyond the SR period (which the UK Treasury have traditionally resisted, even though precedents have been set in the past) should be avoided for now unless the UK is able to get much closer to the £11.6 billion it provided during ICF3 (£11.6 billion would represent 23 percent of ODA over the ICF4 period).
2. Formally include non-ODA elements within a new, larger ICF4 target. This would mark a break from the past and may be challenged as further shifting the goal posts. However, while the previous changes to counting rules midway through the ICF3 period were rightly criticised, a change in approach now could more readily be justified given that this represents a new climate finance commitment more appropriate to the NCQG. Moreover, most other donors already include non-ODA support within their climate finance commitments, and while it has never received much attention, the UK previously highlighted its non-ODA contributions in its compilation of climate finance commitments ahead of COP26 in Glasgow (with CDC [the precursor to BII] alone expected to deliver an additional £2 billion over five years).
3. Include a specific grant equivalent public finance target at least as high as its ODA commitment, recognizing that this is what poorest countries most want and need (especially to support adaptation), and call on other donors to also commit in grant equivalent terms. This will minimize the temptation to meet it by channelling an ever increasing proportion through non-concessional flows likely to favour mitigation projects in better off emerging economies.
4. Specify a minimum share for adaptation of at least 50 percent of the aggregate figure, and more (70 percent) for the grant equivalent figure, with a commitment that this be increasingly targeted at those countries most vulnerable to climate change. Grants should increasingly be targeted at low income countries.
5. Promise greater transparency in climate finance commitments and reporting (notably re disaggregated annual publication of ICF spend as part of ICF results reporting), and urge other climate finance providers to do likewise.
6. Commit to focus more on outcomes, and to undertake more research and publish more evidence on what works to maximise the value for money of climate spend.

This is undeniably a difficult time for ODA and for climate finance. But the UK can still have a good story to tell on climate action and climate finance. What it says on ICF4 matters.

With thanks to Ian Mitchell, Euan Ritchie and Sam Hughes for input and comments.