Is climate finance ready to fund the energy transition?
Ines Urman, Campaigner with the Environmental Investigation Agency UK, questions whether climate finance is prepared to support the energy transition
Governments are once again negotiating contributions to the world’s largest climate funds, with the Green Climate Fund (GCF) launching its third replenishment this year. Climate finance often makes headlines because it is inadequate, insufficiently concessional, and fails to reach those who need it most. Yet as momentum builds behind countries committing to move away from fossil fuels, from the Global Stocktake to April’s Santa Marta conference, another question deserves attention: is climate finance fit for the job?
The architecture that delivers transition finance today, from climate funds and development banks to implementing agencies, philanthropies and private investors, is focused on reducing emissions one project at a time. It can support a solar farm. It can fund a city’s new electric bus fleet. What it cannot yet do is finance an entire transition.
That distinction matters. Project finance has delivered important progress; wind and solar capacity continue to expand across much of the world. Yet fossil fuel production and consumption remain deeply embedded in many economies, with new clean energy often meeting rising demand rather than replacing existing fossil fuel systems. Low-emissions sources supplied around 60% of rising energy demand in 2025, with the rest being met with fossil fuels against a backdrop of government plans to produce 260% more fossil fuels than is compatible with the 1.5°C target by 2050.
Replacing fossil fuels
To ensure that climate finance, and the technical and financial assistance it provides, actually replace fossil fuels, three things need to change.
First, finance needs to arrive earlier. Before countries can retire coal plants, build new renewable infrastructure or diversify their economies, they need the capacity to understand the challenge ahead and plan for it. Yet these enabling activities, from economic assessments and transition planning to institutional strengthening and policy development, remain overlooked. According to the World Economic Forum, energy transition readiness declined in 2025 because the policy, infrastructure, investment and innovation conditions needed to sustain progress have stalled.
Second, financial and technical assistance must be aligned behind long-term, country-led strategies, rather than a patchwork of projects. Picture what a sequenced transition looks like: a coal plant retires as its workers are trained for the wind farm nearby, while grid upgrades ensure the clean electricity reaches households and industries further along, and fiscal reforms keep government revenue steady. Today’s system is not designed to deliver that sequence.
Finally, the transition architecture must confront the underlying barriers that stop transitions before they even start. There are reasons why investments in Africa’s renewable energy have not materialised and why some countries remain dependent on fossil fuel export revenues to invest in their sustainable development. High cost of capital, debt burdens, limited economic diversification, and high perceived currency or political risk are still hindering the pace of the energy transition in many countries. Yet the current financial architecture has not meaningfully engaged with these issues. Fortunately, none of this means reinventing the wheel.
Adapting to the energy transition era
New initiatives have tried to adapt to the energy transition era. Just Energy Transition Partnerships (JETPs) have sought to align resources with national priorities and improve coordination between donors, government departments and local companies. In South Africa and Indonesia, JETPs paved the way to coal phaseouts with a focus on just transition, though both have faced challenges in translating commitments into finance at the speed and scale required.
Country platforms have since emerged as a way to mainstream the JETPs’ approach across climate-related fields, from energy to resilient agriculture. Like JETPs, they aim to reduce fragmentation and improve coordination while strengthening long-term planning and coherence of investments. They also aim to strengthen country ownership, improve access to technical support, and ensure financial resources are disbursed on time. The GCF has taken a leading role, offering to support Global South countries in establishing platforms.
However, these initiatives remain incomplete in systematically funding early-stage activities or in encompassing a country’s entire energy transition. These models still need strengthening to deliver at scale. But we have something to build on.
The first Global Stocktake called on the world to move away from fossil fuels, and many countries are now writing plans for a future beyond them. The test is whether the financial architecture can carry those plans from ambition to implementation. This does not require building an entirely new system but making the existing one fit for purpose: funding readiness, aligning institutions behind country-led strategies, and tackling the structural barriers that prevent transitions from taking root.
As the largest UN climate fund, the GCF can help drive this shift through its support for country platforms and transition planning, but it will require backing from donor governments and other climate finance institutions. The energy transition will not succeed through isolated projects alone. It will succeed only when climate finance is organised around the long-term economic transformations that countries need.