Key takeaways
- Sustainable finance, also called green finance, directs public and private money toward projects with environmental and climate goals. Climate finance is money that usually flows from developed to developing countries. Carbon finance is the market for carbon credits.
- Cumulative green bond issuance passed $4 trillion by the end of 2025, according to the Climate Bonds Initiative.
- Developed countries provided and mobilised $136.7 billion in climate finance in 2024, above the $100 billion goal for the third year in a row, though about two thirds was loans. The new goal is at least $300 billion per year by 2035.
- 2025 brought policy shifts: the United States pulled back from international climate finance, the Net Zero Banking Alliance ceased operations, and the EU proposed new fund labeling rules.
- A green label is not a guarantee. Look at how proceeds are used and whether projects are independently verified.
- Carbon credits fund verified reductions or removals, with each credit representing one metric ton of CO2 equivalent. They work alongside cutting your own emissions.
Sustainable Finance in 2026: The Latest Data
2026 sustainable finance snapshot
- Green bonds keep growing: Cumulative green bond issuance passed $4 trillion by the end of 2025, and all sustainable debt aligned with Climate Bonds definitions reached $6.8 trillion, according to the Climate Bonds Initiative. Green bonds made up 64% of the aligned debt issued in 2025, and Europe supplied 45% of it. Early in 2025, some trackers showed green bond issuance down by about a third from a year earlier, amid backlash against sustainable investing and rollbacks of US climate policy.
- Climate finance beat its goal, but mostly as loans: Developed countries provided and mobilised $136.7 billion in climate finance in 2024, up from $132.8 billion in 2023 and $115.9 billion in 2022, according to the OECD. That is above the $100 billion annual goal for the third year in a row, but 67% of 2024 climate finance came as loans.
- A bigger goal: At COP29, governments agreed that developed countries will take the lead on at least $300 billion per year by 2035, as part of a wider goal of $1.3 trillion per year from all sources.
- Policy shifts: In 2025 the United States rescinded about $4 billion in pledges to the Green Climate Fund and left the board of the Fund for Responding to Loss and Damage. The administration said the moves fit its America First approach to international agreements, while critics said they weaken global climate efforts. The UN backed Net Zero Banking Alliance ceased operations on October 3, 2025, after major banks left.
- EU rules are changing: In November 2025 the European Commission proposed SFDR 2.0, which would replace the Article 8 and 9 fund labels with three categories (Transition, ESG Basics, and Sustainable) with 70% minimum investment thresholds. It is still a proposal and would take effect around 2028 if adopted.
What Is Sustainable Finance?
Sustainable finance, also known as green finance, is a term applied to any financial venture that seeks to positively impact the state of the environment. The primary goal of sustainable finance is to promote the funding of projects that reduce the effects of climate change. Encouraging public and private sector involvement can help reduce our impact on the environment.
How Does Sustainable Finance Work?
This financial structure directs money from the public and private sectors into projects for a sustainable future. This is achieved through changing financial regulations and incentivizing money flow to green projects.
Involvement from both the public and private sectors is essential to reducing the effects of climate change. Partnerships between public and private entities mean governments, investors, financial institutions, and businesses can all come together and direct money toward reducing emissions and creating renewable projects, and climate action goals can be reached faster.
An example of sustainable finance would be implementing a new financial structure to more efficiently fund green projects and create an environment that incentivizes involvement in green finance activities. This would allow governments to use the money for renewable energy solutions while promoting green energy action from investors and businesses. Policymakers can work to put sustainable finance on a regulatory basis to encourage the transition to this financial structure, which is what the EU’s sustainable finance rules aim to do.
What Is a Green Bond?
Green bonds are one of the best known sustainable finance tools. These bonds are specifically used to fund environmental projects that reduce climate risk for society. Renewable energy, environmental conservation, and emission reductions are some of the projects green bonds support, providing a significant amount of money toward limiting global warming and climate change.
In 2020, $270 billion worth of green bonds were issued, and cumulative issuance was just over $1 trillion. By the end of 2025, cumulative green bond issuance had passed $4 trillion, which makes green bonds a significant player in sustainable investments.
Also called climate bonds or sustainable bonds, this type of investment supports much needed sustainability projects. Green bonds are often counted as environmental, social, and governance (ESG) investments. Some green bonds, such as US municipal green bonds, pay interest that is generally exempt from federal income tax, as other municipal bonds are. But a bond does not receive a special tax break just because it is labeled green, and tax treatment depends on the issuer and the investor, so check with a tax professional.
Investors who care about sustainability may like knowing how the bond proceeds are used. Like other bonds, green bonds pay interest and carry the same kinds of risk, such as credit risk and interest rate risk, and the green label does not change that. This article is general information, not investment advice.
What Type of Projects Does Sustainable Finance Support?
Sustainable finance projects include renewable energy and energy efficiency, pollution prevention, biodiversity conservation, and circular economy initiatives. These low carbon projects are essential to slowing the devastating effects caused by global warming and climate change. Let’s look at some of the issues green finance projects can help.
Energy Solutions
Renewable energy and energy efficiency are both essential in the fight against climate change. Developing projects like hydropower, wind power, and solar power are renewable energy options that release little or no greenhouse gas while generating power and can reduce our dependence on fossil fuels. You can learn more in our guide to sustainable energy sources and the difference between green, renewable, and clean energy. Energy efficiency is needed to limit energy loss during its creation, transfer, and storage. Maintaining energy infrastructure and replacing old infrastructure can improve energy efficiency.
Pollution Prevention
Pollution has negative consequences on our environment’s land, air, and water. Land pollution can degrade the fertility of the soil, making farming difficult. Air pollution is responsible for causing health issues in populations subject to poor air quality. Freshwater sources and oceans suffer from pollution, resulting in a limited drinking water supply and ecological damages. Projects that work toward reducing these problems can go a long way in protecting land, air, and water for future generations.
Biodiversity Conservation
Climate change has threatened biodiversity in many ecosystems around the world. Drought, fire, flooding, and ocean acidification have contributed to biodiversity loss from plant species to insects to marine life. Funding to conserve these delicate ecosystems can prevent species from being lost and entire ecological structures from being altered.
Circular Economy Initiatives
Circular economies are structured to limit the amount of waste generated. These economic structures rely on recycling resources for as long as possible. This economic structure includes everything from manufacturing to business models. Instead of resources being acquired, manufactured, and then turned into waste, resources are reused, and waste is used for a beneficial purpose (like methane gas capture to create energy).
What Is Climate Finance?
Climate finance is a type of sustainable finance. It is money spent on projects that support fighting climate change and reducing the emissions that cause it, as well as on helping communities adapt to its effects. The term can cover any spending of this kind, but in international climate talks it usually means money that flows from wealthy, developed nations to developing countries so they have the means to achieve sustainable development goals.
In 2024, developed countries provided and mobilised $136.7 billion in climate finance for developing countries, according to the OECD. Public money made up most of it, and private finance mobilised by public funds added a record $30.5 billion. About two thirds of the 2024 total was provided as loans, which developing countries have to repay, and grants were more common in the lowest income countries. Mitigation took nearly two thirds of the total, and adaptation, which helps communities adjust to climate impacts, received $34.7 billion.
Why Is Climate Finance Important?
Climate finance is essential because it provides developing nations the capital required to reduce carbon emissions through creating sustainable energy projects and to adapt to climate impacts. China, India, and Indonesia alone accounted for roughly 40% of global greenhouse gas emissions in 2025 (29.5%, 8.3%, and 2.5%), according to the EU’s EDGAR database. Without support from developed nations, developing countries will have difficulty affording projects that can curb their emission levels caused by large scale industry.
Carbon emissions cause climate change, which is a global threat. Environmentally sustainable projects in developed nations alone are not enough to limit the effects of climate change. Money provided to developing nations can go a long way in helping these countries build green energy infrastructure and address carbon levels at the global level. The more nations involved in resisting climate change, the better chance our planet has at avoiding the complications that come with it. You can read more about the global costs in our post on the social cost of carbon.
The New Climate Finance Goal
The old goal was $100 billion per year from 2020 to 2025. At COP29 in 2024, governments agreed on a new goal: developed countries will take the lead on at least $300 billion per year by 2035, as part of a wider target of $1.3 trillion per year from all sources, public and private. At COP30 in 2025, countries kept an ambition to triple adaptation finance, with the timeline pushed to 2035, though developing countries said they wanted more certainty about how it will be delivered.
Who Provides and Receives the Most Climate Finance?
A small group of countries provides most of the money. Japan, Germany, France, and the United States were responsible for half of all climate finance in 2021 and 2022, according to Carbon Brief, and Japan alone accounted for about a fifth. India was by far the largest recipient, receiving $14.1 billion over those two years, nearly all of it as loans. US contributions fell in 2025, as noted above, and other donors have also cut their aid budgets.
What Is Carbon Finance?
Carbon finance is yet another form of sustainable finance. It is part of the carbon market, which includes voluntary and compliance markets. It is a system designed to reduce greenhouse gas emissions by allowing businesses and individuals to purchase carbon credits to offset emissions they have not yet been able to cut. Each credit represents one metric ton of CO2 equivalent that has been reduced or removed.
How Is a Carbon Credit Created?
A carbon credit is created when a project avoids, reduces, or removes one metric ton of CO2 equivalent, and that outcome is measured and verified under a recognized standard. Examples include reforestation, forest conservation, landfill gas capture, and other projects that cut or capture greenhouse gases. The project owners are issued one credit for each verified ton, and those credits can then be sold to individuals and businesses who wish to offset their emissions. Registries track each credit so it is only counted once, as we explain in our guide to the difference between a carbon offset and a carbon credit.
How Do I Participate in Carbon Finance?
Carbon finance creates an opportunity to fund projects that reduce or remove greenhouse gases while allowing individuals and businesses to take part in climate action. Whether you are an individual, small business owner, or represent a medium to large sized corporation, you can start by measuring your emissions with the carbon footprint calculator, cutting what you can, and then offsetting what remains.
To participate in carbon finance, you buy carbon credits from a reputable carbon offsetting company. Terrapass, for example, works with individuals and businesses of all sizes to estimate, reduce, and offset their emissions. Terrapass’s Global Portfolio includes reforestation, REDD+ forest conservation, landfill gas capture, orphan oil well closure, industrial emission reduction, and residential solar installation, with projects verified under standards such as the Verified Carbon Standard, American Carbon Registry, Climate Action Reserve, and Gold Standard.
You can purchase as many or as few carbon credits as you need to cover your estimated emissions, which makes carbon finance flexible. Offsets work alongside cutting your own emissions, not instead of it. See carbon offsets for individuals or carbon offsets for business, and read our carbon offsets explained guide for the basics.
How Can You Tell Whether a Green Investment or Carbon Credit Is Credible?
A green label is chosen by the issuer, so it helps to look beneath it:
- Check how the money is used. A credible green bond describes the eligible projects and reports on how proceeds were spent, often with an independent review.
- Look for recognized frameworks. Examples include the voluntary Green Bond Principles and, in the EU, the European Green Bond Standard and the EU Taxonomy.
- For carbon credits, check the basics. Look for registry backing, additionality, and independent verification, and see our guide on how to find high quality offsets.
- Be wary of broad claims. Words like green or sustainable do not guarantee environmental results, and regulators are paying closer attention to greenwashing.
FAQ: Green Finance
What is green finance?
Green finance, also called sustainable finance, is any financial activity that directs money from the public and private sectors toward projects with environmental or climate goals, such as renewable energy, energy efficiency, pollution prevention, and conservation.
What is the difference between sustainable, climate, and carbon finance?
Sustainable finance is the broad category. Climate finance is money spent on cutting emissions and adapting to climate change, and in international talks it usually means support from developed to developing countries. Carbon finance is the market for carbon credits, where each credit represents one metric ton of CO2 equivalent reduced or removed.
What is a green bond?
A green bond is a bond whose proceeds are earmarked for environmental projects such as renewable energy, conservation, and emission reductions. Cumulative green bond issuance passed $4 trillion by the end of 2025, according to the Climate Bonds Initiative.
Do green bonds come with tax breaks?
Not simply because they are green. Some green bonds, such as US municipal green bonds, pay interest that is generally exempt from federal income tax like other municipal bonds, but tax treatment depends on the issuer and the investor, so check with a tax professional.
How much climate finance do developed countries provide?
The OECD reports that developed countries provided and mobilised $136.7 billion in 2024, up from $132.8 billion in 2023 and $115.9 billion in 2022. About two thirds of 2024 climate finance was provided as loans.
What is the new climate finance goal?
At COP29, governments agreed that developed countries will take the lead on at least $300 billion per year by 2035, as part of a wider goal of $1.3 trillion per year from all sources.
What is carbon finance?
Carbon finance is the system that lets businesses and individuals buy carbon credits that fund projects reducing or removing greenhouse gases elsewhere. It is part of the carbon market, which includes voluntary and compliance markets.
How do I participate in carbon finance?
Estimate your emissions, cut what you can, and then buy carbon credits from a reputable provider whose projects are verified under recognized standards, so you can fund reductions or removals for the emissions you cannot yet cut.
Sustainable Finance Can Be Part of the Solution
Sustainable finance, climate finance, and carbon finance can each help pay for the transition to a lower emission economy. Cooperation between the public and private sectors is one of the most important ways to move large amounts of money toward sustainability projects worldwide, although 2025 showed how quickly political support can shift.
Funding clean energy in developing nations can go a long way in limiting global emissions growth. In the meantime, individuals and business owners can take part in carbon finance by measuring their emissions, cutting what they can, and funding verified reductions and removals through carbon credits for the rest.
If you are ready to get started, see how Terrapass carbon offsets fund verified emission reductions and removals, and keep learning on the Terrapass blog.
Disclaimer: This article is general information, not investment, tax, or legal advice. Terrapass does not provide financial advice. Consult a qualified professional about your own situation.
Sources for the 2026 data:
Climate Bonds Initiative, Global State of the Market 2025
LSEG Insights, green debt market passes $3 trillion
Argus Media, OECD climate finance data for 2023 and 2024
NRDC, the new collective quantified climate finance goal
Carbon Brief, how the $100bn climate finance goal was met
Environmental Health News, US rescinds Green Climate Fund pledges
Bloomberg Law, Net Zero Banking Alliance winds down
Sidley, SFDR 2.0 proposal
Argus Media, EDGAR 2025 emissions report
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