Climate Finance or Climate Trap FOR Vulnerable LDCs?
- Tonmay Saha, Paromita Aronee & M. Zakir Hossain Khan
- Oct 8, 2025
- 6 min read
It begins with water
Not just the monsoon rain that floods low-lying villages in southern Bangladesh, but the creeping brine that poisons the soil, the rivers swollen by melting glaciers far to the north, and the storm surges that arrive with less warning and more violence every year. In Shyamnagar, Satkhira - where people plant rice in saltwater and build homes from bamboo and prayer - survival is no longer about hardship. It is about the price of adaptation.
In this village, and hundreds like it across the 46 Least Developed Countries (LDCs), climate change is not a policy term. It is a daily force of disruption. But what happens when the solution - the finance promised to help these communities adapt and recover - becomes a new burden?
This is the question at the heart of the Climate Debt Risk Index 2024, a study by Change Initiative that uncovers how the global climate finance system is slipping away from its moral foundation. Instead of serving as a form of justice or compensation, climate finance is becoming a debt trap - one that threatens the fiscal survival of the very nations it was meant to help.
The Uneven Ground Beneath
The injustice is not new. Bangladesh, for example, has contributed only a sliver to global greenhouse gas emissions. Yet it ranks among the most climate-vulnerable countries on Earth. Over the past 50 years, LDCs have suffered 69% of all climate-related disaster deaths - despite being responsible for just 3.3% of historical emissions.
But the numbers alone don’t convey the full story. Since 2011, debt service payments by LDCs have tripled - rising from $10 billion to $33 billion by 2019. The pandemic pushed that number even higher: $50 billion in 2021. And still, the costs of climate adaptation and disaster response keep climbing.
These countries are not just exposed to them; they are overburdened. They are asked to rebuild every time a cyclone or drought strikes. But increasingly, they are expected to do so with borrowed money.
From Help to Harm: When Finance Becomes Debt
At international summits like Copenhagen (2009) and Paris (2015), developed countries pledged to support the Global South with climate finance - not as loans, but as grants. The idea was simple: those who caused the problem should pay to fix it. But reality has taken a different course.
In the fiscal year 2021–22, developed countries reported a total of $1.27 trillion in climate finance. Only 5% of that came as grants. Just over 5% was earmarked for adaptation. The rest - as documented by the Climate Policy Initiative and validated by this Index - was primarily debt.
The Climate Debt Risk Index dives deep into this imbalance. It doesn’t just count dollars; it measures vulnerability, financial strain, and long-term risks. For each country, the index aggregates factors like debt-to-GDP ratios, per capita loan burdens, poverty levels, and credit ratings. It then forecasts risk levels for 2024, 2027, and 2030.
The results are sobering. Countries like Mozambique and Madagascar are on track to reach “very high” climate debt risk by 2030. Bangladesh is close behind, with its risk score rising from 67.91 to 70.47 - placing it firmly in the high-risk zone. This isn’t just accounting. It’s a warning.
Bangladesh: Borrowing to Breathe
Imagine this: A country that needs overall $149.5 billion in climate investment by 2030 has received only $14.47 billion so far. Of that, half are loans. And when help is promised, it often arrives late. As of 2023, Bangladesh had received just 30.5% of the climate funds that were committed. But it’s not just the volume. It’s the structure. Adaptation - the act of surviving rising seas, heatwaves, floods - is far more urgent in Bangladesh than mitigation. Yet 61% of its multilateral climate finance is allocated to mitigation. The adaptation-to-mitigation ratio fell to 0.69.
This funding model is fundamentally mismatched with the country’s needs. Climate-resilient housing, flood barriers, and salinity-resistant crops are not revenue-generating assets. They don’t attract investors. They require grants, not loans. Yet Bangladesh - with a per capita income of $2,529 and a climate debt-to-GDP ratio of just 0.0008 - is being asked to borrow to stay afloat. The result? A quiet erosion of fiscal space. Every dollar borrowed for climate response is a dollar not spent on schools, clinics, or food security.
A Broader Pattern of Failure
Bangladesh is not alone. Across climate-vulnerable nations, adaptation continues to be underfunded. The disbursement rate for committed multilateral funds remains below 45%. Countries like Tanzania and Senegal face similar structural exclusions, while those with strong credit ratings - often less vulnerable - secure better terms and higher disbursement ratios.
Multilateral Development Banks and donor governments argue that loans are “necessary” for scale and speed. But this logic falls apart when applied to adaptation - a domain where financial return is not the goal. IIED’s analysis shows that 76% of all climate finance to developing countries in 2021 was in debt. That includes post-disaster scenarios, such as communities in Bangladesh taking high-interest loans to rebuild after Cyclone Amphan.The global finance architecture, it seems, is still struggling to treat climate justice as anything more than a phrase.
From Baku to Brazil: What Must Change Before COP30
The Climate Debt Risk Index 2024 offers a clear set of principles to reframe climate finance before COP30 convenes in Brazil.
1.Recenter Climate Finance on Justice Climate finance must be redefined under the UNFCCC - with clear distinctions between grants, concessional loans, and commercial debt. The allocation should be tied to vulnerability, not creditworthiness.
2. Reform MDB Mandates
Multilateral Development Banks must treat adaptation as a public good. This means expanding performance-based grants, capping loan-to-grant ratios, and simplifying access for local governments and civil society actors.
3. Adopt Debt-for-Climate Swaps Countries with significant climate debt should be able to retire that debt in exchange for local investments in resilience and low-carbon development. This is not an innovation; it’s overdue accountability.
4.Diversify Climate Finance Sources Bangladesh has proposed tapping into Zakat, philanthropic donations, and issuing sustainability bonds. Global efforts must also redirect fossil fuel subsidies and introduce progressive carbon taxation as consistent climate finance channels.
5. Streamline Access and Disbursement Climate finance should not require elite consulting firms, years of paperwork, or political alignment. Direct access for local institutions and simplified criteria for fund release are non-negotiable.
The Bigger Picture: More Than Just Numbers The heart of this issue lies in equity. Climate finance must not reinforce the same colonial patterns that created the crisis. When we say, “no more deals, only deliveries,” we are rejecting a model where every new agreement is a delay tactic.We are calling for an end to policies that deepen the climate debt burden of the poor to preserve the carbon privileges of the rich. We are demanding that Brazil, as COP30 host, take a leadership role in shifting climate finance away from transaction and toward transformation.There is a cost to inaction, and it is not abstract. It shows up in the broken embankments of Khulna, the failed crops of Malawi, the heatstroke wards of Karachi. It shows up every time an LDC is forced to choose between debt repayment and disaster response. The Climate Debt Risk Index doesn’t just diagnose a problem. It tells a story of what happens when justice is delayed, diluted, or denied.
COP29 failed to deliver. COP30 cannot afford to repeat that mistake.We don’t need another deal. We need delivery.
Ending Where We Began Back in Shyamnagar, families now build makeshift flood platforms inside their homes. Children walk to school with salt water up to their knees. Local adaptation committees draw disaster plans with barely any external support. Resilience is real - but it’s built on fragile foundations. These communities don’t need sympathy. They need a fair deal. They need climate finance that doesn’t charge them interest in surviving.If we do not change course, climate finance will become yet another extraction tool - one that drains rather than delivers. But it doesn’t have to be this way.
Let the next chapter in climate diplomacy not be another summit of good intentions and broken promises. Let it be a turning point where the world chooses justice - not just accounting - as its guiding principle.
“No Deal Is Better Than a Bad Deal”
COP29 was expected to fix this. What we got was more of the same. One of the most alarming takeaways is the worsening quality of climate finance:
• Per capita allocations to LDCs remain far below actual need. Even if the entire USD 300 billion pledged at COP29 were given exclusively to LDCs (which it won’t be), the per capita figure stands at just USD 272.72 - less than the economic loss they incur annually from climate damage.
• The deal structure favors mitigation over adaptation. Countries like Bangladesh, which require urgent investments in adaptation (housing, agriculture, flood control), are being pushed toward projects that prioritize emissions reduction for global benefit.
• Disbursement delays persist. With only 30–45% of pledged funds reaching LDCs, fiscal planning becomes impossible. Governments are forced to plug gaps with domestic borrowing or simply abandon projects.
When global leaders talk about “building trust”, these are the numbers that communities remember.
– M. Zakir Hossain Khan
Sources:
1. Khan, M. Z. H., et al. (2024). Climate Debt Trap Risks in LDCs: Equity and Justice in Climate Finance. Change Initiative
2. UNDP. (2023). What is climate finance and why do we need more of it? Retrieved from https://climatepromise.undp.org/news-and-stories/what-climate-finance-and-why-do-we-need-more-it
3. UNFCCC. (n.d.). Climate Finance in the negotiations. Retrieved from https://unfccc.int/topics/climate-finance/the-big-picture/climate-finance-in-the-negotiations
4. United Nations Trade and Development (UNCTAD). (n.d.). Soaring debt burden
jeopardizes recovery of least developed countries. Retrieved from unctad.org:
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