Societies have faced crises throughout history, but few challenges rival the global threat of climate change that we confront today. Across the globe, climate change is wreaking havoc - extreme weather events, rising sea levels and resource depletion are threatening economies, ecosystems and communities. The urgency of the crisis demands a swift and strategic global response with climate finance emerging as a crucial catalyst in the fight against climate change. Climate finance refers to funding from public, private and alternative sources that support efforts to reduce carbon emissions (mitigation) and build resilience to climate impacts (adaptation). However, mobilizing climate finance remains a complex challenge with many developing nations struggling to access funds and even developed economies facing challenges in balancing sustainability with economic growth.

Economies that have successfully scaled climate finance have done so through a combination of policy incentives, carbon pricing (a mechanism that assigns a cost to carbon emissions to encourage reductions), green bonds (debt instruments used to fund environmental projects) and public-private partnerships (PPPs). International organizations such as the United Nations (UN), USAID and UNICEF have launched several global initiatives to mobilize climate finance and support sustainable development.

In the context of Nepal, the country has aligned its climate finance strategies with the Sustainable Development Goals (SDGs), the Nepal Green Taxonomy and recent agreements by the Independent Power Producers' Association of Nepal (IPPAN). These initiatives focus on promoting sustainable energy production, clean power investments and aligning with global climate commitments. These efforts aim to increase private sector participation and improve climate resilience.

This article explores successful global policies in climate finance, emphasizing the role of private investors, including Private Equity (PE) and Venture Capital (VC) firms, with each example offering key lessons for nations striving to green their economies and attract investments.

Europe: Leading Globally in Carbon Pricing and Sustainable Finance

Europe has firmly established itself as a global leader in climate finance innovation, consistently pioneering ambitious policies and financial mechanisms to accelerate transition to a sustainable, low-carbon economy. The European Green Deal, which was launched in 2019, aims to make the continent carbon-neutral by 2050 through its $1.07 trillion investment strategy in climate-related projects. At the heart of this initiative is the European Union Emissions Trading System (EU ETS), the world's largest carbon trading market, which puts a price on carbon emissions. Since its inception in 2013, the EU ETS has raised more than $214 billion in auction revenues with $46.65 billion raised in 2023 alone. Around 75% of these revenues have been allocated to financing climate-related projects, including renewable energy transitions, electric vehicle infrastructure and adaptation programs.

The EU has adopted a market-based approach, creating financial incentives for businesses to cut emissions while directing government funding toward green projects. The Carbon Border Adjustment Mechanism (CBAM) has also been introduced to prevent carbon leakage by imposing tariffs on imports from countries with weaker environmental regulations. Additionally, the Sustainable Finance Disclosure Regulation (SFDR) requires financial institutions to disclose climate risks and sustainability measures, ensuring investment transparency.

Private investors have also played an important role in advancing green finance. PEVC firms, such as the TPG Rise Climate, have been instrumental in mobilizing capital for clean energy storage and low-carbon transportation ventures. According to Invest Europe, European PEVC funds invested approximately $107 billion in 2023, accounting for 0.44% of the continent’s GDP. Moreover, European countries have pioneered green banking initiatives and impact investing funds that directly channel capital into climate-positive projects. For example, the European Investment Bank has pledged to phase out fossil fuel financing and redirect billions of dollars toward renewables and sustainable urban infrastructure.

Africa: Surmounting Climate Finance Barriers through Innovation

Africa contributes less than 4% of global emissions but faces some of the most severe climate impacts. Yet, it receives only 5% of global climate finance. To bridge this gap, African nations are increasingly turning to international climate funds and innovative financial mechanisms. While donor financing remains crucial, private investment is seen as essential for achieving long-term sustainability. Countries such as South Africa and Kenya have successfully tapped into private capital markets, issuing green bonds and securing private equity investments for clean energy projects.

Debt-for-climate swaps have also emerged as a promising financial tool. A debt-for-climate swap is an agreement between a country and its creditors to redirect some of its debt payments toward climate change efforts. The goal is to reduce the country's debt burden while also investing in climate adaptation or mitigation. For example, Zambia and Mozambique have negotiated debt relief deals in exchange for commitments to environmental conservation and reforestation efforts. These swaps not only provide budgetary relief but also address global environmental concerns. South Africa's Just Energy Transition (JET) Plan secured $8.5 billion in international funding from France, Germany, the UK and the USA, while Kenya has issued green bonds to finance climate-resilient infrastructure.

Private investors are playing a key role in mobilizing climate finance across the continent. Firms such as LeapFrog Investments are financing renewable energy startups in Africa. According to the Climate Policy Initiative (CPI) Report of October 2024, climate finance flows in Africa increased by 48%, reaching approximately $44 billion in 2021/2022, up from $30 billion in 2019/2020. Notably, private sector finance doubled during this period to $ 8 billion.

Singapore: Creating a Green Finance Hub in Asia

Singapore has positioned itself as Asia’s green finance hub. The city-state has taken a proactive approach by implementing policies such as the Green Plan 2030. The Green Plan 2030 targets greening its economy and reducing its emissions across key sectors. The Singaporean government has created strong incentives to drive this shift towards sustainable finance. Notably, it increased carbon tax from $3.70 a ton in 2019 to a projected $37-59 a ton by 2030. This steep rise is designed to incentivize businesses to reduce their emissions and invest in greener technologies.

Singapore has also become one of Asia's largest green bond issuers, committing to issue over $37 billion in green bonds by 2030 to finance clean energy infrastructure-including solar and wind energy projects-as well as sustainable transportation systems. This constitutes an important financing mechanism for the Green Plan that also focuses on sustainable buildings, proper waste management and efficient use of water. In addition, the government requires banks and companies to disclose climate risk, mandating listed companies to estimate and declare their exposure to environmental, social and governance risks as well as Scope 1 and 2 emissions. This has increased transparency and attracted investment into global markets looking for greener opportunities. The data-driven approach toward green finance that Singapore has adopted has proved very effective. PEVC firms such as Temasek Holdings and EDBI have actively backed emerging clean technology startups, further strengthening Singapore’s position as Asia’s green finance hub. Temasek Holdings alone has committed over $5 billion to establish GenZero, an investment platform company that aims to accelerate decarbonization and invest across technology-based solutions, nature-based solutions and carbon ecosystem enablers.

India: Mobilizing Domestic and International Climate Finance

India has rapidly emerged as a climate finance leader in both the domestic and international arena. The country has embraced sovereign green bonds as a critical tool for financing its climate transition. In 2022, India issued approximately $2 billion in sovereign green bonds, marking a significant milestone in public financing for clean energy and climate resilience projects. These bonds are earmarked for sectors like renewable energy, green transportation and sustainable urban development. The success of these bonds has drawn attention from international investors, helping India tap into global financial markets for green projects. India has also engaged actively in international negotiations on climate change, especially within the UN Conference of the Parties on Climate Change, to negotiate for climate justice and equal financial commitments from the developed world. It supports a global carbon market in which the developing countries would get enough accessible finance for adaptation and mitigation.

In addition to government-led initiatives, various public-private partnerships have played a crucial role in financing large-scale projects in India, particularly in solar parks, wind farms and electric vehicle infrastructure. The country has set ambitious renewable energy targets, aiming for 50% of its total energy consumption to come from renewable sources by 2030.

United States: Leading with Policydriven Incentives

The Inflation Reduction Act (IRA) of 2022 is considered the largest federal investment in climate action. This legislation positions the US at the forefront of climate-focused economic transformation through a historic $369 billion allocation for clean energy and emissions reduction projects. The Act strongly emphasizes tax credits, subsidies and investments in clean technologies to further incentivize the private sector. Approximately $270 billion of the IRA fund is dedicated to tax credits for companies, of which 50% will be allocated to investing in solar, wind, hydrogen energy, electric vehicles and carbon capture technology.

Along with promoting greener technologies, these incentives stimulate job creation in the renewable energy sector and contribute to low-emission economic growth. The US is also among the largest green bond issuers with $70.7 billion issued in 2023 for financing clean energy projects. Additionally, the government has encouraged PPPs, pushing industries and businesses to participate in sustainable infrastructure projects. PEVC firms have played a growing role, with firms like Breakthrough Energy Ventures (BEV) investing in innovative clean energy startups. Portfolio companies of BEV include KoBold Metals (utilizing AI to identify and develop sources of critical minerals used for EV batteries and renewable energy technologies), ZeroAvia (develops hydrogen-electric powertrain technology for aviation) and and Dandelion Energy (geothermal heating and cooling solutions for residential homes, reducing carbon emissions by 80%). As of 2023, PEVC firms in the US have mobilized over $50 billion in climate-focused investments, with major contributions toward carbon capture and battery storage solutions.

The US government has also introduced incentives for energy transition projects, encouraging private sector collaboration in clean technology advancements. Major corporations such as Tesla and NextEra Energy have leveraged federal incentives to scale up electric mobility and renewable energy capacity. These corporate investments, combined with PEVC-backed clean energy innovations, are reshaping the country’s approach to sustainability.

Bhutan: Carbon Negativity through Sustainable Policies

Bhutan contributes something a bit different to the mix in the world of global climate finance. It is the only carbon-negative country in the world, meaning it absorbs more CO₂ than it emits. It has attained this through policy combinations on conservation, renewable energy and sustainable tourism.

At the very heart of Bhutan's environmental strategy is a firm commitment to retain at least 70% forest cover to provide a natural carbon sink. Secondly, Bhutan exports approximately 700 MW of hydropower electricity to India. This not only provides financial sustainability to the country but also contributes to regional environmental goals. The Bhutan model is pegged to its low-carbon tourism approach, which encourages eco-friendly travel and restricts the number of visitors so as not to harm the environment. The country has also fostered organic farming practices and sustainable agriculture that have minimal environmental impact on food production. Bhutan's model shows that even a small, resource-scarce country can create synergy between environmental policies and economic growth for fostering green industries while ensuring sustainability. Bhutan has also received international funding through carbon credit trading and conservation-based finance models, with firms like Druk Holding & Investments (DHI) supporting sustainability projects. DHI has entered into strategic partnerships to enhance Bhutan's renewable energy capacity. In October 2024, DHI signed a Memorandum of Understanding with India's Reliance Group to develop 1,270 megawatts (MW) of renewable energy projects, including 500 MW of solar power and 770 MW of hydropower. This collaboration represents one of the largest foreign direct investments in Bhutan's renewable energy sector.

Nepal: Mapping the Way on Climate Finance

Nepal faces considerable climate vulnerabilities including rising temperatures, extreme weather events and glacial melt. Despite its significant potential in climate finance, the country grapples with challenges such as limited access to international funds, weak policy frameworks and low private sector involvement. Nepal must implement a national carbon pricing system, expand its green bond market, and enhance domestic and international investor confidence through regulatory reforms and effective implementation if it is to transition from a donor-reliant model to an investor-driven approach.

The Nepal Rastra Bank (NRB) has introduced the Nepal Green Taxonomy, a classification system to identify and promote green financial instruments to align with both national and international sustainability standards. This taxonomy has categorized key sectors such as renewable energy, sustainable agriculture and green buildings to facilitate targeted climate investments. Furthermore, Nepal’s commitment to the Sustainable Development Goals (SDGs) is evident in its Nationally Determined Contributions (NDCs), which aim to achieve net-zero emissions by 2050.

Recently, the Independent Power Producers' Association of Nepal (IPPAN) signed agreements aimed at promoting PPPs in the hydropower sector which is critical to Nepal's renewable energy transition. These agreements are expected to attract over $2 billion in investments for new hydropower projects over the next five years.

Private investors, including development finance institutions (DFIs), large corporate houses and PEVC firms have begun investing in Nepal’s renewable energy sectors. For instance, Team Ventures has actively supported sustainable startups and renewable energy projects, including investments in solar energy firms, hydropower projects and green infrastructure.

Conclusion: Building a Sustainable Future through Climate Finance

Nepal is at a critical juncture in its climate finance journey, with an opportunity to draw valuable lessons from global leaders. By introducing tax incentives and expanding public-private partnerships, Nepal can replicate the US model, which mobilized over $50 billion in private capital for clean energy. Establishing carbon pricing mechanisms, inspired by Europe’s ETS that generated over $160.5 billion in revenues, will enhance financial transparency and attract sustainable investments. Similarly, innovative financial instruments like debt-for-climate swaps, seen in Africa, can provide budgetary relief while advancing sustainable development goals. Strengthening Nepal’s green bond market, following the examples of Singapore and India’s successful green bond issuances, will also create opportunities to mobilize capital for climate projects.

To expedite progress, Nepal must operationalize its Green Taxonomy and expand the scope of agreements of the Independent Power Producers' Association of Nepal (IPPAN). A notable recent agreement is the Memorandum of Understanding (MoU) signed between IPPAN and ProClime on January 31, 2025. This MoU aims to facilitate the issuance of up to 2,000 MW of International Renewable Energy Certificates (I-RECs) for privately-held projects. I-RECs are certificates proving renewable energy generation, traded internationally, for Nepal's hydropower sector. Key recommendations for Nepal include adopting carbon pricing, increasing green bond issuance, and mandating climate risk disclosures for financial institutions to enhance transparency and investor confidence. Mechanisms like first-loss capital can also de-risk projects by absorbing initial losses, reassuring investors and encouraging capital flow into green initiatives.

By learning from the successful strategies of the US, Africa, Singapore, India and Bhutan, Nepal can position itself as a regional leader in sustainable development. The US model of leveraging public-private partnerships and tax incentives will drive private sector involvement, while carbon pricing and green bonds will attract global capital. Nepal can also utilize its rich natural resources, focusing on eco-tourism and hydropower, as Bhutan has done, to boost green economic growth. With strategic policymaking and the adoption of best practices, Nepal can shift from donor dependency to a resilient, investor-driven green economy thereby ensuring long-term economic growth and climate resilience.

(Team Ventures is an industry-agnostic alternative investment firm with a diverse portfolio spanning the energy, technology, real estate, manufacturing, financial institutions, agri-infrastructure, and electric vehicles segment.)

(This opinion article was originally published in   March 2025   issue of New Business Age Magazine.)