Sliced: Grants in Climate Finance - Gordian Knot Strategies

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Grants might not make headlines like billion-dollar green bonds or carbon markets, but they’re one of the quiet tools in climate finance. At their core, grants are non-repayable financial contributions – essentially, free money – provided by governments, international organizations, or philanthropic donors. Their mission? To support activities that are crucial for tackling climate change but may not offer immediate financial returns, such as climate adaptation, capacity building, or piloting risky new tech.

So, where do climate grants typically go? They’re spread across a diverse portfolio of efforts. Some support mitigation, projects that reduce greenhouse gas emissions, while others are focused on adaptation, such as helping communities build resilience against rising seas, extreme weather, or desertification. Grants also play a key role in capacity building, helping vulnerable countries develop the knowledge and institutions needed to respond to climate change. And for loss and damage, think hurricanes, floods, or droughts; grants can provide urgently needed recovery funding without saddling countries with debt.

Though grants are often overshadowed by larger forms of climate finance, they hold their own in impact. In 2019/2020, they made up about 6% of total climate finance globally, around USD 36 billion. Fast forward to 2022, and that figure had climbed slightly to USD 38 billion, making up a whopping 43% of concessional international climate finance, the kind that comes with generous terms or no repayment at all. Key players in the grant space include the Green Climate Fund (GCF), Global Environment Facility (GEF), and the Adaptation Fund.

Still, relying too heavily on grants has its drawbacks. Funding can be unpredictable, often tied to shifting political winds or donor fatigue. They’re also limited in scale; grants cover only a fraction of what’s needed to meet global climate targets. Plus, for recipients, applying for grants can be a bureaucratic maze, involving time-consuming proposals, audits, and reporting. And there’s the risk of creating dependency, where countries wait for aid instead of building sustainable financing systems or drawing in private capital.

That said, the upside of grants is huge. For starters, they’re debt-free, which is critical for poorer nations already grappling with unsustainable debt loads. They’re also incredibly catalytic. A well-placed grant can de-risk a project, making it more attractive to private investors. And from a climate justice perspective, grants help balance the scales: supporting those hit hardest by climate change but least responsible for it. Grants can also empower local actors, when channeled properly, to design and lead their own solutions, making adaptation efforts more effective and inclusive.

There are plenty of real-world case studies where grants have made a difference. In Indonesia, for instance, the Geothermal Resource Risk Mitigation Project used grants from the GCF to de-risk early-stage geothermal exploration, attracting private capital for one of the world’s biggest renewable resources. The Global Environment Facility has supported over 880 projects globally, while the Adaptation Fund, financed through a small levy on carbon credits, offers grants to help vulnerable countries increase climate resilience. Locally-led grant initiatives have also shown that even small funds can yield big results when communities lead the charge.

In short, grants are not a silver bullet, but they are a sharp tool in the climate finance toolbox. They fill critical gaps, support innovation, and ensure the most vulnerable aren’t left behind. As the world mobilizes trillions to meet climate goals, grants will need to evolve and complement other financial instruments, like loans, guarantees, and blended finance, to truly scale impact. But let’s not underestimate their role – in the right hands, at the right time, a grant can be the spark that lights a global solution.

At Gordian Knot Strategies, we’re building a global database of impact investors to help mobilize $1 billion annually in climate finance by 2030. If your organization is interested in funding climate or environmental projects, we invite you to fill out our Impact Investor Information Form. Your contact details will remain confidential, and we’ll only connect you with aligned opportunities. There is no fee to participate.

To access the form click here.

Interested in connecting with us on climate finance, impact investment, climate solutions strategy, or carbon credit development and commercialization? Book a 30-minute conversation with Gordian Knot Strategies here to discuss how we can support your goals.

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