By Abbas Nazil
Developing countries could begin repaying more money annually on climate-related loans than they receive in new lending by 2036, raising concerns over growing debt burdens and the sustainability of international climate finance, according to a new study by CARE Denmark and the CARE Climate Justice Center.
The analysis, which examined approximately 17,500 climate loan records reported by developed countries and multilateral lenders between 2011 and 2024, found that repayments on public climate loans, including interest and fees, nearly tripled from $6.9 billion in 2020 to $20.1 billion in 2024.
The researchers warned that if climate lending continues at the 2024 level and under similar repayment conditions, annual repayments on existing and newly issued loans could exceed fresh lending by 2036.
The findings have renewed concerns about the growing reliance on loans rather than grants to support climate action in developing countries, many of which are already struggling with rising external debt and increasing climate-related disasters.
According to the analysis, loans provided by developed countries and multilateral financial institutions are increasingly becoming a major component of public climate finance, creating additional financial obligations for countries that require resources to strengthen their resilience against global warming.
The study identified the World Bank as the largest lender within the examined portfolio, followed by Japan and France.
It estimated that climate loans amounting to $489 billion would eventually cost borrowing countries approximately $663 billion over their full repayment periods, reflecting the additional financial burden associated with interest and other charges.
Senior Climate Adviser at CARE Denmark, John Nordbo, warned that failure to disclose the financial repayments associated with climate loans could create a misleading impression about the actual level of support wealthy countries provide to developing nations.
He argued that reporting only the amount of money disbursed without accounting for repayments could exaggerate the financial assistance flowing from developed countries to vulnerable economies.
Data from the Organisation for Economic Co-operation and Development (OECD) showed that developed countries provided $101.6 billion in public climate finance in 2024, with approximately two-thirds delivered through loans.
The issue is expected to feature prominently at the 31st United Nations Climate Change Conference (COP31) in Antalya, Türkiye, where developing countries are seeking concrete assurances on the delivery of international climate finance commitments.
Under the agreement reached at COP29 in Baku, Azerbaijan, developed countries committed to mobilising at least $300 billion annually in climate finance for developing nations by 2035.
However, Nordbo expressed concern that achieving the target could depend heavily on multilateral development banks and private sector financing, potentially increasing the proportion of loans in future climate finance arrangements.
He questioned the sustainability of this approach, particularly as developing countries continue to face mounting debt repayment obligations.
According to the World Bank’s International Debt Report, developing countries paid a record $1.4 trillion in principal and interest on their debts in 2025, marking the fifth consecutive annual increase.
The growing debt burden is particularly concerning for countries highly vulnerable to climate change, as substantial public resources are increasingly required to service existing debts rather than finance adaptation, infrastructure and environmental protection.
CARE acknowledged that concessional loans could be appropriate for climate projects capable of generating revenue, but maintained that loans were unsuitable for several essential adaptation programmes.
These include initiatives designed to protect human lives, strengthen communities recovering from climate disasters and support countries already experiencing debt distress, particularly where such projects do not generate direct financial returns.
The organisation’s findings highlight the need for developed countries and international financial institutions to reconsider their climate financing approaches, with greater emphasis on grants and affordable financing that do not expose vulnerable countries to additional debt pressures.
