As global climate finance falters and US support disappears, the MENA region faces a widening funding gap. Now is the time to create a regional climate finance mechanism.
Climate finance is shrinking just as MENA faces mounting climate challenges. From extreme heatwaves to worsening droughts, the region is one of the most vulnerable to climate change and is already experiencing its consequences. Yet, despite these urgent risks, MENA remains one of the world’s most underfunded regions when it comes to climate finance. It received just $24.4bn of global funding between 1992 and 2023—far below what is needed to meet its sustainability goals.
Now, the situation is becoming even more challenging. On the first day of his second term in office, US President Donald Trump paused all foreign climate financing, estimated at $11bn per year, before implementing deep cuts to international aid programmes, including those supporting climate adaptation and energy transition in developing countries. With the US withdrawal, a key pillar of global climate finance has collapsed, and MENA countries tapping into international funds now face even greater funding shortfalls.
This moment is decisive for climate action. MENA countries can no longer lean on international donors to secure climate financing. Instead, the region must take the reins by establishing its own climate fund—a dedicated, regionally managed mechanism to invest in clean energy and climate adaptation. The question is no longer whether MENA can afford to act—it is whether it can afford not to.
The case for a climate fund
Despite urgent adaptation and mitigation needs, MENA attracts only a small fraction of climate finance. The region receives roughly 6% of funding from multilateral climate initiatives such as the Green Climate Fund (GCF), Climate Investment Funds (CIF), and Global Environment Facility (GEF), which are the main sources of global climate finance.
This is far below other regions, such as East Asia and the Pacific or Western Europe, and covers only one-twentieth of the financing needs outlined in the Nationally Determined Contributions (NDCs) of the nine MENA countries that have quantified their costs.
Gulf sovereign wealth funds and regional development banks can serve as key financial pillars of a regional climate fund
Climate funding is also unevenly distributed. Morocco and Egypt have received more than 60% of the total climate finance allocated to MENA. Three main factors explain the difficulty others face in accessing climate funds. First, many MENA countries are classified as middle-income, which limits access to non-repayable financing, such as grants, as global climate funds prioritise low-income states. Middle-income countries are more often considered for loans, which add to their debt burdens and deter them from borrowing for climate projects.
Second, weaker institutional capacity in some countries hinders them from completing the application process required to unlock funding and they have little to no track record of successfully implementing climate projects to support their application. Third, the most climate-vulnerable countries are either in conflict or recovering from conflict and therefore face low investor confidence, which reduces their chances of obtaining funding approval.
As climate needs grow, it is clear that global funds alone cannot close the finance gap. MENA must create a self-sustaining funding model designed to address the region's specific challenges.
US policy shifts
The need for a self-sufficient funding model has become more pertinent amid the sharp shift in US policy under President Donald Trump, which has disrupted funding flows to the region. Since his return to office, President Trump has paused US international climate finance (worth $11bn in 2024) and cut 90% of foreign aid budgets, including USAID—the aid agency responsible for a third of US international climate finance. His administration is also reviewing US participation in Multinational Development Banks (MDBs), which co-fund climate projects and act as implementing entities.
This marks a stark reversal from the Biden administration, which had pledged to scale up US contributions to climate finance and restore support for multilateral institutions. As one of the largest contributors to global climate funds and a major shareholder in MDBs, the US has helped support climate projects around the world. Now, MENA faces the loss of a key funding source.
Tributes are placed beneath the covered seal of the US Agency for International Development (USAID) at their headquarters in Washington, DC, on February 7, 2025.
This will have immediate consequences on the ground. For example, USAID's climate programmes in the Middle East, such as Morocco's Cooperative Resilience Programme or Egypt's $24mn water sector resiliency programme, face cancellation or funding gaps. Second, as the US provided a fifth of developed countries' total contribution to climate finance in 2024, withdrawal from multilateral climate initiatives reduces the amount of concessional finance available to the region.
The policy shift in the US is also encouraging a wider rollback of energy transition goals in the private sector. Financial institutions such as JPMorgan Chase and Bank of America, among many other major US banks, have withdrawn from the Net Zero Banking Alliance, and energy majors such as BP have abandoned their renewable energy targets, signalling a global slowdown in climate mitigation commitments.
Taken together, these shifts demonstrate that international institutions are no longer a stable or reliable source of climate finance. MENA governments must prepare for a future where traditional financing models are increasingly constrained and act accordingly.
Advantages of self-reliance
The region faces a shared climate crisis but also possesses ample financial resources to confront it. Rather than look to increasingly unreliable external sources of funding, MENA can take control of its climate agenda by establishing a dedicated regional climate fund.
Gulf sovereign wealth funds and regional development banks can serve as key financial pillars of such an initiative. The fund could also issue green bonds, foster public-private partnerships to attract institutional investors and scale up climate projects, and provide debt-for-climate swaps to help fund initiatives without increasing countries' debt burdens.
A regional fund would offer three key advantages tailored to the Middle East. First, it would provide long-term, reliable financing insulated from global political swings, ensuring that climate projects remain on track even as international priorities change.
A demonstrator approaches a boat stuck in the dried-up bank of a canal, during a rally at the Umm El Wadaa marsh, southeast of the Iraqi city of Nasiriyah on August 16, 2022, to demand solutions for water scarcity and drought.
Second, it could help countries with low institutional capacity access finance by providing targeted application support and acting as a guarantor to mitigate investment risks and build investor confidence. Third, it could facilitate cooperation on transboundary issues—such as desertification, extreme heat, and water scarcity—that no single country can tackle alone.
Other regions have already set up dedicated climate funds. The Africa Climate Change Fund (ACCF) and the Investment Climate Reform Facility (ICRF) support climate action through local projects across the continent—though their funding is still largely dependent on European contributions.
MENA has the financial capacity to create a similar institution, majority-funded by the region, to ensure it is ready to face the impact of climate change, regardless of geopolitical dynamics. The fund's financing structure would draw from a range of diversified and innovative sources, including blended finance, private sector climate contributions, green bonds and sukuks.
Shrinking window
The external funding on which the MENA relies is proving insufficient and unstable, and the climate finance gap is widening. With global priorities shifting and major donors pulling back, the region can no longer look to international institutions to finance climate adaptation and mitigation, and the energy transition.
Through the establishment of a self-sustaining, regionally managed fund, MENA can secure reliable financing for the projects that matter most on timelines that match the urgency of the challenges it faces. The choice is clear: either the region builds its own climate finance solutions, or it risks being left exposed to the escalating impacts of climate change.
