Governments around the world are navigating a climate finance landscape that is shifting almost as quickly as the climate itself. For policymakers, particularly in developed economies, the central challenge is no longer whether to act, but how to close persistent funding gaps, how to deploy public resources strategically and efficiently, and how to steer private capital toward the low-carbon transition at the scale and speed required. 

Increasingly, subnational governments are showing exactly how this can be done. 

Over the past year, the Next Generation Budgets project has brought together governments to strengthen subnational green budgeting. Through hands-on training delivered in partnership with Expertise France, and by exploring in a Community of Practice financing tools to mobilise funding and investment for climate action in partnership with the Institute for Climate Economics. 

Our Community of Practice brought a wide range of approaches to light that are already happening, including; Bordeaux’s climate financing plans; CO2 levies in Catalonia; tourism taxes in Hawai’i; and North Rhine-Westphalia’s Community Energy Fund.   

During the final Community of Practice session, participants reflected on how green bonds are being used at both national and subnational levels, and how financing tools can reinforce transparency and accountability. And, critically, how lessons from the Next Generation Budgets project can go from peer exchange to concrete action. 

Baden-Württemberg’s green bond strategy 

Green bonds—a fixed-income debt instrument to raise money for climate and environmental projects such as clean transport systems or energy-efficient buildings—, have moved from the margins the mainstream. For investors, green bonds offer a way to align their portfolios with climate objectives while earning market returns on their investment. For governments, they provide a mechanism to connect fiscal policy with climate ambition, while increasing financial resources to fund local projects. 

Once considered a niche instrument, the green bond market has expanded. It reached US$2.9 trillion (£2.1 trillion), nearly six times its size in 2018. Against this backdrop, green bonds featured prominently in the Community of Practice, anchored by practical experience from the German state of Baden-Württemberg. Baden Württemberg’s Head of Treasury, Arnim Emrich, outlined how green bonds function work in practice within the state government. He explained that issuing a green bond typically involves five key steps: 

  1. Develop a framework aligned with recognised standards (such as the ICMA Green Bond Principles, the Climate Bonds Initiative, or the EU Green Bond Standard);
  2. Identify eligible projects under that fit the framework;
  3. Seek an independent second-opinion on the framework and project portfolio;
  4. Issue the bond;
  5. Provide allocation and impact reporting to investors. 

 

Since its launch in 2021, Baden-Württemberg’s green bond programme has become a stable pillar of the state’s climate financing strategy, growing from €300 million to €800 million (approximately US$351 million to US$937 million) in 2025. Robust sustainability criteria and a strong emphasis on transparency have attracted investors, including from outside Europe, while also diversifying the state’s broader investor base. 

Discussions during the project underscored how green bonds can act as a bridge between climate policy and capital markets, strengthening transparency, deepening investor engagement, and sharpening accountability. At the same time, participants were candid about the challenges. Many of the barriers subnational governments face, including limited capacity, legal constraints, and the demands of investor engagement, reflect deeper, systemic difficulties in integrating climate considerations into fiscal processes. Compliance costs associated with auditing and reporting can be a barrier not only for subnational governments, but also for corporate issuers and project sponsors. 

Diverse approaches to green finance at the subnational level 

Officials from other governments highlighted alternative approaches better suited to their economic and financial contexts. Representatives from Maryland described how Green Banks play a central role in the state’s climate finance ecosystem, ensuring public funds are used strategically and equitably to catalyse substantially larger volumes of private investment. This approach has accelerated on-the-ground climate action across the state. 

Lombardy shared its experience with Finlombarda, the region’s financial institution. It provides ESG-aligned advisory services and funds to small and medium sized enterprises using a mix of EU and own regional resources. 

A single environmental framework for green bonds and green budgeting: two instruments, same indicators 

A national perspective was provided by France, with Victoire Corre, Head of Sustainable Finance at Agence France Trésor —the agency responsible for the state’s debt and cash position, cash flow, and financial risks—highlighting the role of green bonds in sovereign financing in France. 

France is a global leader in the green bond market, with €87.3 billion in nominal bonds across several green “OATs” (Obligations Assimilables du Trésor). This includes the world’s first sovereign green bond designed to finance environmentally beneficial projects while adjusting its value for inflation. She explained how France applies a common set of environmental objectives and indicators as reference to both green budget tagging and sovereign green bond assessment.  

France has established a common environmental reference framework based on six environmental objectives (aligned with the EU taxonomy), with the green bonds reporting involving more detailed project-level allocation and impact reporting. 

As more state and regional governments build their green budgeting frameworks, Next Generation Budgets participants found helpful to learn how using the same environmental indicators for green budget tagging and sovereign green bond project allocation strengthens policy coherence, reduces methodological duplication, and enhances the credibility and transparency of public sustainable finance frameworks. 

The power of sharing what works 

In 2025, Next Generation Budgets Community of Practice discussions highlighted how states and regions are implementing practical strategies to mobilise public and private capital for climate action.  

These exchanges were complemented by insights from the Institute of Climate Economics (I4CE) – project’s technical partner - on climate financing plans, which underline the importance for governments of translating climate targets into clear, costed investment pathways. Climate financing plans help identify financing needs, map available funding sources, and clarify the respective roles of public budgets, private capital, and financial instruments over time. For participants, this provided a practical framework for structuring credible, investable pipelines that can engage institutional investors, strengthen policy coherence, and support the scaling-up of climate action at the state and regional level. 

By exchanging lessons on how to define climate financing plans, to structure financing instruments like green bonds and CO2 taxes and to build long-term partnerships with investors,  Next Generation Budgets demonstrated how peer learning can disseminate solutions across borders to innovate how we finance climate action.  

In early 2026, Next Generation Budgets launched a Green Budgeting Helpdesk to support more Under2 Coalition governments with technical assistance to green their budgets. Climate Group and North Rhine Westphalia will host the project’s concluding event in Brussels on February 5th, 2026.