When a single season of extreme weather can erase 1.8 percent of national GDP, climate change ceases to be just an ecological threat; it becomes an economic crisis. In 2024, monsoon-related flooding and landslides in Laos caused damage exceeding USD 279 million. Floods and drought damage rice harvests, which weaken farmers’ ability to repay loans and banks’ willingness to lend.  

As Lao PDR prepares to graduate from Least Developed Country status, it is essential to leverage public finance strategically to unlock private investment. But this investment will only flow if the right policies, institutions and financial tools are in place. This is where the United Nations Development Programme (UNDP) Climate Finance Network (CFN) contributes.

Supported by the United Kingdom's Climate Action for a Resilient Asia (CARA) programme, the CFN is UNDP's flagship regional initiative to align public and private finance with national climate priorities across 18 countries. Active in Lao PDR since 2025, the programme works with the Government, the financial sector and MSMEs to turn climate finance ambition into action. 

CFN is a critical part of CARA’s broad portfolio, through which the United Kingdom is enabling countries across Asia and the Pacific to strengthen resilience, improve environmental governance, and mobilize the larger flows of finance required for climate action. In Lao PDR, this support is laying the foundations for partners and private investors to build on. It reflects how the UK has evolved its approach to development—not only by providing short-term aid, but by acting as a long-term partner that helps build the systems, institutions, and enabling environment needed to attract and sustain investment over time.

Several key steps have strengthened Lao PDR’s national financing architecture. The most foundational is the Financing Strategy for the 10^th National Socio-Economic Development Plan (NSEDP 2026-2030), developed with UNDP support through the CFN in partnership with the Asian Development Bank. The strategy sets out how public finance can crowd in private investment through innovative mechanisms. Delivering the 10^th NSEDP will require an estimated US$17 billion to US$18 billion. After available public resources are accounted for, a financing gap of up to US$8 billion remains (equivalent to around 8 percent of GDP). Because climate resilience is a core priority of the five-year plan, closing this gap will require not only additional public resources, but also private and climate-aligned capital. 

At the same time, support to the Investment Plan of the Nationally Determined Contribution (NDC) 3.0 is helping to establish a roadmap of costed, investable climate priorities. With UNDP support, the Government has also established the Climate and Sustainable Finance Hub, now operational within the Ministry of Finance, to coordinate and align climate finance with national development priorities. 

A Loss and Damage Diagnostic Study has further elevated this agenda as a national priority, now reflected in the National Adaptation Plan and the draft NDC 3.0. The study also sets out recommendations to strengthen institutional capacity and coordination. Building on this work, Lao PDR has submitted a US$16.5 million proposal to the Fund for Responding to Loss and Damage. While the outcome will depend on the Fund’s review and prioritization process, the proposal represents an important step in positioning the country to access dedicated international resources to help communities recover from climate impacts.

Yet, policy direction alone will not move capital. Real investment depends on the financial institutions that do the lending. For banks, integrating climate foresight into credit assessment is becoming a competitive advantage. It helps borrowers manage risks such as floods and droughts, supports repayment capacity, and positions banks to capture the growing green finance market. Ultimately, banks are the channel through which green capital reaches the real economy.

The CFN is helping the financial sector play this role. An assessment of Lao PDR’s sustainable finance ecosystem, completed last year, identified a critical entry point: creating "green vehicles" within public financial institutions that already support small businesses, such as public wholesale funds and the Lao Credit Guarantee Company. 

Practical work is now underway. Banks are receiving tailored technical assistance on green lending to small enterprises. In July 2026, a two-day workshop co-organized with the Bank of the Lao PDR brought together 14 commercial banks and micro-finance institutions to integrate green lending and climate risk assessment into their credit processes. While banks are being equipped to supply green capital, businesses must also be ready to receive it. To bridge this gap, the CFN’s Climate Venture Scaler initiative is providing targeted support to growth-stage climate enterprises, helping them become investment-ready and better positioned to attract domestic and regional capital.

In less than two years, Lao PDR has begun moving from ambition to action. Unlocking climate finance rests on three foundations: sound policy, capable institutions, and strong partnerships. The partnership between Lao PDR, UNDP and the United Kingdom is helping to put all three in place, so climate finance can flow where it is needed most, and the country’s climate ambitions can be matched by the investment required to deliver them. 

Authors:

• Martine Thérer, Resident Representative, United Nations Development Programme, Lao PDR 
• Louis Mulvaney, Head of Development Cooperation, British Embassy in Lao PDR