Climate finance constitutes a principal-agent problem in which funder states and recipient states must cooperate on mitigation projects despite diverging information and interests. This paper develops a novel theory of the tension between donor and recipient preferences over which of three possible counterfactual investments are replaced by green financing (brown, green, and none). While donor states prefer financing to replace brown investments, recipient states seek financing to replace green investments or no investment. Democracy, corruption, and project attributes also predict heterogeneity in this funder-recipient divide. I test these hypotheses on a cross-sectional time series of outcomes from projects funded by the Clean Development Mechanism. This work generates both practical recommendations for the rapidly growing use of climate finance and theoretical opportunities for future research on climate finance as a cooperation dilemma in international relations.