London – Four years after world leaders negotiated the Paris Climate Agreement, national policies and market signals are starting to reflect the urgency of increasing finance into areas of the economy that address climate change. However, a new study shows that while investment in climate action has been steadily increasing, it remains far short of the economy-wide transformation required.

Climate Policy Initiative (CPI)’s Global Landscape of Climate Finance 2019 shows that global climate finance reached a record high of USD 612 billion in 2017, driven by renewable energy and lower-carbon transport capacity additions in China, the U.S., and India, as well as increased public commitments to land use and energy efficiency. This was followed by an 11% drop in 2018 to USD 546 billion attributed mostly to reduced public money for low-carbon transport and lower private investment in renewable energy.

Taking into account annual fluctuations, average annual climate investment across 2017/2018 was 25% higher than during 2015/2016. This trend reflects steady increases in financing across nearly all types of investors. Increases are concentrated in low-carbon transport (by sector) and North America and East Asia (by region). Just under one quarter of the increase from 2015/2016 to 2017/2018 was due to the incorporation of new data sources into the study.

“Given the urgency of the climate challenge, it is a positive sign that we have passed the half trillion dollar mark of investment towards climate change activities,” said Dr. Barbara Buchner, Executive Director of Climate Finance at CPI. “Still, this is simply not enough, especially as investments in polluting industries continue to effectively cancel out these efforts to address climate change. Leaders should be focused on total economic transformation.”

The study indicates, by comparison, estimates of the investment required to achieve global climate change goals. These estimates include a range of USD 1.6 trillion to USD 3.8 trillion needed annually between 2016 and 2050 for supply-side energy system investments from the IPCC (2018) and adaptation costs of USD 180 billion annually from 2020 to 2030 from the Global Commission on Adaptation (2019).

The Global Landscape of Climate Finance, which includes data from 2013-2018, also breaks down climate finance by use and geography, as well as source.

It shows that the vast majority of tracked climate finance continues to flow towards activities for mitigation, and in particular to renewable energy and low-carbon transport, sectors which have demonstrated commercially viable technologies. Decreasing technology costs in these areas also mean each dollar in these sectors is going further toward reducing emissions.

Adaptation finance rose significantly from its previous levels. While still short of the need, investment in activities that increase climate resilience reached USD 30 billion on average in 2017/2018, a 35% increase from 2015/2016, which includes both substantial and gradual increases by different public actors.  

It’s clear from our work that public and private actors must coordinate to move faster into sectors beyond renewable generation,” said Dr. Angela Falconer, Associate Director at Climate Policy Initiative. “While investments must also continue in renewables and other commercially viable sectors, we see large gaps in energy efficiency, adaptation, food, and technology and research.”

In terms of regional destinations of climate finance, investment in non-OECD countries reached USD 356 billion in 2017/2018, a major increase from USD 270 billion in 2015/2016 and, at 61% global climate finance, a larger share of total flows than in 2015/2016 (58%). Most climate finance – 76% of the tracked total – is still invested in the same country in which it is sourced.

“There has been a consistent and strong domestic preference among investors who understand the risks in their own countries and are more willing to put their money within their own borders,” continued Dr. Falconer. “This means national-level policy and financial factors need to be a major priority as countries look to update their climate ambitions.”

In terms of who is providing finance: The public sector remains the foundation for mobilizing private investment, and private investors continue to provide largest share – at 56% – of climate finance. Corporations account for the majority of private investment, but commercial financial institutions are starting to play a more important role, and increased financing by 51% from 2015/2016 to 2017/2018. While new data sources contributed a small portion of this rise, increased financing from actors who do not typically provide primary finance for infrastructure indicates a renewable energy market reaching greater maturity and projects perceived to be less risky.

Notably, households increased their climate-related consumption to USD 55 billion, a rise of 32% from 2015/2016, signifying greater awareness of sustainable alternatives in energy and transport.

Among public sources of investment, domestic, bilateral, and multilateral development finance institutions (DFIs) continue to channel the majority, however, economic developments in 2018 resulted in some major players reducing their investments. While National DFIs continue to provide the majority of finance among DFIs, a global slowdown in economic growth and a shift in domestic policies towards deleveraging and financial risk management, especially in East Asia and the Pacific, have meant that their share of finance did not increase from 2015/2016 to 2017/2018. Tracked climate finance provided by governments and their agencies doubled to USD 37 billion in 2017/2018, partly due to better availability of data on government activities.

“There are some bright spots, but our study is very clear. Governments, development finance institutions, and investors need to make a major shift in how they invest if they want to avoid climate change,” concluded Dr. Buchner.

Download the full report here.

About Climate Policy Initiative:
With deep expertise in finance and policy, Climate Policy Initiative is an analysis and advisory organization that works to improve the most important energy and land use practices around the world. Our mission is to help governments, businesses, and financial institutions drive economic growth while addressing climate change. CPI has six offices around the world in Brazil, India, Indonesia, Kenya, the United Kingdom, and the United States.

Caroline Dreyer, Communications Associate
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