- Rate of increase of global climate finance is slower than past periods; COVID-19 impacts will likely make this worse
- Public sector provides the majority of global climate finance
- Adaptation finance gained momentum, but remains well short of estimated needs
- Renewable energy and transport continue to attract the vast majority of sector investment
London, 14 December 2021 – Climate finance is central to the global implementation of the Paris Agreement. However, a study shows that, while both public and private actors steadily increased their climate investments in the last decade, the flows have plateaued in the last few years.
Climate Policy Initiative’s 2021 Global Landscape of Climate Finance, the most comprehensive overview of global climate-related primary investment, shows that global climate finance reached USD 632 billion in 2019/2020, a 10% increase from 2017/2018. For comparison, annual climate finance flows had increased an average of 25% annually from 2013-2018.
“Given the scale of the challenge, it is simply not enough,” said Dr. Barbara Buchner, Global Managing Director at CPI. “Achieving net zero by 2050 will require all public and private actors to urgently align their practices, investments, and portfolios with 1.5C goals.”
New this year, the study indicates investments required by sector to achieve global climate change goals. All sectors are well behind the investment needed, including renewable energy, which attracts the most climate investment of any sector. The study reveals that, even under the most conservative scenarios, the energy sector is experiencing a minimum USD 500 billion annual investment shortfall. Total global climate investment shortfalls are well beyond USD 4 trillion.
The Global Landscape of Climate Finance, which includes data from 2013-2020, also breaks down climate finance by use, geography, and source.
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 are often perceived as less risky by investors. 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 estimated USD 180 billion annual need, investment in activities that increase climate resilience reached USD 46 billion, a 53% increase from 2017/2018, representing 7% of total global climate finance. The public sector continues to provide almost all of adaptation finance, while the private sector mostly provides mitigation finance.
Overall, public actors provide the majority of annual climate finance, at 51%. Development financial institutions provide the majority of that public finance, contributing 68% of the public finance total.
Climate finance raised and invested in the same country accounted for three-quarters of the tracked investments. This highlights the continuing need to strengthen policies and regulatory frameworks to address risk aversity and encourage foreign investments. Further, a majority (76%) of climate finance flows are concentrated in less than 25 countries in East Asia and Pacific, Western Europe, and North America. While all regions should increase the level of finance, Sub-Saharan Africa, South Asia, Other Oceania, Middle East and North Africa, Latin America & Caribbean, Central Asia, and Eastern Europe regions are particularly lagging in investment.
“While current investment levels are nowhere near what is needed, the pipeline of opportunities is expanding. We can mobilize significantly more climate finance, especially from the private sector, through enabling policies and innovative financial solutions that follow the science,” concluded Dr. Buchner.
As part of a broader effort to understand the integrity of net zero and increase its accountability, CPI also published research that looks at private financial institutions’ commitments to Paris Alignment.
The research offers a detailed review of private sector financial institution commitments covering the full range of actions to address climate change – starting with long-term mitigation targets but also covering investment, exclusion and divestment, changes in internal operations, and reporting of climate commitments.
Findings from this work include:
- At least 301 major financial institutions representing more than USD 93.3 trillion worth of assets have committed to net zero by 2050 at the latest.
- Through August 2021, financial institutions have made 45% more commitments than in all of 2020, driven by dramatic growth in mitigation targets in advance of COP26.
- The number of mitigation targets are growing, but key details – including credible transition plans and ambitions – are lacking.
- Almost USD 6 trillion cumulative in investments were pledged to climate solutions by 2030, representing almost a doubling from current private finance climate investment trends.
- Fossil fuel exclusions and divestment policies are primarily coal-related and consistent with calls to reduce emissions from coal, but a real shift away from fossil fuel investments is missing.