Countering the greatest threat of our time
Climate change is by far the greatest crisis and challenge of our time. The unprecedented heat and extreme weather events around the world this year are causing significant deaths and damage to people and other living things. They are certain to get worse.
Countering this crisis requires mobilising vast amounts of climate finance for a just transition to a liveable planet for our shared future. It must be done by the public and private sectors working individually and together to raise the ambitious but achievable sums needed to do the job.
Reaching the limit
There is no time to lose. The world’s leaders at the meeting of the Conferences of the Parties to the United Nations Frame work Convention on Climate Change in Paris in 2015 agreed – based on the compelling science then – that our planet’s post-industrial temperature increase must be limited to 2°C and ideally 1.5°C. But we are already approaching those limits, and in places exceeding them, in ways that are often difficult or even impossible to reverse. The last 12 months have been the warmest on record. The greenhouse gas emissions that humans continue to produce to pollute the atmosphere relentlessly add to the historically high concentrations already there.
Thus, at the COP29 meeting in Baku on 11–22 November this year, global leaders and stakeholders must take bold, broad actions to mobilise much more badly needed climate finance before it is too late. That is why COP29 host Azerbaijan has made climate finance the top priority and asked countries to submit updated, stronger nationally determined contributions specifying what they will do to contain a crisis that afflicts all.
The finance gap
The size of the climate finance challenge is compellingly clear. Recent economic and political headwinds have caused the climate finance gap to widen in terms of volume, quality and the cost of capital. This includes the funding shortfall for climate mitigation, adaptation and clean infrastructure in the Global South, as well as the associated capital costs – stemming from the gap between the high returns or interest rates demanded in emerging markets and the borrowers’ capacity to pay.
To remain within the Paris Agree ment’s warming targets, trillions of dollars are needed for carbon mitiga tion, adaptation and resilience. Specific estimates of climate financing needs vary, but current levels are without doubt critically insufficient – and are rising as new, incoming data show global heating, extreme weather events and their resulting damage increase. The Independent High-Level Expert Group on Climate Finance estimates that emerging markets and developing countries (excluding China) need more than $1 trillion in climate finance each year by 2030, the majority of which is required for mitigation. The Interna tional Energy Agency estimates that annual renewable energy investment in emerging and developing economies must increase by more than seven times – from less than $150 billion in 2020 to over $1 trillion by 2030 – to reach net zero emissions by 2050.
Many intergovernmental institutions have started to promise and provide new funds to help meet the need. The major global governance bodies – the UNFCCC COPs, the United Nations Development Programme, the International Mone tary Fund, the World Bank, the G20 and the G7 – have done so. So have several national governments from the devel oped world. Together they have begun to take action within their respective capacity. But even with a full commitment they cannot do the job alone.
A turning point?
The private sector is thus key to closing the climate finance gap. One estimate suggests that even if all multilateral development banks committed their entire balance sheet to the green transition, it would only provide 4% of the capital needed.
Merely 1.4% of the private sector’s $410 trillion in global financial assets would surpass the highest finance gap estimate. Mobilising private investment is therefore critical. Climate finance will be a trillion-dollar market by 2030. Mobilising this capital is thus both a challenge for policymakers and an opportunity for business.
Public and private sectors must act and work together
Whether driving innovation or addressing the global challenges arising from the triple planetary crisis of climate change, biodiversity loss and pollution, well-crafted policy and regulation can mobilise capital for sustainable development, promote transparency and disclosure, provide common language and standards, and foster collaboration among stakeholders.
Without coherent policy, climate finance may not be sufficiently prioritised by governments, the financial sector and its counterparties, leading to missed opportunities for investments to improve the planet’s future.
Working to establish a global and collaborative dialogue and approach will enable leading investors to work with both public and private sectors to catalyse change across the entire finance spectrum and help financial institutions eliminate the financing gap to reach the Sustainable Development Goals.
Every investment initiative is required to deliver real world sustainability outcomes, by engaging regulators to strengthen environmental, social and governance standards and by reimagining business practices that prioritise sustainable impact.
This publication draws on the expertise, experience and commitment of key global leaders from major institutions and sectors to show how finance from capital markets, asset management, corporate finance, international banking and insurance can lead the urgently needed environmental and energy transition. It showcases insights from existing efforts to close the finance gap, showing how policy innovation has led to credible progress, and how much more can and must be done. Leaders in policy, finance, development and science appraise solutions, giving insight into what has worked, what has failed, and what remains to be done.
Their contributors in turn, address:
- Achieving adequate, ambitious, cli mate finance
- The Paris Agreement platform
- Improving public finance
- Mobilising private sector finance
- Improving integrity for private sector finance
- Frontier technology – financing fit for-future infrastructure
- Innovative climate financing.
