By Sean Stout
In the wake of COP26, a renewed sense of urgency has gathered around climate finance and the complex and sometimes competing challenges this raises. Amid the flurry of activity, key conversations in Glasgow pertained to the predictability of climate finance, its quantity and quality, access to finance for those most vulnerable, the balance between mitigation and adaptation finance, along with other issues concerning the just transition, net zero, and ensuring integrity in implementation.
Climate Policy Initiative has released the in-depth version of its 2021 Global Landscape of Climate Finance report (the Landscape), which seeks to calibrate this discussion by providing the most comprehensive overview of global climate-related primary investment in 2019/2020. Building on the preview findings released in the run-up to COP, this report dives deeper into the financial flows along their lifecycles, from sources and intermediaries through to how finance is ultimately used on the ground.
Reporting a two-year average, the Landscape shows that in 2019/2020 USD 632 billion was invested in projects with mitigation, adaptation, or dual objectives, the highest amount of tracked flows to date. However, with only a 10% growth rate from 2017/2018 numbers, our analysis indicates climate finance flows are slowing, and certainly falling far short of estimated needs. At the very least, a 590% increase in annual climate finance is required by 2030 to meet internationally agreed climate objectives. Further cause for concern, COVID-19’s impact on climate finance is yet to be fully observed.
Our findings show that climate finance continues to be split almost evenly between public and private actors, however, the sectoral and geographic distribution of commitments varies much more. Mitigation attracts the lion’s share of the total climate investment (90%) while adaptation continues to be a secondary priority, widening the gap for adaptation finance. The tracked USD 46 billion flowing towards adaptation activities, almost entirely from the public sector (98%), situates the Glasgow Climate Pact’s perceived success story of doubling developed-to-developing countries annual adaptation funding to USD 40 billion (by 2025) in its broader perspective; particularly when set against the estimated annual costs through to 2030 (USD 155 to USD 330 billion in developing countries alone).
Meanwhile, the analysis shows that renewable energy finance – the largest mitigation sector (57%) – should at least triple to put the world on a 1.5°C trajectory by 2050 and must be accompanied by the urgent phase out of fossil fuel investments this decade.
In terms of actors, Development Finance Institutions continued to deliver the majority of public finance (USD 219 billion, 68%) while private climate investments increased by 13% in 2017/2018 to USD 310 billion, with commercial financial institutions making the biggest stride in growth therein. Overall, the majority of climate finance (61%, USD 384 billion) was raised as debt, of which 12% was low-cost or concessional. High shares of domestic flows dominated in Western Europe, US & Canada, and East Asia & Pacific, accounting for 76% of the global flows while, inversely, a higher share of international finance was observed in the developing regions of Sub-Saharan Africa and South Asia.
In the Landscape we provide five key conclusions and recommendations relevant to both the private and public sectors:
- Climate finance flows continue to be nowhere near estimated needs: in both this research and the conversations held in Glasgow, the unit of analysis is billions, whereas the reality is climate finance needs to count in the trillions should we be charting a course consistent with 1.5°C.
- Filling the adaptation investment gap is critical to achieving the goals outlined in the Paris Agreement: this will require scaling-up adaptation commitments across all actors and improving information on investment, particularly within the private sector, while ensuring flows are directed towards those most vulnerable to the impacts of climate change.
- Standardizing definitions and methodologies, while improving access to data, has significant potential to help accelerate climate action: measuring progress by public and private actors is an essential component to effectively managing climate finance, allowing us to understand current flows in light of future targets, and how they may be made more impactful.
- We need credible and coordinated monitoring of commitments, with clear transition plans that include interim goals: CPI’s Framework for Sustainable Finance Integrity (2021) and CPI’s Net Zero Finance Tracker (2021) elaborates on the progress and actions deemed necessary to deliver meaningful sustainability and net zero results.
- Wider and better reporting on the interlinkages between climate finance and other sustainable development goals can help facilitate assessments of progress towards a just and sustainable transition: more granular reporting on such synergistic finance will also direct attention to the distribution of climate finance benefits as well as the efficacy of flows.
This article has been sourced from Climate Policy Initiative and can be accessed here