In a groundbreaking development, the annual flow of climate finance reached a historic milestone in 2021, surpassing $1 trillion for the first time since the adoption of the Paris Agreement in 2015. According to the Climate Policy Initiative (CPI), the Global Landscape of Climate Finance 2023 report revealed that the average annual flows in 2021 and 2022 amounted to nearly $1.3 trillion, doubling compared to 2019 and 2020 levels. This substantial increase can be attributed in part to improved data availability and enhanced methodologies, accounting for approximately 28% of the rise. This signifies a positive trend towards compiling, tagging, and making higher quality climate finance data publicly available.
While this achievement is laudable, it’s important to note that the $1 trillion threshold represents just 1% of the global Gross Domestic Product (GDP). Dr. Barbara Buchner, Global Managing Director at CPI, emphasized that all stakeholders must accelerate investments to significantly reduce future economic and social costs. However, it’s not just about costs; substantial opportunities exist for businesses to pursue low-carbon and climate-resilient pathways.
The urgency of climate investment becomes clearer when we consider the consequences of delay. Research indicates that the cumulative costs of climate change, under current policy and investment levels, could exceed more than ten times the estimated investment requirements to limit global temperature increases to 1.5 degrees Celsius. While estimating future losses due to climate change is still a developing field, it underscores the economic imperative to invest immediately.
The Global Landscape of Climate Finance 2023, incorporating data from 2021-2022, dissects climate finance by its application, geographical distribution, and funding sources. The majority of tracked climate finance continues to be directed towards mitigation activities, with a particular focus on renewable energy and low-carbon transport, which are generally perceived as less risky by investors.
Adaptation finance reached a record high of $63 billion, a 28% increase from the $49 billion reported in 2019-2020. However, this figure still falls far short of the estimated $212 billion needed annually by 2030 for developing countries alone. Furthermore, the public sector remains the primary source of adaptation finance.
Developed economies remain at the forefront of climate finance mobilization, primarily through private sources. The United States, Canada, Western Europe, and East Asia and the Pacific collectively account for 84% of total climate finance. These regions also significantly outpace others in mobilizing domestic resources, a critical factor in achieving scale. Unfortunately, less than 3% of the global total of climate finance is directed toward the least developed countries, despite their vulnerability to the impact of climate change.
Private actors contributed 49% of total climate finance, averaging $625 billion. However, developed economies excel in mobilizing private finance compared to emerging economies.
To meet the scale of capital required, there is a pressing need to increase both the quantity and quality of climate finance. The CPI outlines several priorities to achieve this, including transforming the financial system, bridging the gap between climate and development needs, strengthening domestic action, and enhancing data-related initiatives. These efforts are crucial in addressing the climate crisis and fostering a more sustainable and resilient future.
Please download the full report here for more details.