Climate action finance has hit a major milestone, surpassing $1 trillion for the first time, according to a study by the Climate Policy Initiative (CPI). This is great news, but we still have a long way to go. In order to avoid the worst impacts of climate change, we need to increase climate finance by at least five times annually by 2030.
The study, called the Global Landscape of Climate Finance 2023, found that the average annual climate finance flows in 2021/2022 reached almost $1.3 trillion, which is double the levels seen in 2019/2020. This increase can be attributed to better data availability and other improvements in how climate finance is measured and reported. It’s a positive sign that we’re getting more and higher quality climate finance data.
To tackle the climate crisis, the CPI suggests focusing on four key areas: transforming the financial system, meeting both climate and development needs, taking action at the domestic level, and improving data collection and analysis. These are all important steps in mobilizing the capital needed to address climate change.
While crossing the $1 trillion mark is a significant achievement, it’s important to remember that this represents just 1% of global GDP. We need to invest more now to reduce future economic and social costs. But it’s not just about costs, there are also huge opportunities for businesses to pursue low-carbon and climate-resilient paths.
When it comes to how climate finance is used, the majority of funds are directed towards mitigation activities, such as renewable energy and low-carbon transport. These sectors are seen as less risky by investors. However, adaptation finance also reached a record high in 2021, growing by 28% compared to 2019/2020 levels. But it’s still far from the estimated $212 billion per year needed for developing countries alone by 2030. The public sector continues to provide most of the adaptation finance.
Developed economies are leading the way in mobilizing climate finance, with the US, Canada, Western Europe, and East Asia and the Pacific accounting for 84% of total climate finance. These regions are also better at mobilizing domestic sources of finance, which is crucial for scaling up climate action. Unfortunately, less than 3% of global climate finance goes to the least developed countries, despite their vulnerability to climate change.
Private actors play a significant role in climate finance, providing 49% of the total funding, which amounts to an average of $625 billion. Developed economies are more successful in mobilizing private finance compared to emerging economies.
In conclusion, while we have made progress in climate finance, there is still much work to be done. We need to increase funding significantly and ensure that it reaches the countries and sectors that need it the most. By taking action now, we can build a more sustainable and resilient future.
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