The annual flow of climate finance exceeded $1 trillion in 2021, marking the first time since the adoption of the Paris Agreement in 2015. The Climate Policy Initiative's (CPI) “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 levels seen in 2019 and 2020. A substantial part of this increase is attributed to improved data availability and enhanced methodologies, which contributed to approximately 28% of the rise. This trend signifies progress in compiling, categorizing, and making higher-quality climate finance data publicly accessible.
While this achievement is commendable, it's essential to recognize that the $1 trillion threshold represents just 1% of the global Gross Domestic Product (GDP). Dr. Barbara Buchner, Global Managing Director at CPI, stressed the urgency for all stakeholders to accelerate investments significantly to reduce future economic and social costs. Beyond the costs, there are substantial opportunities for businesses to pursue low-carbon and climate-resilient pathways.
The imperative of climate investment becomes even clearer when considering 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. Although estimating future losses due to climate change is still evolving, it underscores the economic necessity of immediate investment.
The “Global Landscape of Climate Finance 2023,” covering data from 2021-2022, provides an in-depth analysis of climate finance, categorizing it by application, geographical distribution, and funding sources. Most of the tracked climate finance continues to be directed towards mitigation activities, with a notable focus on renewable energy and low-carbon transport, which are generally considered less risky by investors.
Adaptation finance reached a record high of $63 billion, marking a 28% increase from the $49 billion reported in 2019-2020. However, this figure still falls significantly short of the estimated $212 billion needed annually by 2030 for developing countries alone. Additionally, the public sector remains the primary source of adaptation finance.
Developed economies continue to lead in the mobilization of climate finance, predominantly through private sources. The United States, Canada, Western Europe, and East Asia and the Pacific collectively contribute 84% of total climate finance. These regions also excel 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 heightened vulnerability to the impacts of climate change.
Private actors contributed 49% of total climate finance, with an average of $625 billion. However, developed economies outperform emerging economies in mobilizing private finance.
To meet the capital requirements at the necessary scale, 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.