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Global Climate Finance Falling Short of What Is Needed, Report Suggests

Global Climate Finance Falling Short of What Is Needed, Report Suggests

Global investment in climate-change-related projects rose in 2019 and 2020, but remained far below the level that would be needed to finance the transition to a low-carbon economy and minimize the impacts of climate change, new data showed.

The Climate Policy Initiative, a nonprofit research group that publishes a survey of climate finance every two years, identified $623 billion of climate-related investment in 2019 and $640 billion in 2020. These were records, however, growth has slowed according to CPI. The CPI monitors both public and private spending in areas like electric car purchases and funding infrastructure.

The CPI said no sector is getting enough investment to shift to a low-carbon economy in line with the goals of the Paris agreement, the 2015 international treaty aimed at limiting climate change. The CPI stated that low-carbon alternatives receive far more investment than those with high emissions in areas like vehicle sales and construction. Stepping up investment is a key aim for the United Nations’ COP26 climate-change conference soon to be held in Glasgow.

“Climate investments should be in the trillions,” said CPI. We’ve witnessed a lot of efforts to reduce net emissions over the last few years and align finance with the Paris Agreement. “But, the real economy’s investment volume and emissions trends have yet to be shown.”

The message echoed that of the International Energy Agency, which said this month that investment in clean energy would have to triple over the next decade for the world to reach net-zero greenhouse-gas emissions by 2050.

The CPI stated that the slow rate of growth was particularly concerning due to the fact that the entire impact of the pandemic upon national budgets is still unknown. On the other hand, it said Covid-19 stimulus packages have the potential to hasten the phaseout of fossil fuels.

Some 51% of global climate finance was provided by the public sector in 2019 and 2020, roughly in line with previous periods, the CPI said. The public sector received more than half of its funding from institutions for development finance.

The private sector saw a more than twofold increase in investment by commercial financial institutions over the past two years. This was due to banks from China, Western Europe, and the United States increasing their funding for renewable energy. The CPI said banks are playing a more prominent role as providers of sustainable finance, and noted a sharp increase in banks setting climate-related targets in advance of the COP26 conference. CPI also noted other areas in which private sector participation is increasing, such as funding green electricity grids.

The East Asia and Pacific region received far more climate-related investment–$292 billion–than any other region, with more than 81% of that investment in China. More than half the money invested in the region came from the public sector–a contrast with the U.S. and Canada, where 95% of funding was provided by private actors. According to data, most climate financing is used in the regions where it originates. Sub-Saharan Africa was the exception, as it is heavily dependent upon capital flows from abroad.

Climate-change mitigation–renewable-energy projects and other investments designed to curb climate change–attracted the lion’s share of the funding. Adaptation funding rose by more than 50% from the previous two-year period, but was far short of the level that experts say would be required to make communities resilient to extreme weather, rising sea levels and other manifestations of a warming climate.

Funding for climate-change adaptation projects reached $92 billion across 2019 and 2020, nearly all of it from public sources, the CPI said, due in part to increased spending on water-management infrastructure. The annual adaptation costs of developing countries alone could hit $300 billion by 2030, according to estimates published by the United Nations Environment Program this year.

The CPI stated that gaps in data may make it more difficult to coordinate policy responses to climate change. The CPI stated that figures regarding public sector spending and investment needs are not always available. It also said it is difficult to find reliable data for private sector investment in green buildings or low-carbon industrial processes.

Write to Ed Ballard at ed.ballard@wsj.com

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