Annual climate finance flows exceeded $1 trillion in 2021, marking a milestone six years after the Paris Agreement was enacted, according to the Climate Policy Initiative’s (CPI) Global Landscape of Climate Finance 2023. Despite this achievement, funding must ramp up five-fold each year by 2030 to avoid the worst impacts of climate change.The study showed that the average annual flows in 2021/2022 surged to nearly USD 1.3 trillion, a twofold increase from the figures of 2019/2020.
Around 28% of this boost can be attributed to improved data access and refined methodologies, pointing to enhanced cataloging and availability of pertinent climate finance data.Barbara Buchner, Global Managing Director at CPI, said, “While crossing the 1 trillion dollar threshold is undeniably good news, it is important to emphasize that this represents just 1% of global GDP.” She stressed the urgency for all stakeholders to ramp up investments promptly to curtail future economic and societal costs, but also underscored the ample opportunities for companies to adopt low-carbon and climate-resilient strategies.
The report warned of the heightened costs associated with stalling on meeting total climate investment requirements. Research indicates that the cumulative costs of climate change, with the current policy and investment trajectory, could overshoot over tenfold the predicted investment requisites to maintain global temperature increases within 1.5C degrees.
The 2023 report, incorporating 2021-2022 data, offers an intricate breakdown of climate finance by application, region, and origin.
Notably, the bulk of climate finance is channeled toward mitigation efforts, especially renewable energy and low-carbon transportation – sectors deemed less risky by investors.
Adaptation finance saw a record high at USD 63 billion, a 28% growth from 2019/2020’s USD 49 billion. However, this sum is dwarfed by the projected annual need of USD 212 billion by 2030 for developing nations exclusively. The public sector remains the predominant provider of adaptation finance.
Developed countries dominate in mobilizing climate finance, mainly from private sources. The combined efforts of the US, Canada, Western Europe, and East Asia and the Pacific constitute 84% of global climate finance. Shockingly, a mere 3% of worldwide climate finance was allocated to the least developed nations, despite their heightened vulnerability to climate change.
Private entities contributed 49% to the total climate finance, averaging out at USD 625 billion. Developed economies outshine emerging economies in both mobilizing domestic and private finances.
The CPI underscores the necessity to bolster both the volume and quality of climate finance. It recommends focusing on financial system transformation, merging climate and developmental needs, fortifying domestic initiatives, and enhancing action on data.
