Public-private partnerships must use scarce public resources in a more transformative way to rapidly scale climate finance and achieve climate targets, a report says.
In its report titled Global Landscape of Climate Finance 2019, the Climate Policy Initiative (CPI) found that private climate finance reached $326bn (€295bn) in 2017/2018, out of a total of $579bn, but still falls far short of what is needed to finance a 1.5˚C scenario.
Annual flows increased by $116bn (25%) in 2017/2018 from 2015/2016, CPI said.
The CPI is an NGO that aims to help driving growth while addressing climate risks and tracks global climate-related primary investment.
Up to $3.8trn annually needed
The estimated required investments to achieve the low-carbon transition range from $1.6trn to $3.8trn annually between 2016 and 2050, for supply-side energy system investments alone, the report says, citing the Intergovernmental Panel on Climate Change.
Private investors need to collaborate with governments, regulators and development banks to align all financing with climate and UN Sustainable Development Goals (SDGs), apply common frameworks and identify the business models that can best enable private investment at scale, the report suggests.
“Annual investment must increase many times over, and rapidly, to achieve globally agreed climate goals and initiate a truly systemic transition across global, regional, and national economies,” it notes, while simultaneously calling for the phase out of fossil fuel investments.
Private finance investments
Private finance accounts for the majority of climate finance, at around 56%, exceeding average annual public finance, which totalled $253bn in 2017/2018 and represents 44% of total commitments.
While corporations continue to account for the majority of private investment, commercial financial institutions have drastically increased financing, with a jump of 51% from 2015/2016 to 2017/2018, reaching $73bn annually in 2017/2018.
Annual project-level climate finance flows from institutional investors averaged $9bn in 2017/2018, over three times greater than in 2015/2016.
Venture capital, private equity and infrastructure funds more than doubled their investment to $5bn over the same period.
Renewable energy received nearly two-thirds in investments by institutional investors, and more than 90% of finance from smaller funds, with new coverage of low-carbon transport accounting for the remainder.
Low-carbon transport is growing at the fastest rate, increasing 20% year-on-year from 2017 to 2018.
“While these flows remain much smaller than those from corporations and banks, the rapid increase reflects continuing maturity and lower-perceived risk in renewable energy markets, and greater willingness among these investors to finance projects in their earlier stages,” the report writes.
Levelised costs of electricity generated by wind and solar have reached historic lows, and growing investment has increased global cumulative installed capacity to well over 500GW for both technologies, the report says.
The authors found that renewable energy remains the primary sector for global climate finance, representing $33bn annually, or 58% of global climate finance.
Financial instruments
Market-rate debt was the financial instrument used to channel the most climate finance in 2017/2018, averaging $316bn annually; of this, 70% was provided at the project level, while the remaining 30% was balance sheet borrowing.
Equity investments, the next-largest category after debt, retained its share of total climate finance flows, at 29% in 2017/2018 compared to 30% in 2015/2016.
Annual grant finance averaged $29bn (5% of total flows) in 2017/2018 compared to $18bn (4%) in 2015/2016.
Grants have grown as public actors undertake demonstration projects for sustainable investments.
Among the report’s recommendations to speed up the global climate finance growth is that governments should continue to raise the level of ambition in national climate plans and allocate resources to enable implementation of these plans.
It also says that public and private actors must coordinate to rapidly scale up finance in sectors beyond renewable energy generation.
