Finance

Scale up private finance for climate and nature

Because the private sector accounts for roughly two-thirds of economic activity in most economies, the transition to a zero-carbon and resilient economy needs to be reflected in private sector financial flows. Although some private capital will be reallocated as market participants measure and manage climate risk and anticipate policies and techno-economic change, the private sector must not merely manage the transition — it needs to participate in creating a more equitable and sustainable economy.

Financial and non-financial corporations are making commitments and setting targets to align their financial portfolios and balance sheets with net-zero and broader sustainability objectives. These financial commitments need to cause real-world changes that support decarbonization and protect nature and biodiversity.

The scale and pace of financial flows to climate- and nature-based solutions must increase substantially. By 2030, we need to increase global private climate financial flows from the current level of $340 billion per year to at least $2.61 trillion a year. In addition, we need to triple investments in nature-based solutions and increase biodiversity financial resources to at least $200 billion per year. Simultaneously, the private sector needs to phase out financing of fossil fuels and technologies that are dependent upon them.

To adequately scale up private sector investment in support of climate and biodiversity goals, we need to mobilize market-steering public finance, decrease the cost of capital for sustainable technologies, and increase capital raised via green financial products.

Data Insights

What targets are most important to reach in the future?

Systems Change Lab identifies 6 targets toward which to track progress. Click a chart to explore the data.

What factors may prevent or enable change?

Systems Change Lab identifies 11 factors that may impede or help spur progress toward targets. Click a chart to explore the data.

Progress toward targets

Systems Change Lab tracks progress toward 6 targets. target. Explore the data and learn about key actions supporting systems change.

Private financial flows to climate and sustainability solutions

Private climate finance flows

Global private climate finance will need to accelerate by more than 10 times to reach between $2.61 to 3.92 trillion per year by 2030, requiring growth at an average rate of $292 billion per year between 2020 and 2030.

Since the private sector comprises the largest share of the global economy, it is vital that private investment decisions align with a 1.5 degree C-compatible emissions path that supports resilience, inclusion and the protection of nature. Private finance will need to play an essential role in investing in climate solutions, bringing them to scale and financing low-carbon transition plans for carbon-intensive sectors.

All types of private finance must participate — from high-risk, high-return venture capital needed to commercialize low-carbon innovation to the low-risk, high-volume market for public debt. Private finance will also need to shift away from economic activities and sectors that are incompatible with decarbonized economies and the protection of nature. Unlocking private finance will require voluntary measures by private firms and additional public sector investment, as well as new standards to shift private capital away from unsustainable activities and move it toward sustainable ones.

It is difficult to determine the precise ideal breakdown between public and private finance needed to meet climate goals, given that this depends on social and political choices about the ideal mix of market and state intervention in economies. Projections suggest that about three-quarters of global climate investment will need to come from private sources. The Climate Policy Initiative (CPI) estimates that historically, there has been an even split between private and public climate finance.

Private climate finance flows amounted to around $340 billion in 2020, growing $23 billion per year on average between 2016 and 2020. Despite the recent increases, this number needs to grow. To reach our climate goals, global private climate finance will need to accelerate by more than 10 times to reach the estimated $2.61 to 3.92 trillion per year target for 2030. To reach the $3.3 trillion per year midpoint of the target range, it will require growing at an average rate of $292 billion per year between 2020 and 2030 — over 12 times faster than historic growth rates.

Total climate finance flows to developing countries (focus on private)

Of the approximately $83 billion of climate finance deployed to developing countries in 2020, $13 billion came from private sources.

Developing countries contribute the least to climate change but are most vulnerable to its impacts, including food insecurity, land and water scarcity, coastal flooding and more. Most of these countries are under-resourced, and will continue to suffer loss and damage from climate impacts for which they are not prepared. In addition, they also often lack the resources needed to invest in and gain the benefits of a low-carbon, greener economy. To expand the benefits of a low-carbon transition and reduce climate inequities stemming from the disproportionate impacts of climate change, private climate finance from developed nations must grow alongside public climate finance to developing countries.  

In 2009, developed countries agreed to a $100 billion annual target to support developing countries on climate change adaptation and mitigation. In 2020, about $83 billion of climate finance to developing countries was deployed, with $13 billion coming from private sources and $68 billion coming from public sources. The remaining $2 billion came from export credits. 

While the specific distribution of investment between public and private resources is not consistently articulated by developed countries, greater private climate investment for developing countries is essential to scaling and sustaining adequate climate finance capital flows. 

Public and private financial institutions should work together to ensure that climate investments in developing economies are facilitated by the most appropriate and impactful sources of capital. Public climate finance, for example, is suited to support investments that are riskier and provide public economic benefits, while private finance can bring speed and scale to climate investments that provide predictable economic returns. For reference, of the $13 billion in private climate finance deployed in developing countries in 2020, about 70% was for mitigation, 25% for adaptation and 5% for cross-cutting purposes. The share dedicated to adaptation has grown from 4% in 2016 to 25% in 2020. 

Developed countries urgently need to find effective ways to unlock private capital — both to support their existing climate finance commitments and to meet the ongoing needs of developing countries. The target for this indicator will be updated once negotiations and climate finance targets for developing countries are finalized. 

Cost of capital for low-carbon technologies, starting with renewable energy

The cost of capital for renewable energy, including solar and wind, has fallen steadily over the last decade and dropped to an average of 4% in 2019.

Private investment in a company or project involves two types of parties: investors providing equity who bear more risk but expect higher returns, and lenders providing debt who bear lower risk but expect lower returns. The combination of the two determines the cost of capital for that company or project. 

As financial institutions become more comfortable with low-carbon technologies, the cost of capital for related companies and projects declines. This makes it a crucial finance indicator to track how clean energy and other technologies in the low-carbon economy are attracting capital and scale.

Cost of capital is especially important for low-carbon technologies with high upfront costs, like renewable energy. Some factors can increase the cost of capital for all investments, and hit these technologies harder. Economic cycles may cause the cost of capital to increase over certain periods of time, for example, and developing markets have additional real and perceived risks that raise their cost of capital.  
The low-carbon transition will accelerate in each market with access to cheap capital as the cost of financing low-carbon technologies declines relative to high-carbon ones. The cost of capital for renewable energy (solar as well as onshore and offshore wind) has fallen steadily over the last decade and dropped to an average of 4% in 2019. This indicator will expand to track the cost of capital of other low-carbon technologies by regions as data becomes available. 

Total finance for nature-based solutions (focus on private)

Approximately $132 billion is directed toward nature-based solutions each year, with private finance contributing 14% of this total, but these investments will need to nearly triple to reach $354 billion by 2030.

Nature-based solutions are actions that restore, preserve or manage ecosystems to address climate change and protect nature. Nature-based solutions such as protecting coral reefs and mangrove restoration can help reduce greenhouse gas (GHG) emissions, boost ecosystem health and address environmental issues like soil erosion, biodiversity loss and deforestation.

Currently, approximately $132 billion is directed toward nature-based solutions each year, with private finance contributing 14% of this total — but this level isn’t enough. Estimates suggest that total investment in nature-based solutions needs to triple by 2030 and increase fourfold by 2050, reaching $536 billion annually to reach climate and biodiversity goals. This number is likely an underestimate of the total needs, since more work is required to quantify the need for marine nature-based solutions. 

Yet, according to the U.N. Environment Programme’s estimates, investing in nature offers the opportunity to generate $10 trillion in business value and create 395 million jobs. Investments toward nature-based solutions will need to nearly triple to reach $354 billion by 2030, and will need to grow by $20 billion per year between 2019 and 2030.

Total finance for biodiversity (focus on private)

Total biodiversity finance will need to almost triple to reach $200 billion by 2030.

The private sector must make a major financial contribution to help halt biodiversity loss and preserve wildlife and natural habitats. The post-2020 global biodiversity framework by the Convention on Biological Diversity identified the need to increase financial resources to at least $200 billion per year by 2030 and suggested increasing international financial flows to developing countries by at least $10 billion per year. 

Business sectors that directly rely on biodiversity will experience losses in profitability and risk their long-term survival unless biodiversity is protected. For example, $235–577 billion in annual global food production is dependent upon the contribution of animal pollinators, and coral reefs generate $36 billion in ecotourism every year. Finance can protect biodiversity using different instruments, from direct government expenditures and incentives for environmentally sustainable practices to philanthropic and private investments in nature-based solutions. 

Leveraging private finance will be essential to reach these goals, yet recent trends fall short. Between 2015 and 2017, global biodiversity finance totaled $78.3 billion per year, with private sources contributing at least $6.6 billion per year. Total biodiversity finance will need to almost triple to reach $200 billion by 2030, and will require growing by $10 billion per year between 2017 and 2030. 

Companies’ net-zero alignment and transition plans

Significant GHG-emitting companies with credible transition plans according to their performance under the CA100+ benchmark

More information is coming soon.

More information is coming soon.

Enablers and barriers

We also monitor change by tracking a critical set of 11 factors factor that can impede or help spur progress toward targets. Explore the data and learn about key actions supporting systems change.

Investing in climate and sustainability solutions

Number of countries covered by a sustainable or green taxonomy

Strong Institutions
As of April 2022, 36 countries have developed green taxonomies, and an additional 12 countries have taxonomies under development.

A sustainable or green taxonomy is a classification system that provides a common language and clear definition for what constitutes sustainable economic activities and assets. Taxonomies provide businesses and investors with appropriate definitions for economic activities that are considered environmentally sustainable, and help prevent greenwashing — misleading claims about environmental performance. 

As increasing amounts of capital are mobilized around sustainable themes, it’s critical that commensurate frameworks are developed to ensure that they deliver their intended impact. By applying a regulatory framework that establishes structure and clarity on what is considered environmentally friendly, a sustainable taxonomy provides countries with assurance that financing and investments in the low-carbon economy are being channeled to truly sustainable activities. As of April 2022, 36 countries have developed green taxonomies, including China, South Korea and countries of the European Union. An additional 12 countries have taxonomies under development.

Number of financial institutions that have committed to finance and invest in climate solutions

Innovation
According to the Climate Policy Initiative, 31 financial institutions have made financing and investment pledges to climate solutions by 2030.

More than 450 major financial institutions with over $130 trillion in assets under management made net-zero commitments for 2050 as part of the Glasgow Financial Alliance for Net Zero global coalition. In addition to establishing emissions-reduction targets, many financial institutions have pledged to increase financing and investments toward sustainability projects as part of their net-zero commitments. These commitments can be a driver of future private climate finance flows, along with changing market conditions that attract investment in the low-carbon economy.

Sustainable finance pledges can vary among institutions: some focus on climate solutions and the low-carbon transition, while others include more general social or sustainable finance strategies. According to CPI, 31 financial institutions have made financing and investment pledges to climate solutions by 2030.

Capital committed by financial institutions toward climate solutions

Innovation
The cumulative climate investment pledges from private financial institutions now total about $6 trillion according to the Climate Policy Initiative, though more of these investments should be tailored to developing countries.

More than 450 major financial institutions with over $130 trillion in assets under management made net-zero commitments for 2050 under the Glasgow Financial Alliance for Net Zero global coalition. In addition to establishing emissions-reduction targets, many financial institutions are committing to increased financing and investments toward sustainable finance as part of their net-zero commitments. These commitments can drive future private climate finance flows, along with changing market conditions that attract investment in the low-carbon economy.

Sustainable finance pledges can vary among institutions: some focus on climate solutions and the low-carbon transition, while others include more general social goals. According to the Climate Policy Initiative, the cumulative climate investment pledges from private financial institutions now total about ​​​​​​​ $6 trillion. While an increase in sustainable finance commitments is a sign of progress, a greater share of these investments must be channeled toward developing countries and neglected sectors where private finance has historically been absent.

Sustainable capital raised by corporations, starting with corporate sustainable bonds

Innovation
Sustainable bonds issued by the corporate sector reached $575 billion in 2021, a 91% increase from 2020, and represented about 11% of total corporate debt issuance, a historical record.

Corporations can raise financial capital to fund initiatives and projects that have impacts related to sustainability. These sustainable financial products can enable a broader range of investors to participate in financing activities that have beneficial impacts, and can increase the available capital for (and therefore make it easier to implement) climate solutions. 

Increasingly, bonds linked to some form of environmental or social benefit are being used by the private sector to raise capital. These instruments — including green, climate, social and sustainability-linked bonds — are innovative ways to fund assets or projects with dedicated environmental or social impacts. 

A green bond is a fixed-income investment used to raise funds for a project focused on environmental benefits, such as a project on clean transportation, green building or renewable energy. Originally developed by the World Bank, green bonds have eligibility criteria to ensure that the funding is used exclusively for sustainable activities. A social bond is used toward projects that result in positive social impacts, such as projects dedicated to affordable housing, job training or food security. Sustainability-linked bonds are tied to predetermined sustainability targets and offer corporations flexibility on where to spend the proceeds to reach such targets. If the targets are not met, financial costs are imposed via higher interest rates. 

Sustainable bonds issued by the corporate sector reached $575 billion in 2021, a 91% increase from 2020, and represented about 11% of total corporate debt issuance, a historical record. This indicates a growing appetite from investors to fund sustainable-oriented projects and from corporations to implement sustainable practices and reach sustainability targets. Data for sustainable bond certifications and other sustainable financial products will be tracked as it becomes available. 

Number of financial institutions joining the Natural Capital Finance Alliance and the Finance for Biodiversity Pledge

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As of May 2022, 132 financial institutions were part of Natural Capital Finance Alliance or had signed their Finance for Biodiversity Pledge.

Financial institutions play an important role in managing biodiversity risks and funneling capital into solutions that preserve and protect natural ecosystems. They can share best practices and engage in efforts to advance public policies or sectoral practices related to environmental sustainability by joining alliances and coalitions. 

The Natural Capital Finance Alliance encourages financial institutions to reduce and manage nature-related risks and make investments that have a positive impact on natural capital. Financial institutions have also developed a Finance for Biodiversity Pledge, which calls upon finance leaders to protect and restore biodiversity and ecosystems via their financing and investment activities. Some specific pledges include engagement with companies to increase positive biodiversity impacts, target- setting and public reporting on progress. 

As more financial institutions join these coalitions and recognize the importance of finance supporting nature-based solutions, they increase their collective power to shape public policies and promote common best practices. As of May 2022, 132 financial institutions were part of​​​​​​​ Natural Capital Finance Alliance or had signed the Finance for Biodiversity Pledge. Once pledges and commitments are made, the critical next step is implementation, which will be tracked once data becomes available.

Net-zero target setting

Number of corporations that have joined the UNFCCC's Race to Zero and are committed to reaching net-zero

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As of May 2022, 7,104 companies and 529 investors had joined the Race to Zero campaign, and we expect this number to grow as more corporations make net-zero commitments.

An increase in the number of corporations joining the Race to Zero campaign can help build the momentum we need to achieve net-zero emissions around mid-century.

To join the campaign, organizations must meet minimum criteria, including a net-zero pledge, a plan to achieve interim and long-term emissions-reduction targets, and a promise to publicly report on actions and progress. It will be essential that these commitments are fully achieved. 

As of May 2022, 7,104 companies and 529 investors had joined the campaign. We expect this number to grow as more corporations make net-zero commitments.

Many sectors need to decarbonize by around 2050. This means that some sectors will have to reach zero emissions (though at different rates) to be aligned with 1.5 degree C (2.7 degree F) pathways — not just net-zero. Compensation for residual emissions should only happen for the harder-to-mitigate sectors, such as agriculture. Although some existing initiatives focus on tracking net-zero targets, there is currently no initiative that comprehensively distinguishes net-zero targets and zero-emissions targets. 

Number of corporations (financial and non-financial) with validated science-based targets

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As of April 2022, 1,328 corporations had targets between 2022 and 2035 validated by the Science Based Targets Initiative.

To follow through on their long-term net-zero commitments, corporations should establish and implement short-term targets (for example, for 2025 or 2030) that are aligned with the science on how to limit warming to 1.5 degrees C (2.7 degrees F) and achieve the goals of the Paris Agreement. It is essential that such targets are clearly defined and independently validated, as it is difficult for regulators, shareholders and consumers to tell whether targets are of high integrity, or whether they are greenwashing.

The Science Based Targets initiative (SBTi), a partnership between CDP, World Resources Institute, the World Wide Fund for Nature (WWF) and the United Nations Global Compact, helps corporations set and validate targets. As of April 2022, 1,328 corporations had targets between 2022 and 2035 validated by STBi.

While there is currently no universally endorsed standard for corporate targets that ensures that such targets fully align with the 1.5 degree C (2.7 degree F) limit, adoption of existing net zero standards is increasing and the number of corporations with targets validated through SBTi is an indicator of how many corporations are developing high-quality emissions-related goals.

Number of financial institutions with interim targets for 2025 or 2030 to achieve net-zero

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As of September 2022, 151 financial institutions had interim 2025 or 2030 targets for net-zero, with many more making net-zero targets for 2050.

To follow through on net-zero plans to reduce GHG emissions, financial institutions — banks, asset managers, asset owners and insurers — need to set interim targets for 2025 and 2030 that are aligned with the latest climate science. 

More than 450 major financial institutions with over $130 trillion in assets under management made net-zero commitments for 2050 under the  Glasgow Financial Alliance for Net Zero global coalition. However, many have yet to set interim targets that will steer near-term action. Interim goals provide financial institutions with a roadmap of steps, all with the aim of allowing them to reach net-zero by 2050. 

Measuring interim progress will provide time-sensitive feedback that indicates if actions are on track. Interim goals should be built upon the latest climate science and robust 1.5 degree C (2.7 degree F) pathways, and be clearly defined and independently validated. Otherwise it is difficult for regulators, shareholders and consumers to tell whether targets are of high integrity, or whether they are greenwashing, as has been highlighted by recent research.

As of September 2022, 151 financial institutions had interim 2025 or 2030 targets for net-zero. Forty-four are asset owners, 39 are asset managers and 68 are banks. As targets are set, the next step is to have them independently validated. This number is expected to grow as more financial institutions make net-zero commitments. Other types of financial institutions will be included in this indicator once data becomes available.

Assets under management that are aligned with achieving net-zero emissions by 2050, beginning with institutional investors

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Asset managers have committed $4.2 trillion to be managed in line with net-zero targets, and for asset owners, about $3.3 trillion are covered by a sub-portfolio net-zero target.

Many financial institutions have committed to achieving net-zero GHG emissions by 2050. Commitments are a positive sign, but they are not enough — in practice, some institutions may have aligned only some of their financial assets (owned or managed financial resources, like stocks, bonds or property) with a net-zero emissions pathway. 

For example, some institutions exclude carbon-intensive assets, like bonds for oil and gas infrastructure, from their net-zero targets while still claiming that they are on a path toward net-zero. Measuring the total assets under management that are covered under emissions reduction targets provides a more accurate picture of gaps and progress toward net-zero alignment. 

Currently, members of the Net Zero Asset Owner Alliance and the Net Zero Asset Managers initiative provide disclosures that specify the share of assets aligned with net-zero. For asset owners, about $3.3 trillion are covered by a sub-portfolio net-zero target. Asset managers have committed $4.2 trillion to be managed in line with net-zero targets. 

Although some overlap of the amounts is likely given the relationship between asset owners and managers, asset owners and asset managers have committed a combined $7.5 trillion assets under their management aligned with net-zero.

While it’s possible that certain asset classes, such as cash, may not be suitable for net-zero alignment because they have no intrinsic economic activity associated with their value, methodologies are being developed to expand alignment to cover more types of assets.

Disclosures from asset managers and asset owners will be reflected in this indicator. As other types of financial institutions — namely, banks and insurers — begin disclosing the share of their portfolios and assets that are aligned with net zero, that data will also be reflected. 

Net-zero stewardship

Assets under management conducting meaningful company engagement by participating in the Climate Action 100+ investor coalition

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As of March 2022, over 700 investors were part of the Climate Action 100+ coalition, with over $68 trillion in assets under management.

Engagement is one of the key levers available for financial institutions to take action on their net-zero commitments. It consists of active dialogue with clients and portfolio companies on their climate transition plans, including their plans to move away from high-carbon activities and shift toward climate solutions. 

Financial institutions can use different methods of engagement. Banks can engage with their clients by advising them on their transition plans and providing financing necessary to put them into action. Asset managers and asset owners can engage with their portfolio companies by voting on shareholder proposals and shaping the direction and composition of senior leadership (CEO and board of directors).

Engagement can be a powerful tool to support decarbonization of the economy when applied effectively with appropriate escalation, and when investors and other financial institutions have common expectations of companies.

Climate Action 100+ has become the largest investor engagement group on climate change and targets the world’s largest corporate emitters of GHGs. Focusing on 166 international companies deemed strategic for the net-zero transition, the group currently engages via joint company actions and shareholder proposals. It has also developed an assessment benchmark to track progress of the target companies.

As more investors join Climate Action 100+, the likelihood grows that its suggestions and demands will be adopted and implemented by corporations and their leadership. As of March 2022, over 700 investors were part of the coalition, with over $68 trillion in assets under management.

Favorable voting on sustainable shareholder resolutions by asset managers

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On average, asset managers have supported less than half — about 48% — of sustainable shareholder resolutions.

Shareholders can spur companies to take sustainability and climate action by passing shareholder resolutions, which can require management to develop net-zero plans or provide disclosures on deforestation or climate lobbying. Asset managers, the financial intermediaries who oversee assets on behalf of their owners, are key players in this process. 

Because these proposals need enough votes to pass (usually a simple majority), asset managers have clout, given the magnitude of assets and voting rights under their control. However, despite the recent increase in successful climate-related proposals, the largest asset managers are voting in favor of sustainable resolutions less often than their peers.

The percentage of favorable voting on sustainable resolutions helps track the level of support from asset managers. This number is adjusted by firm size to account for the oversized role the largest asset managers like BlackRock or Vanguard play in the asset management industry. On average, asset managers have supported less than half — about 48% — of sustainable shareholder resolutions.

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