Finance

Scale up private investment for climate and nature

The private sector accounts for roughly two-thirds of economic activity and private sector capital investment is necessary to create a zero-carbon, sustainable economy. The private sector has begun chasing the opportunity — companies are making capital investments in low-carbon technologies, and lenders and investors are providing cheaper financing that enables those investments.

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

But 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 $685 billion per year to at least $2.61 trillion per 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 effectively scale up private sector investment for climate and nature, we need to shift capital investment in the material economy, decrease the cost of capital for sustainable technologies, and ensure commitments from corporates and financial institutions are resulting in these changes. We will also need to mobilize public investment to steer the market toward a net-zero, sustainable economy.

Data Insights

Is the world making enough progress toward the most important outcomes?

Systems Change Lab assesses progress made toward targets across 7 outcome indicators. Click a chart to explore the data.

What factors may enable or prevent change?

Systems Change Lab identifies 10 enablers and barriers that may help spur or impede change. Click a chart to explore the data.

Progress toward targets

Systems Change Lab tracks progress made toward targets across 7 outcome indicators. outcome indicator. Explore the data and learn about key actions supporting systems change.

Investing in climate and sustainability solutions

Total capital investment in the low-carbon energy system (focus on private)

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

The cost of capital for solar and wind power projects has nearly halved over the last decade to 3.9% in 2022, while the corporate cost of capital for clean fuels and renewable energy equipment and services has remained around 12%.

Private investors that extend financial capital to a company or project expect to receive a return on their investments. Typically, private investment 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, and today’s high interest rates create headwinds for renewable energy projects. Developing markets have additional real and perceived risks that raise their cost of capital.

The cost of capital for renewable energy projects (which here specifically refers to solar and onshore and offshore wind) has nearly halved in the last decade, according to IRENA, falling from about 7.6% in 2010 to 3.9% in 2022. Goldman Sachs analysis showed cost of capital declining by a third during the same period, with an uptick in 2022 to 4.8% likely due to rising interest rates. The corporate cost of capital for clean fuels and renewable energy equipment and services has remained around 12% through this period.

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 and low-cost capital becomes accessible to a broader range of technologies and project types. This indicator will expand to track the cost of capital of other low-carbon technologies by regions as data becomes available. 

Ratio of investments in low-carbon to fossil fuel energy systems

Capital investment in the low-carbon energy system is expected to exceed that in fossil fuel production and power generation by a ratio of 1.7:1, a major tipping point, but must reach a ratio of at least 9:1 by 2030 to hold global temperature rise to 1.5°C.

Replacing the fossil fuel-based energy system with a low-carbon one is critical to limiting global temperature rise to 1.5°C. Increasing investments toward clean electrification, low-emissions fuels and energy efficiency along with the simultaneous phase-out of high-carbon assets will enable the decarbonization of the energy system. The ratio of capital investment between these two systems indicates how fast this transformation is happening. 

Based on IEA’s net-zero scenario of long-term investment requirements, the ratio for investment in low-carbon versus fossil fuel production and power generation should reach about 9:1 by 2030. Investments in the low-carbon energy system have been rising faster than in the fossil-fuel based system in recent years, with the ratio expected to reach 1.7:1 in 2023 - an increase from 1.6:1 in the previous year. However, despite the recent growth trend, the ratio of investment is still far from what is needed for 2030. Based on current trends, the ratio would be less than 3:1 by 2030, well off track from the approximately 9:1 ratio needed for 2030. The ratio will need to grow about 10 times faster to reach the target for 2030. The target ratio will likely need to be even greater once continued capital investment in high-emissions transportation and industrial assets are factored in. 

Private financial flows to climate and sustainability solutions

Private climate finance flows

Global private climate finance will need to expand four to six times to reach $2.61-$3.92 trillion per year by 2030, requiring growth at an average rate of $320 billion per year between 2022 and 2030.

Since the private sector constitutes the largest share of the global economy, it is vital that private investment decisions align with a 1.5 degrees C-compatible emissions path that supports resilience, inclusion and the protection of nature. Private finance needs 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 $685 billion in 2022, more than double 2020 figures. While a portion of the increase can be attributed to new data sources, there’s a material rise when assessing figures on a consistent and comparable basis. Despite the recent increases, this number needs to continue to grow. To reach our climate goals, global private climate finance will need to expand four to six times to reach the estimated $2.61-$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 $320 billion per year between 2022 and 2030.

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

Approximately $154 billion was directed toward nature-based solutions in 2022, with private finance contributing 17% of this total, but these investments will need to nearly triple to reach $484 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 $154 billion is directed toward nature-based solutions each year, with private finance contributing 17% 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 $674 billion annually to reach climate and biodiversity goals. 

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 $484 billion by 2030, and will need to grow by about $40 billion per year between 2022 and 2030.

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

Of the approximately $90 billion of climate finance deployed to developing countries in 2021, about $14 billion came from private sources.

Developing countries contribute the least to climate change but are most vulnerable to its impacts. Most of these countries are not resourced or prepared for these climate impacts and will continue to suffer loss and damage, with costs estimated at $290–580 billion in 2030 just in developing countries. In addition, they also often lack the resources needed to invest in and gain the benefits of a low-carbon, greener economy. Developed countries must increase public climate finance to help developing countries overcome these inequities.

In 2021, about $90 billion of climate finance to developing countries was deployed, with about $14 billion coming from private sources and $73 billion coming from public sources. The remaining $2 billion came from export credits.

The total $90 billion is still below the $100 billion annual target agreed to at COP15 in 2009. This goal has been extended until 2025 and negotiations toward a more ambitious goal for post-2025 that factor in the needs and priorities of developing countries have begun. Negotiations for “loss and damage” funding for residual damages — the economic costs that cannot be prevented through adaptation – are ongoing.

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 more 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 on a new post-2025 goal are finalized.

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. 

Enablers and barriers

We also monitor change by tracking a critical set of 10 enablers and barriers enabler or barrier that can help spur or impede change. Explore the data and learn about key actions supporting systems change.

Private financial flows to climate and sustainability solutions

Sustainable capital raised by corporations, starting with corporate sustainable bonds

Sustainable bonds issued by the corporate sector totaled $347 billion in 2022, a 24% decrease from 2021, due in large part to challenges faced by the entire fixed-income market from the impact of rising inflation and interest rates.

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. It is estimated that sustainable bonds as a category comprised 12% of global bond issuance in 2022.

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 financial and non-financial corporate sector reached $347 billion in 2022, a 24% decrease from 2021, due in large part to challenges faced by the entire fixed-income market from the impact of rising inflation and interest rates. 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. 

Net-zero commitments, target setting, and transition plans

Capital committed by financial institutions toward climate solutions

The cumulative climate investment pledges from private financial institutions totaled about $7.4 trillion in 2022 according to the Climate Policy Initiative, though more of these investments should be tailored to developing countries.

More than 675 major financial institutions with over $145 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 finance  pledges from private financial institutions totaled about $7.4 trillion in 2022. 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.

Significant GHG-emitting companies with credible transition plans

Companies – especially those in GHG-intensive sectors – should have credible transition plans for how they will navigate the shift to a net-zero, sustainable economy.

Companies – especially those in GHG-intensive sectors – should have credible transition plans for how they will navigate the shift to a net-zero, sustainable economy. There is not yet an extensive data set on corporate transition plan adoption and quality. This indicator will be updated as one emerges.

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

As of 2022, asset managers have committed $21.8 trillion to be managed in line with net-zero targets, and for asset owners, about $3.4 trillion are covered by a sub-portfolio net-zero target.

Many financial institutions have committed to achieving net-zero greenhouse gas (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.

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 $3.4 trillion were covered by a sub-portfolio net-zero target in 2022. Asset managers committed $21.8 trillion to be managed in line with net-zero targets in the same period.

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 $25.2 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 are 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. 

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

As of December 2023, 4,088 corporations had near-term targets 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 December 2023, 4,088 corporations had near-term targets 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

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.

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

As of 2023, 9,424 companies and 540 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 2023, 9,424 companies and 540 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 financial institutions joining the Natural Capital Finance Alliance and the Finance for Biodiversity Pledge

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 stewardship

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

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

On average, asset managers have supported less than half — about 47% — 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 47% — of sustainable shareholder resolutions.