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 such a disaggregation depends on the social and political choices made by societies, institutions and governments about the ideal mix of market and state intervention in economies. The Climate Policy Initiative (CPI) estimates that historically, up to 2022, there was an even split between private and public climate finance. Estimates suggest that about 45 percent of climate finance necessary to meet climate, nature and just transition goals in developing countries (excluding China) will need to come from private sources.
Private climate finance flows exceeded $1 trillion for the first time in 2023 and amounted to a record high of around $1.3 trillion, more than triple 2020 figures. Despite the recent encouraging acceleration, this number needs to continue to grow. To reach our climate goals, global private climate finance will need to grow at about twice the rate of current trends to reach the estimated $3.1 to $4.8 trillion per year target for 2030. To reach the $4 trillion per year midpoint of the target range, an average growth rate of $390 billion per year between 2023 and 2030 will be required.