Finance

Scale up public finance for climate and nature

Governments spend financial resources raised from revenues, debt and even, more controversially, money issuance to support public policy and buy goods and services for their operations. Given this, governments are typically the biggest allocators of capital, even in market-based economies. Public finance is a critical tool to achieve public policy aims like climate and nature protection — it can support those aims directly, help steer private markets to support those aims, decrease the economic and political costs of future climate policies, and direct resources to underserved and/or marginalized communities to help make the transition to a green economy more equitable.

Yet, investments to date have been insufficient to address the scale of our climate and nature crises. To limit greenhouse gas (GHG) emissions in line with the Paris Agreement and halt biodiversity loss, we must rapidly scale up public finance.

Increasing public finance will be especially crucial in areas where private finance is insufficient for the pace and speed necessary, such as public services and infrastructure; research, development and commercialization of new technologies; reaching underserved and/or marginalized groups, and job training. Early, targeted and large-scale public investments can also play a vital role in catalyzing and mobilizing shifts in the private sector.

Importantly, governments will need to simultaneously increase investments in climate and nature, phase down subsidies and investments that are detrimental to the climate and environment, and create policies that discourage pollution and ecosystem damage.

How much must we invest to safeguard our future? Estimates suggest that we should increase global public investment in climate measures to at least $1.31 trillion a year by 2030. We need to also increase financing to developing countries well beyond the current (unmet and insufficient) global commitment of $100 billion a year, triple investments in nature-based solutions, and increase biodiversity financial resources to at least $200 billion per year.

To unleash the power of the public sector in achieving these climate and biodiversity goals, we need government leadership that reflects the urgency of climate action, persistent demand for accelerated change from civil society, public financial institutions designed for these goals, and coordinated monetary and fiscal policy to support large public investments.

Data Insights

What targets are most important to reach in the future?

Systems Change Lab identifies 4 targets toward which to track progress. Click a chart to explore the data.

What factors may prevent or enable change?

Systems Change Lab identifies 9 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 4 targets. target. Explore the data and learn about key actions supporting systems change.

Public climate finance flows

Global public climate finance will need to expand four to nine times to reach $1.31 to 2.61 trillion per year by 2030, requiring an average investment of $166 billion per year between 2020 and 2030.

Scaling up public climate finance is necessary to ensure a rapid transition to a decarbonized, resilient world. It plays a vital role especially in areas where private finance is unwilling or not well suited to meet climate objectives at the speed and scale necessary, such as public services and infrastructure (for example, transportation and energy networks); research, development and deployment of new low-carbon technologies; and ecosystem protection. Public climate finance can also be employed to ensure equitable outcomes and a just transition.

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. Historical data show about an equal split between public and private climate finance while projections suggest that a quarter of global climate investment will need to come from public sources to meet climate goals.

In 2020, public climate finance flows amounted to around $300 billion, having increased by about $15 billion per year, on average, between 2016 and 2020. Public climate finance is delivered through different channels and actors, most notably development financial institutions (DFIs) — national and multilateral — and state-owned financial institutions.

Despite these recent increases, investments remain well off track. Public climate finance will need to expand four to nine times to reach the estimated $1.31 to 2.61 trillion per year target for 2030. Reaching the $2 trillion per year midpoint of the target range will require an average investment of $166 billion per year between 2020 and 2030 — a striking 11-fold increase compared to historical rates.

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

Total climate finance flows to developing countries should reach at least $100 billion a year by 2025, growing from the $83 billion directed to these countries in 2020.

Developing countries contribute the least to climate change but are most vulnerable to its impacts: 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 often lack the resources needed to invest in and gain the benefits of a low-carbon, greener economy. 

To reduce climate inequities stemming from the disproportionate impacts of GHG emissions and expand the benefits afforded by a low-carbon economy, developed nations must increase public climate finance to developing countries.

In 2020, developed countries provided about $83 billion in climate finance to developing countries, with $68 billion from public sources, $13 billion from mobilized private sources and $2 billion from export credits. Out of that $68 billion in public climate finance, 55% was for mitigation, 37% for adaptation and 8% for cross-cutting purposes. The share of funding dedicated to adaptation grew from 20% in 2016 to 37% in 2020. 

The total $83 billion is still below the $100 billion annual target agreed to at the fifteenth session of the Conference of Parties (COP15) in 2009 to support developing countries on climate mitigation and adaptation. This goal has been extended until 2025 and negotiations toward a more ambitious goal for post-2025 have begun.

The mandate states that the new collective quantified goal (NCQG) will be set from a floor of $100 billion per year, and that it should factor in the needs and priorities of developing countries. Negotiations include mitigation and adaptation needs as per the prior goal, as well as “loss and damage” funding for residual damages — the economic costs that cannot be prevented through adaptation.

Some estimates put developing countries’ economic costs from these residual damages at $290–580 billion in 2030. There should be a balance between climate finance allocated for mitigation and adaptation, with some experts calling for a 50-50 split.

The target for this indicator will be updated once negotiations on a new 2025 goal are finalized. Once data becomes available, a breakdown by country and recipient will reveal which countries are meeting their pledges and which have not received the funding they need. 

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

Currently, approximately $132 billion is directed toward nature-based solutions each year, with public finance contributing 86% of this total. Estimates suggest these investments need to triple by 2030 to reach climate goals.

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 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 public finance contributing 86% of this total. However, this level of investment isn’t enough to reach our climate goals. Estimates suggest that total investments in nature-based solutions need to triple by 2030 and increase fourfold by 2050. This would yield $354 billion by 2030 and $536 billion by 2050 to reach climate and biodiversity goals, and will require growing at an average rate of $20 billion per year between 2019 and 2030. This number likely underestimates the total need, since more work is needed to quantify the need for marine nature-based solutions.

At the same time, investing in nature offers the opportunity to generate $10 trillion in business value and create 395 million jobs.

Total finance for biodiversity (focus on public)

Public and private financial flows for biodiversity should be at $200 billion by 2030, needing to nearly triple from the global biodiversity finance total of $78.3 billion annually between 2015 and 2017.

Major funding is needed to halt biodiversity loss and preserve wildlife and natural habitats. The post-2020 global biodiversity framework, drafted by the Convention for 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 from public and private sources. 

The devastating loss that the extinction crisis could bring to the global economy and society is incalculable. Business sectors that directly rely on biodiversity will also 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 on the contribution of animal pollinators, while 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 public finance will be essential to reach these goals, yet recent trends fall short. Between 2015 and 2017, global biodiversity finance totaled $78.3 billion annually, with public sources providing at least $71.7 billion per year and private sources contributing at least $6.6 billion. Total biodiversity finance will need to nearly triple to reach $200 billion by 2030, and will need to grow at an average rate of $10 billion per year between 2017 and 2030 to meet that goal.

Enablers and barriers

We also monitor change by tracking a critical set of 9 factors factor that can impede or help spur progress toward targets. Explore the data and learn about key actions supporting systems change.

Number of countries that have committed to adopt green budgeting

Strong Institutions
As of June 2020, 14 OECD countries have adopted some form of green budgeting. At least five countries — Chile, Greece, Latvia, Poland and Slovenia — have plans to adopt green budgeting.

Green budgeting entails reviewing government budgets to identify how all aspects of public expenditure affect environmental policy aims. It helps governments work across the entire public budgetary policy-making process to achieve environmental and climate goals. Green budgeting leads to more coherent policy making by analyzing the ways in which all elements of a government budget help or hinder the achievement of climate and environmental objectives. 

Green budgeting can make public expenditures more accountable to public interests by enhancing the transparency between the government and civil society.

Green budgeting strategies generally involve systems that encourage integration of environmental priorities into budget decision-making, and help governments monitor whether public budgets are supporting environmental policy goals. 

An increase in the number of countries adopting green budgeting will indicate that more governments are on track to implement policies that promote positive social, economic and environmental outcomes. As of June 2020, 14 of the Organisation for Economic Co-operation and Development’s (OECD) 38 member countries had adopted some form of green budgeting. At least five additional countries — Chile, Greece, Latvia, Poland and Slovenia — currently have plans to adopt green budgeting.

Number of countries that have adopted green public procurement practices in their procurement strategies and regulations

Strong Institutions
Green public procurement institutional arrangements have been adopted by 79 countries as of 2021. Some are provisions in procurement laws while others are environmental criteria for procurement categories.

Green public procurement involves making the government’s process of sourcing and purchasing materials and supplies more sustainable and aligned with climate and environmental goals. 

Government procurement from countries in the Organisation for Economic Co-operation and Development (OECD) makes up, on average, about 30% of government expenditures and about 13% of gross domestic product (GDP) — making governments the single biggest purchaser of goods and services in a country. Public procurement also drives innovation and progress in sectors such as transportation, waste management, construction, industrial products, defense and security, and utilities. Governments can use their massive purchasing power to shift markets and production toward sustainable technologies and resource-efficient economies. 

Countries adopting green public procurement practices will create new demands and market incentives, which will encourage the private sector to develop and scale sustainable innovations. A study by the World Economic Forum estimates that greening public procurement could boost the green economy by an estimated $4 trillion and create about 3 million new jobs. As of 2021, 79 countries had adopted green public procurement practices, including provisions in their procurement laws and environmental criteria for procurement categories.

Government investment in research, development, demonstration and early commercialization of low-carbon energy technologies, starting with research and development

Innovation
According to the International Energy Agency, in 2019 public spending on energy research and development for low-carbon technologies grew by 6% to reach $25 billion.

Governments serve a crucial role in catalyzing the technological innovation needed to drive an environmentally sustainable and decarbonized economy. Historically, governments have a strong track record of supporting important stages of technological innovation. Early stages of innovation, from research through technology commercialization, benefit immensely from government support; without it, many technologies would be left undiscovered or meet insurmountable investment challenges before making it to the market. This is particularly true for low-carbon energy technologies, where highly impactful innovations are capital-intensive and require long time horizons. 

According to the International Energy Agency (IEA), in 2019 public spending on energy research and development for low-carbon technologies grew by 6% to reach $25 billion. It represents about 80% of total public energy research and development (R&D) spending and is growing twice as fast as total spending. Some examples of low-carbon and zero-emissions technologies still requiring early-stage innovation are green building materials, long-duration electricity storage and zero-emissions industrial heat. Public investments in later stages of the innovation cycle that bring technologies to commercial readiness will also be included as data becomes available.  

Total blended and catalytic finance

Strong Institutions
According to Convergence, blended finance flows totaled $4.5 billion in 2020. The number of transactions stayed relatively flat from 2019, but the amount of financing declined due to the impacts of the COVID-19 pandemic.

The public sector can catalyze private investment by assuming risks that the private sector may be unwilling to take in any given sector, technology, geography or market. If the investments are successful, the private sector becomes more likely to continue to invest. 

The public sector can also mobilize private capital through concessional finance, where the development finance institution accepts below-market returns because of the public benefit of the project. Philanthropy and impact investors can also catalyze private investment — and can often bear more risk than the public sector — albeit with fewer total resources than those available to governments.

Increased public, philanthropic and impact investment can generate more private capital in climate solutions and sustainable development, especially in developing and emerging markets and technologies. According to Convergence, blended finance flows totaled $4.5 billion in 2020. The number of transactions stayed relatively flat from 2019, but the amount of financing declined due to the impacts of the COVID-19 pandemic.

Pledges from developed countries on international climate finance

Strong Institutions
Based on 2021-2025 climate finance commitments, annual commitments by developed countries are estimated to reach about $100 billion a year by 2025.

In 2009, developed countries promised to channel $100 billion annually to developing countries by 2020 for climate change adaptation and mitigation, but as shown in the climate finance flows to developing countries indicator, they failed to meet this target. Furthermore, negotiations are underway to set a new, higher goal, given the rising needs of developing countries and the latest estimates of increased funding needs. 

The Paris Agreement calls for developed countries to provide both mitigation and adaptation finance to developing countries. So far, mitigation has received more finance, which has resulted in a commitment by developed nations to double historic levels of adaptation finance. It is estimated that investing $1.8 trillion from 2020 to 2030 in vital adaptation measures has the potential to generate $7.1 trillion in total net benefits.  

Based on the 2021–2025 climate finance commitments compiled by the COP Presidency, annual commitments by developed countries are estimated to reach about $100 billion a year by 2025. Of the 2021–2025 climate finance commitments made under the U.N. Framework Convention on Climate Change, eight countries have made explicit pledges to allocate 50% or more of their climate finance toward adaptation. Disaggregation of commitments will be tracked once data is made available. 

Public support for increased public investments in the green economy

Behavior Change
The U.N. Development Programme’s Peoples’ Climate Vote, the largest public opinion survey on climate change, found that 12 of the G20 countries have majority support for increased green investments.

G20 countries have the responsibility — and the resources — to reform their economies through green jobs, businesses and investments. Political leaders, especially in democratic governments, are more likely to increase public spending on green investments if there is strong, organized popular demand from the general public.

Polling that indicates positive popular sentiment can be a leading indicator for greater public green investments to transition toward a green economy. Public support for public green investments will be tracked when corresponding data is identified and made available. 

In the meantime, the polling from the U.N. Development Programme’s Peoples’ Climate Vote, the largest public opinion survey on climate change, can be used as a proxy. It found that 12 of the G20 countries have majority support for increased investments in green businesses and jobs. The United Kingdom boasts a 73% approval rate, while Germany, Australia and Canada all have 68% approval rates. 

Allocation of IMF's Special Drawing Rights to low-income countries (excluding G20 countries)

Leadership
As of January 2022, the cumulative allocations of Special Drawing Rights to non-G20 countries amounted to SDR 129 billion, up from only 43 billion in 2019.

Special Drawing Rights (SDRs) are issued by the International Monetary Fund (IMF) as unique international reserve assets, currency or assets that are readily transferable for balance of payment and currency exchange transactions. They can be converted into five currencies: the U.S. dollar, euro, Chinese yuan, Japanese yen and pound sterling. 

SDRs are especially helpful in strengthening the financial resilience of emerging and developing countries because they can boost currency reserves, stabilize domestic currencies, and pay down debt denominated in a foreign currency. Although SDRs are not directly linked to climate change, they are a readily available tool to help low-income countries navigate financial shocks. It is impossible for low-income countries to navigate climate impacts, or a green transition, while facing financial crises.

Because of an allocation policy that prioritizes countries with larger economies, most SDRs are not allocated to low-income countries. Barely 3% of the latest $650 billion allocation of SDRs went to low-income countries. There have been requests to change the allocation formula and calls for developed countries to redirect their SDR allocations to vulnerable countries. An increase in SDR allocations to developing countries could also, in principle, constitute a form of climate reparations.

Tracking SDR allotments channeled to low- and middle-income countries can help indicate whether low- and middle-income countries are receiving the support they need to enhance resilience. As of January 2022, the cumulative allocations of SDRs to non-G20 countries amounted to SDR 129 billion, up from only 43 billion in 2019.

Sustainable debt raised by sovereigns, starting with sovereign green bonds

Innovation
In 2021, about $73 billion was raised via sovereign green bonds across eleven countries, highlighting their commitment to the environment and sending an important political signal to the private sector to accelerate action.

Sovereign green bonds — debt raised by governments from investors — fund public sector expenditures that bring positive environmental and climate benefits. When used appropriately, these bonds help governments promote economic resilience and a more sustainable economy, and are also a means for investors to allocate private capital from their portfolios for sustainable activities. 

Countries that issue green bonds highlight their commitment to the environment and send an important political signal to the private sector to accelerate action. India, Colombia, Germany, Spain and the United Kingdom, among others, have already issued sovereign green bonds and have allocated proceeds to clean transportation, green buildings, sustainable water management and pollution prevention projects. 

The more sovereign green bonds countries issue, the more financial resources governments will have to accomplish their climate and environmental goals. In 2021, about $73 billion was raised via sovereign green bonds across eleven countries.

Number of countries with biodiversity-relevant subsidies

Strong Institutions
There were 28 countries with biodiversity-relevant subsidies as of 2021, rising slowly from five in 1980.

Tracked by the Organisation for Economic Co-operation and Development (OECD), biodiversity-relevant subsidies are one of four main types of economic instruments related to biodiversity that can mobilize finance and generate revenue. The others are biodiversity-relevant taxes, fees and charges, and tradable permits.

Biodiversity-relevant subsidies channel public finance toward sustainable forest management, reforestation and land conservation, and sustainable agricultural practices. The post-2020 global biodiversity framework identified the need to increase biodiversity finance to at least $200 billion per year by 2030, including $10 billion to developing countries per year. As of 2021, there were​​​​​​​ 28 countries with biodiversity-relevant subsidies, rising slowly from five in 1980.

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