Finance

Scale up public investment 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 5 targets toward which to track progress. Click a chart to explore the data.

What factors may prevent or enable change?

Systems Change Lab identifies 8 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 5 targets. target. Explore the data and learn about key actions supporting systems change.

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

Capital investment in the low-carbon economy is expected to reach $1.74 trillion in 2023, up from $1.61 trillion in 2022.

The public sector regulates and incentivizes private economic activity, but it also makes capital investments directly. Governments, public financial institutions and state-owned enterprises make investment decisions to create or maintain physical fixed assets like public buildings,  infrastructure and vehicle fleets. These assets can produce greenhouse gas (GHG) emissions directly, demand energy or other emissions-intensive inputs, or enable the emissions of other economic actors. Combined, private sector capital investment and public sector decisions to invest in capital or incentivize private capital formation are the pivotal financial decisions driving the GHG emissions or decarbonization of the energy system.

To decarbonize the economy, the public sector will need to replace capital investments that create and maintain high-carbon assets — or produce emitting products — with low-carbon alternatives. The good news is that capital investment in the low-carbon economy has begun to take off. The International Energy Agency (IEA) expects $1.74 trillion of capital investment in 2023 in the low-carbon economy, comprising clean power and fuels, batteries, electric vehicles, carbon capture and storage, and greening buildings. According to the IEA’s Net Zero by 2050 scenario, however, clean energy capital investment will need to grow three times faster and reach about $4.6 trillion by 2030 in order to replace the high-carbon economy and meet society’s growing demands.

Public climate finance flows

Global public climate finance will need to expand two to four times to reach between $1.31 and $2.61 trillion per year by 2030, requiring an average increase in investment of about $150 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, demonstration and some commercialization 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 shows a roughly 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 2022, public climate finance flows amounted to around $730 billion, more than doubled since 2020. 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. 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 the recent increases, this number needs to continue to grow. Public climate finance will need to expand two to four 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 increase in investment of about $150 billion per year between 2022 and 2030.

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

About $154 billion was directed toward nature-based solutions in 2022, with public finance contributing 83% 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. 

About $154 billion was directed toward nature-based solutions in 2022, with public finance contributing 83% 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 $484 billion by 2030 and $674 billion by 2050 to reach climate and biodiversity goals, and will require growing at an average rate of $40 billion per year between 2022 and 2030. 

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

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

Total climate finance flows to developing countries should reach at least $100 billion per year by 2025, growing from the $90 billion directed to these countries in 2021.

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 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, developed countries provided about $90 billion in climate finance to developing countries, with $73 billion from public sources, $14 billion from mobilized private sources and $2 billion from export credits. 

Out of that $90 billion total, 60% was for mitigation, 27% for adaptation and 13% for cross-cutting purposes. The share of funding dedicated to adaptation decreased to 27% in 2021, still falling short of the 50-50 split that some experts have called for. Looking specifically at the $73 billion in public climate finance, the distribution was 68% in loans, 28% in grants and 4% in equity. 

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.

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

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 8 factors factor that can impede or help spur progress toward targets. Explore the data and learn about key actions supporting systems change.

Public investments in low-carbon energy innovation, starting with research, development and demonstration

According to the International Energy Agency, in 2022 public spending on energy research, development and demonstration for low-carbon technologies grew by 7% to reach $36 billion.

Governments play 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 2022 public spending on research, development and demonstration (RD&D) for low-carbon energy innovation grew by 7% to reach $36 billion. It represents about 81% of total public energy RD&D spending and is growing twice as fast as total spending. 

Some examples of low-carbon and zero-emission technologies still requiring early-stage innovation are green building materials, long-duration electricity storage and zero-emission industrial heat. Public investments in later stages of the innovation cycle that bring technologies to commercial readiness are less well tracked. 

One study estimated public investment in commercialization to have reached about $6 billion in 2020. With the recent expansion of green industrial policies in the United States and European Union, this amount has probably increased considerably. Commercialization data will be included as data becomes available.

Number of countries with commitments to adopt green budgeting

As of 2022, 24 OECD countries have adopted some form of green budgeting, up from 14 in 2021.

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 2022, 24 of the Organisation for Economic Co-operation and Development’s (OECD) 38 member countries had adopted some form of green budgeting, marking a rapid increase compared to 14 countries in 2021.

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

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.

Total blended and catalytic finance

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.

Sustainable debt raised by sovereigns, starting with sovereign green bonds

In 2022, about $81 billion was raised via sovereign green bonds across seventeen countries, an 11% increase from the previous year. This highlights their commitment to the environment and sends 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 2022, about $81 billion was raised via sovereign green bonds across seventeen  countries, an 11% increase from the previous year.

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

As of January 2023, the cumulative allocations of Special Drawing Rights to non-G20 countries amounted to SDR 129 billion, up from only 43 billion in 2019 but unchanged since the end of 2021.

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 SDR 456 billion ($650 billion) allocation of SDRs in 2021 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 2023, the cumulative allocations of SDRs to non-G20 countries amounted to SDR 129 billion, up from only 43 billion in 2019 but unchanged since the end of 2021.

Number of countries with biodiversity-relevant subsidies

There were 28 countries with biodiversity-relevant subsidies as of 2023, 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 2023, there were 28 countries with biodiversity-relevant subsidies, rising slowly from five in 1980.

Public support for increased public investments in the green economy

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. 

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