Increase in overall average climate finance flows to the one trillion threshold represents only 1% of the global GDP
Climate finance flows have doubled compared to previous years but have been unevenly distributed across geographies and sources, showed the latest analysis by the Climate Policy Initiative.
Climate finance is one of the key agenda items up for discussion at the much-awaited 28th Conference of Parties (COP28) to the United Nations Framework Convention on Climate Change to be held in Dubai later this month.
Climate Policy Initiative’s (CPI) new report Global Landscape of Climate Finance 2023 brings together the latest data and analysis in this regard.
Average annual flow of climate finance in 2021 and 2022 was $1.3 trillion, twice the $653 billion of 2019 and 2020, according to the report.
The report breaks down the flow of climate finance by its application, geographical distribution and sources, using data from 2021 and 2022. The flows tracked in the report “represent targeted climate mitigation and adaptation-specific project-level allocation of capital”.
CPI has been tracking global climate finance flows between all countries and entities for a decade now, making these updates important for the global climate conversation. The Organisation for Economic Cooperation and Development (OECD) on the other hand, specifically tracks the flows from developed to developing countries. The latter measures progress on the promise of delivering $100 billion per year from 2020 from developed to developing countries, which was announced in 2009 at COP15. OECD's projections show that this goal may be met in 2023.
The increase in annual average climate finance over the years was driven primarily by the escalation in mitigation finance, which has increased by $439 billion from 2019 and 2020. In addition to this, the report noted particularly improved coverage of finance data from three sectors — agriculture, forestry and other land use (AFOLU); buildings and infrastructure; and waste.
About 28 per cent — $173 billion — of the increase over the last year is attributed to this improved data collection. This indicates a positive trend for the availability of high-quality climate finance data that is publicly available.
However, the increase in overall average climate finance flows to the one trillion threshold represents only 1 per cent of the global gross domestic product, reflecting the need to rapidly scale climate ambition across countries. The need for this is further highlighted by the report’s projections that average estimated annual needs will increase to $9 trillion by 2030.
Global climate finance 2011-2022, biennial averages
Source: Global Landscape of Climate Finance 2023, CPI
The climate finance that flowed in in 2021 and 2022 was unevenly distributed across sectors and geographies. Here’s a snapshot:
Mitigation finance
Adaptation Finance
Geographically concentrated
The report noted that private actors contributed 49 per cent of total climate finance, to the tune of $625 billion. Interestingly, the highest growth in private finance came from household spending, specifically from the sales of electric vehicles, which have doubled from 2020 to 2021, the authors added. The increase was stated to have been driven by strong fiscal policies promoting low-carbon technologies.
Uses of climate finance with private-public splits
Source: Global Landscape of Climate Finance 2023, CPI
The authors of the report outlined measures to enhance the scale and quality of climate finance to meet the urgent and growing needs of countries across the world. The recommendations were broadly divided into four categories: Transforming the financial system, bridging climate and development needs, mobilising domestic capital and improving the state of climate finance data overall.
Highlighting the need for reducing cost of capital barriers, which impact developing and low-income countries severely, the researchers suggested building on the growing momentum to reform financial institutions and make concessional finance more accessible.
Overall, the data presented in the report suggested that climate finance flows are increasing, as are the methods of data collection and interpretation. The authors also highlighted that the need for increasing the pace and scale, however, remains imperative.
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