The USD6tn global average shortfall in financing needed to reach net zero by 2050 is achievable if current rates of investment growth are maintained, according to new research published by A&O Shearman in partnership with Climate Policy Initiative (CPI).
The third annual A&O Shearman/CPI report titled "How big is the net zero financing gap?" reveals that climate finance has hit new highs in recent years, reaching USD1.9tn in 2023, the last year for which full data is available. Based on projections, this figure is expected to surpass USD2tn for the first time in 2024.
The report finds that climate finance flows increased by 15% in 2023. At the current three-year compound annual growth rate (CAGR) of 26%, the investment needed to meet the goals of the Paris Agreement (USD6.2tn annually, the lower bound of estimated needs for the period 2024 to 2030) could be achieved by 2029.
Across all major sectors , the average gap between climate investment in 2023 and the sums required between 2024 and 2030 to align to a net zero pathway was USD5.9tn (a range of USD4.5tn to USD7.8tn).
"How big is the net zero financing gap?" analyzes the differential between spending committed to climate-positive solutions and the capital needed to decarbonize the global economy across sectors and regions. This year's analysis for the first time breaks down the investment gap by the development status of nations.
Commenting on the findings, David Lee, global co-head of ENRI at A&O Shearman said: "When we conducted our inaugural net zero financing gap research two years ago, annual climate finance flows were only just breaking through the USD1tn barrier, so to see them double since then is a huge step forward. However, recent rollbacks to clean energy incentives, national budget constraints and shifting priorities around the world are all tightening competition for public funds and slowing progress toward the Paris goals."
"...it is more important than ever to target climate finance where it can have the greatest impact."
Cynthia Urda Kassis
Partner
Cyntia Urda Kassis, global co-head of ENRI at A&O Shearman said: "Amid intensifying fiscal pressures and significantly reduced policy initiatives worldwide, it is more important than ever to target climate finance where it can have the greatest impact. Our report highlights priorities for policymakers, governments, and investors to align capital flows with the targets of the Paris Agreement. It is critical that we maintain this momentum and ensure that construction of physical assets, climate research and information networks facilitating delivery are given the support they need and close the financing gap."
Barbar Buchner, global managing director at CPI said, "Investment in climate solutions represents one of the greatest potential transformations of our generation. Closing the finance gap is not just about achieving climate goals, but about expanding economic opportunities while protecting long-term stability."
To read the full report please click here.