As the world races to ramp up spending to combat climate change, one question looms large: Where will the money come from?
As a global society, we must increase spending to at least $4.13 trillion every year by 20301 to fund an energy transition sufficient to keep the planet below a temperature rise of 1.5 degrees Celsius, according to a 2021 report by environmental think tank Climate Policy Initiative. That’s a lot. Especially compared to current spending. The annual global climate investment averaged a meager $632 billion per year over 2019 and 2020—15 percent of the $4.13 trillion target.
That $632 billion accounts for direct investment in things like infrastructure, energy efficiency, and other big-ticket initiatives around systemic change to mitigate or adapt to climate change. (The numbers don’t include donations or the funding of things like research and development or public information campaigns.)
Here’s another eye-popping and critical number: $3.5 trillion. That’s the gap. That’s how much more money the world needs to spend every year, on top of what’s happening now, to stave off the worst effects of climate change. So who’s gonna fill it?
“Finance is …possibly the most important lever for the low-carbon economic transition.”
“It’s really the corporate actors and government actors that are making these decisions to finance dirtier or clean energy and infrastructure at scale,” Cooper Wetherbee, an analyst with the think tank Climate Policy Initiative (CPI) told me in an interview in March 2021. “Those are the decisions that are most influential in dictating our ability as a society to meet climate targets and maintain the livable, prosperous human society that we want.”
Despite the enormous shortfall in current climate finance, there is growing optimism that nations, organizations, and individuals will rally and cough up the cash to meet the challenge. It may be optimism built on necessity. According to a 2022 report from the United Nations’ Intergovernmental Panel on Climate Change (IPCC), “warming cannot be limited to well below 2°C without rapid and deep reductions in energy system CO2 and GHG emissions.”2 Time may no longer be on the world’s side, but money could be.
“Finance is a huge lever, and possibly the most important lever, for the low-carbon economic transition,” Wetherbee said, “if we use it correctly.”
To understand what that means, here’s the Means & Matters guide to the myriad groups, sectors, and industries pouring billions into climate action, whether it’s through sustainable infrastructure, innovation, carbon offsetting activities, and individual actions to minimize emissions.
What They’re Doing with the Money—And What They’re Not
1. Governments and Intergovernmental Organizations
Big Spenders That Must Think Bigger (and Smarter)
2019/2020 CLIMATE INVESTMENT: $321 BILLION1
Governments and intergovernmental organizations—such as the UN—are among the most significant funders of climate change action. The $321 billion in climate finance from public sources account for 51 percent of total global commitments.1
Unfortunately, growth in public investment is slowing. The 2019/2020 spending only increased 10 percent over 2017/2018 after two successive growth periods of 24 percent. Considering the aim should be more like 450 percent, the CPI report says it best: “This is worrying.”
But the European Union gives us some hope, leading the public-spending pack. The EU committed to making at least 20 percent of its spending climate-related between 2014 and 2020.3 As of 2020, the EU reached these goals, with annual expenditures of more than €34 billion (equal to $40 billion) on climate change mitigation. The EU isn’t stopping there. Between 2021 and 2027, the EU plans to increase its climate spending to 25 percent of its total expenditure.
The United States has fallen behind its European peers in climate change financing per capita.4 While the exact amount of recent US climate investment is difficult to track—the previous administration notoriously didn’t include the word “climate” in budgets—it’s clear some investment did happen.5 In 2018, for example, the US allocated around $170 million to international environmental funds, though it backed out of other previous commitments, including contributing to the Green Climate Fund, the world’s largest international fund addressing climate change.6
The Biden Administration hopes to start catching back up. The president signed a $1 trillion infrastructure bill into law in November that included more than $62 billion to support clean energy initiatives through the US Department of Energy, from manufacturing and workforce investments to expanding residential and commercial access to energy efficiency and renewable energy.7 It also invested $66 billion in rail funding, $7.5 billion in a national network of EV chargers, and another $7.5 billion for zero- and low-emission buses and ferries, among other climate-related investments.8
At the same time, some states have retained or stepped up climate investment. California, the fifth-largest economy in the world, announced $15 billion in investments in climate spending over multiple years in its 2021 budget.9, 10
Meanwhile, China, the world’s largest source of CO2 emissions, announced its allocation of $57 billion for ecology and environment protection in 2020 and pledged to become carbon neutral by 2060.11, 12 The fund will focus on air pollution prevention and control, as well as water and soil protection.
While increasing the amount of public climate investment is critical, so is increasing the strategic approach of these investments.
“A massive transformation is needed to unlock the trillions required to help the world shift to a low-carbon future and build resilience to climate change,” wrote Sophie Yeo for Nature in 2019.13 “Financiers will have to step away from approaching climate change on a project-by-project basis—a wind farm here, a solar plant there—and start thinking about the carbon impact of every dollar spent . . . it’s really up to policymakers to incentivize this shift by financially discouraging the wrong kinds of projects.”
Bulls in the China Shop of Climate Action
2019/2020 CLIMATE INVESTMENT: $124 BILLION1
Since 1988, 100 companies have been responsible for 71 percent of the entire world’s industrial greenhouse gas emissions.14 That’s a depressing fact, but a clarifying one, too: Private sector climate investment shouldn’t be viewed as philanthropy, but a necessary and just response to the environmental damage corporations have inflicted.
“The historically and current biggest emitters are the ones that both can and should be increasing their climate finance and reducing their investments in dirty finance,” Climate Policy Initiative analyst Matthew Solomon said to me during our March call. “They’ve caused this crisis, so they should be paying to fix it. But also, if you’re emitting hundreds of millions of tons of CO2 every year, you’re best positioned to reduce that.”
Globally, corporations may have invested an average of $124 billion into climate action in 2019 and 2020, but that’s actually a decrease from their 2018/2018 average of $183 billion.1,15 And they’re investing in plenty of harm, too. Anti-climate politicians get nearly twice the corporate donations as those who vote in favor of climate action, and a lot of it comes from companies that otherwise market climate action initiatives.16 Fossil fuel companies, for example, may invest millions in renewable energy, but they also invest millions to lobby against climate legislation.17
Even more damaging is the energy sector’s continued investment in fossil fuel infrastructure, even as they dabble in renewables.
“Every dollar, euro, or yen spent to develop new fossil fuel power plants puts us at risk of missing Paris goals,” Wetherbee said. “We already get so much electricity from high emissions sources, that the marginal generation that we add can only afford to be zero-carbon generation from now on.”
There are signs of hope. Market pressure is creating an incentive for companies to act, and some companies are responding. Tech giants like Apple, Google, Facebook, and others vowed to power their data centers with 100 percent renewable energy.18 Companies known for their long commitment to climate action, such as Patagonia and REI, are demonstrating the market advantage of environmental investment. And the growing number of certified B corporations demonstrates a global shift toward building sustainability into companies’ business models. As many as 200 of the world’s largest companies have committed to becoming net-zero by 2050.19
3. Funds and Institutional Investors
Private Investors Placing Big-time Bets on Climate Action
2019/2020 CLIMATE INVESTMENT: $8 BILLION1
What’s this category? “Funds” include things like venture capital and private equity, and institutional investors are big stock market movers, like pension funds. For most folks, the spending in this category can seem a little confusing, but it basically all falls into big-time private sector investing. Fortunately, the rising popularity of ESG investing is helping motivate these forces to channel money toward the good of the planet.
Here’s a venture capital investment example that many people will recognize: Beyond Meat is a plant-based burger company with a tasty enough product to inspire consumers to grapple with the environmental impact of industrial farming—which is huge. One study found20 that if everyone in the US swapped a quarter of the meat they now eat with plant-based proteins, it would eliminate 82 million metric tons of greenhouse gas emissions annually.
Investments in sustainable food innovation may be helping us get there: growth in plant-based protein shipments to restaurants grew 20 percent in 2020, while meat shipments grew by two percent.21 Beyond Meat serves as a case study for the potential impact of climate-focused venture capital. As of October 2021, the VC-backed Beyond Meat reached market capitalization of around $6.7 billion.22
While massive investment is a key ingredient in the needed climate finance paradigm shift, so is strategic investment in potentially game-changing innovation. For instance, not long ago, it might have been unimaginable to give up on personal car ownership for many. However, thanks to the billions of dollars venture capitalists put into micro-mobility solutions such as e-scooters, a car-free life is now a possibility for millions.23
According to a PwC report, climate tech VC funding grew a whopping 3750% between 2013 and 2019.24 Led by the efforts of VC firms such as Khosla Ventures, Sequoia Capital, Breakthrough Energy Ventures, and others, more than 1,200 climate tech startups received a total investment of $60 billion.
Moderate Climate Investors with the Capacity to Change the Game
2019/2020 CLIMATE INVESTMENT: $122 BILLION1
The connection between banks and climate change can seem fuzzy at best. But it’s more direct than it seems: Most of the money people deposit in the bank goes back out into the world in the form of loans. And in the five years since the Paris Agreement, the four largest US banks (Chase, Citibank, Wells Fargo, and Bank of America) have provided almost $1 trillion in financing for fossil fuel extraction and infrastructure.25
“Banks are playing a more prominent role as an intermediary of sustainable and green debt instruments as well as a broader trend of setting climate-related targets,” states the Climate Policy Initiative in their 2021 report.1 There is no doubt that the banking industry has woefully underinvested in the climate in the past—but if there’s a silver lining to CPI’s new analysis it’s that commercial finance institutions increased their spending by 154 percent since the organization’s 2019 report.
Banks appear to be continuing on the right track. Based on financing data from the first few months of 2021, banks are on pace to lend more this year to renewable energy projects than to fossil fuel projects, according to an analysis by Bloomberg.26 And 63 global banks representing $40 trillion in assets have joined the Net-Zero Banking Alliance (NZBA), committing their investment and lending portfolios to reach net-zero emissions by 2050.27
Overall annual climate spending must grow 454 percent by 2030 to hold global warming to 1.5 degrees Celsius, so it’s not as if banks’ 150 percent increase is anything close to a silver bullet. But given the size and influence of the industry, it’s encouraging to see banking moving in the right direction.
Small-scale Investors with Big-time Influence
2019/2020 CLIMATE INVESTMENT: $55 BILLION1
“From the food we eat to clothes we wear or the buildings we live in, carbon is in everything we do. Consumers are increasingly more aware of this,” said Duncan Grierson, CEO and Founder of Clim8, a green investment app. “But a Swedish schoolgirl showed the world that no individual is too small to make a difference.”
The 2022 IPCC report on climate mitigation quantified that potential difference. For the first time, the IPCC working group measured the impact of “socio-cultural changes“—aka, shifts to public transit, reduced meat consumption and appliance use, shorter showers, and more.2 The report said these behavior changes “can offer Gigaton-scale CO2 savings potential at the global level, and therefore represent a substantial overlooked strategy in traditional mitigation scenarios.”
Of course, behavior change includes people’s choices as consumers. Households’ average annual climate-related spending over both 2017/2018 and 2019/2020 was $55 billion, holding steady after rising 50 percent between 2013 and 2018.1,15
Consumers are primarily investing in electric vehicles and installing solar panels on their homes. Some people are even finding ways to offset their own carbon footprint. Others are investing their wealth more sustainably. Today, one in three investment dollars that are professionally managed in the US use sustainable investing strategies, and 86 percent of investors believe companies with leading sustainability practices make better long-term investments.28, 29
The downside is that when it comes to the kind of direct capital flows needed to reach global climate targets, the financial influence of individuals is simply much smaller than other actors, like governments, banks, and corporations. While $55 billion isn’t nothing, it is less than 10 percent of the 2019/2020 climate financing totals, and individuals simply aren’t in control of the kind of large-scale infrastructure decisions required to slow climate change. A single household can’t, for example, wake up in the morning and decide to fund a light rail system in their region.
However, they can—and increasingly do—use their power as consumers to influence the entities that do. That is, they can elect leaders who will invest in light rail, and then they can pay to ride it. In 2019, nearly half of consumers said they’d pay more for sustainable products—and Gen Z, the consumer of the future, was willing to pay 50-100 percent more. In the 2020 election, climate voters donated tens of millions of dollars to pro-climate action candidates.30
“It’s important to know that consumers are not solely responsible for solving the climate crisis,” Solomon said. “But they do have power in numbers to influence the people who are making the problem worse.”
More Money & Beyond
The numbers on global climate finance tell a simple story: Everyone needs to do more—much more. Banks, corporations, and governments, in particular, have the capacity to ramp up their efforts. The Climate Policy Initiative’s report urges that “coordination across silos of public and private financial actors is needed to ensure coherence and impact on net-zero and sustainability,” and that “climate investment should ideally count in trillions, whereas fossil fuel investments should virtually stop in this decade.” 1
As recently as CPI’s 2019 report, finance for fossil fuels “far outstripped finance for renewables generation in 2017/2018.” 15 Grim? Sure, but even the experts are taking an optimistic view.
“A movement is underway to take renewables from being a niche sector to being an important part of the whole picture,” Wetherbee said. “We have to green the whole picture, not just have a little place on the shelf for renewables, alongside all the harmful things we’re doing.”
The task may seem enormous, but all around the world we know what is needed and the roadmap is clearly laid out. The momentous shift is already underway.
“We have the solutions,” Solomon said. “We know what we need to do. It’s just a matter now of doing it.”
This piece originally published October 21, 2021.
1. Climate Policy Initiative, “Global Landscape of Climate Finance 2021.” https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2021/
2. The Intergovernmental Panel on Climate Change, “Climate Change 2022: Mitigation of Climate Change.” https://www.ipcc.ch/report/ar6/wg3/
3. European Union, “Supporting climate action through the EU budget.” https://ec.europa.eu/clima/policies/budget/mainstreaming_en
4. Joe Thwaites, World Resources Institute, “2020 Budget Shows Progress on Climate Finance, But US Continues to Fall Behind Peers.” https://www.wri.org/insights/2020-budget-shows-progress-climate-finance-us-continues-fall-behind-peers
5. Jean Chemnick, Thomas Frank, Scientific American, “Climate Change Once Again Left Out of Trump’s Federal Budget.” https://www.scientificamerican.com/article/climate-change-once-again-left-out-of-trumps-federal-budget/
6. Joe Thwaites, World Resources Institute, “US 2018 Budget and Climate Finance: It’s Bad, but Not As Bad As You Might Think.” https://www.wri.org/insights/us-2018-budget-and-climate-finance-its-bad-not-bad-you-might-think
7. US Department of Energy, “DOE Fact Sheet: The Bipartisan Infrastructure Deal Will Deliver For American Workers, Families and Usher in the Clean Energy Future.” https://www.energy.gov/articles/doe-fact-sheet-bipartisan-infrastructure-deal-will-deliver-american-workers-families-and-0
8. Katie Lobosco and Tami Luhby, CNN, “Here’s what’s in the bipartisan infrastructure package.” https://www.cnn.com/2021/07/28/politics/infrastructure-bill-explained/index.html
9. CBS News, “California now has the world’s 5th largest economy.” https://www.cbsnews.com/news/california-now-has-the-worlds-5th-largest-economy/
10. California State Budget — 2021-22, http://www.ebudget.ca.gov/2021-22/pdf/Enacted/BudgetSummary/ClimateChange.pdf
11. Reuters, “China to allocate $57 billion to environment protection.” https://www.reuters.com/article/us-china-environment-budget-idUSKBN22Y0BU
12. European External Action Service, “China carbon neutrality in 2060: a possible game changer for climate.” https://eeas.europa.eu/headquarters/headquarters-homepage/87431/china-carbon-neutrality-2060-possible-game-changer-climate_en
13. Sophie Yeo, “Where climate cash is flowing and why it’s not enough.” https://www.nature.com/articles/d41586-019-02712-3
14. CDP, “CDP Carbon Majors Report 2017.” https://b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/002/327/original/Carbon-Majors-Report-2017.pdf?1499691240
15. Climate Policy Initiative, “Global Landscape of Climate Finance 2019.” https://www.climatepolicyinitiative.org/wp-content/uploads/2019/11/2019-Global-Landscape-of-Climate-Finance.pdf
16. Bre Bradham, Andre Tartar and Hayley Warren, Bloomberg, “American Politicians Who Vote Against Climate Get More Corporate Cash.” https://www.theguardian.com/business/2019/mar/22/top-oil-firms-spending-millions-lobbying-to-block-climate-change-policies-says-report
17. Sandra Laville, The Guardian, “Top oil firms spending millions lobbying to block climate change policies, says report.” https://www.theguardian.com/business/2019/mar/22/top-oil-firms-spending-millions-lobbying-to-block-climate-change-policies-says-report
18. Greenpeace, “Clicking Clean:Who Is Winning the Race to Build a Green Internet?” http://www.clickclean.org/international/en/
19. Robin Hicks, Eco-Business, “200 of world’s largest corporations commit to net zero emissions by 2050, reverse biodiversity loss and fight inequality.” https://www.eco-business.com/news/200-of-worlds-largest-corporations-commit-to-net-zero-emissions-by-2050-reverse-biodiversity-loss-and-fight-inequality/
20. Gidon Eshel, Paul Stainier, Alon Shepon & Akshay Swaminathan, Scientific Reports, “Environmentally Optimal, Nutritionally Sound, Protein and Energy Conserving Plant Based Alternatives to U.S. Meat.” https://www.nature.com/articles/s41598-019-46590-1
21. Mihai Andrei, ZME Science, “The meat industry is freaking out over plant-based meat. They should.” https://www.zmescience.com/other/pieces/meat-industry-plant-alternatives-19022021/
22. Bloomberg, “BYND:US, NASDAQ GS” https://www.bloomberg.com/quote/BYND:US
23. Pitchbook, “Emerging Tech Research: Mobility Tech.” https://pitchbook.com/news/reports/q1-2020-emerging-tech-research-mobility-tech
24. Dr. Celine Herweijer and Azeem Azhar, PwC, “The State of Climate Tech 2020.” https://www.pwc.com/gx/en/services/sustainability/assets/pwc-the-state-of-climate-tech-2020.pdf
25. Rainforest Action Network, “Banking on Climate Chaos 2021.” https://www.ran.org/wp-content/uploads/2021/03/Banking-on-Climate-Chaos-2021.pdf
26. Tim Quinson and Mathieu Benhamou, Bloomberg, “Banks Always Backed Fossil Fuel Over Green Projects—Until This Year.” https://www.bloomberg.com/graphics/2021-wall-street-banks-ranked-green-projects-fossil-fuels/
27. Net-Zero Banking Alliance, https://www.unepfi.org/net-zero-banking/members/
28. US SIF: The Forum for Sustainable and Responsible Investment, “The US SIF Foundation’s Biennial “Trends Report” Finds That Sustainable Investing Assets Reach $17.1 Trillion.” https://www.ussif.org/blog_home.asp?Display=155
29. Morgan Stanley, Sustainable Signals:Individual Investor Interest Driven by Impact, Conviction and Choice.” https://www.morganstanley.com/content/dam/msdotcom/infographics/sustainable-investing/Sustainable_Signals_Individual_Investor_White_Paper_Final.pdf
30. Lisa Friedman, New York Times, “‘Climate Donors’ Flock to Biden to Counter Trump’s Fossil Fuel Money.” https://www.nytimes.com/2020/08/18/climate/climate-change-biden.html
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