Launched to coincide with COP27, a new report has found developing and emerging countries excluding China will need over $2 trillion per year by 2030 to tackle climate change. Of that, $1 trillion should come from domestic sources, with another trillion coming from external sources including developed countries, investors and multilateral development banks (MDBs).
The report, commission by Britain and Egypt, calls for a new roadmap on climate finance as the topic is being hotly debated at this year's conference. It identifies several key requirements to unlock the necessary level of investment:
- Accelerating investment: rapid delivery of investment projects, at scale.
- Mobilising private finance at scale: the private sector making the largest increase in financing, both foreign and domestic.
- Revamping the role of MDBs: stepped up engagement and tripling of the annual flows from MDBs and other development finance institutions in the next five years.
- Delivering on and expanding the scope of concessional finance: a doubling of concessional finance from developed countries by 2025 from 2019 levels, together with strong expansion of the envelope of low-cost finance through innovative ways (including Special Drawing Rights, voluntary carbon markets, philanthropy, and guarantees similar to those of the International Financing Facility for Education).
- Tackling indebtedness: resolving the debt and liquidity issues facing many countries.
Boosting private climate financing quickly is essential to containing climate change and adapting to its effects. But the risks associated with investing in emerging market and developing economy assets are often deemed too high by investors. This is where private wealth can play a role.
Tackling environmental crises
The challenges facing the climate are high on the agenda of ultra high net worth (UHNW) individuals. Of those interviewed as part of our World Shaping Wealth study, two-thirds want to invest in the transition to help prevent a climate emergency.
This will likely mean investing in assets and companies that are actively driving decarbonisation in areas such as renewable energy, sustainable agriculture and electric vehicles. These areas will involve taking risks on emerging technologies – risks UHNW individuals can afford to take more than others.
Private capital can power advancements in clean technology and sustainable innovations in ways institutional investors cannot, with UHNW individuals able to operate with a higher risk tolerance and weather losses more easily than more profit-orientated investors. Wealthy individuals also aren't restricted by regulation and shareholder agreement in the same way as corporate investors are and can therefore be nimbler in their investments.
With current geopolitical pressures governments don't have sufficient capital and there are limits on what institutional investors can provide. Private wealth can help here, and needs to - 72% of intermediaries we spoke to believe that private wealth will be as important as institutional wealth in providing the financing required to transition to net zero by 2050.
With this year's extreme weather demonstrating the vulnerability of developing countries to climate change, it's reassuring that UHNW individuals are prepared to do their part. They're just one piece of the puzzle. Finance has proved a sticking point for years and its crucial progress is made at this year's COP27, so we move beyond discussion to creating a path to providing the level of investment needed to protect countries around the world.
