Speed, scale, pragmatism: How to boost climate finance in 2024

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Veronica Chau, Partner & Director, Sustainable Investing & Social Impact, Toronto, Boston Consulting Group, Faheen Allibhoy, Managing Director & Global Head of Multilateral Institutions & Development Banks, J.P. Morgan

• From 2021 to 2022, $1.3 trillion worth of investments went toward climate-related projects.
• To hit the Paris Agreement’s 1.5°C limit of warming, we need to increase that level of investment by a factor of five.
• To hit this ambitious climate finance goal, speed, scale and pragmatism in our approach are key.

2024 will be another critical year for climate action.

Despite progress made on emissions reductions and the financing needed to enable them, we remain off track. While climate finance doubled to $1.3 trillion from 2021 to 2022, we need to increase by at least five-fold annually to limit warming to below 1.5°C.

To mobilize this financing, there are three key areas we must prioritize: pragmatism, speed and scale.

Pragmatism in addressing emissions

The top 10 emitting countries in the world account for two-thirds of global emissions, and the top three emitting countries – China, the US and India – account for 43% of emissions, which is more than the lowest 100 emitting countries combined. By contrast, all of Africa produces just 4% of global emissions. A small country like Gambia has an installed grid of 100 MW, which is just 2% of the 5,500 MW used annually in New York City.

These top 10 countries vary in terms of their level of economic development and maturity of their climate financing markets. Some, like the US, Japan, Korea and Germany, have well developed capital markets, have put in place sustainable climate finance “architecture” such as taxonomies and climate data disclosure standards. They also have deployed government policies and subsidies to spur adoption of renewable energy and emissions abatement technologies. Other developed economies, such as Canada and Saudi Arabia, have some of the highest emissions per capita, creating both opportunities and the imperative to further roll out incentives for households and small businesses to improve energy efficiency and reduce their emissions footprints.

The climate finance challenge in 2024 for these countries is one of deployment: translating policies into action. This will require unprecedented collaboration across all stakeholders, including at the state level, as local decisions can have major impacts on the types of climate finance solutions used and the speed at which projects are financed.

Other members of the top ten highest emitting economies, such as China, India, Brazil and Indonesia, are Emerging Markets and Developing Economies (EMDEs). Key for these countries will be mobilizing domestic and international capital for climate efforts in a market environment that remains constrained by higher interest rates and macroeconomic volatility.

The focus on mobilizing climate financing for EMDEs at COP28, with an emphasis on the role of multilateral development banks (MDB) reform in the process, must continue into 2024 as a key way to deliver the appropriate forms of financing that these countries will need. By adopting a pragmatic approach that focuses on the climate transition of the highest emitting nations, we can make significant progress quickly.

Upping the scale with existing technologies

A critical aspect of a pragmatic approach is to scale proven technologies using financing approaches that we know work. While groundbreaking innovations are still needed and pricey technologies must come down in cost, we can accelerate progress by implementing technologies that are already available and being deployed at scale.

For example, proven renewable energy technologies such as wind and solar, energy efficiency measures, net-zero building designs, clean manufacturing processes, the adoption of electric vehicles (EVs) and waste heat capture are all proven and ready for to scale. The COP28 outcome text, which calls for “tripling renewable energy capacity globally and doubling average annual rate of energy efficiency improvements by 2030” is welcome and will drive momentum.

For the private sector and policymakers, 2024 needs to be a year of operationalizing these commitments. This can be done through policies that provide long-term, predictable incentives for adoption, and building capabilities across the financial sector to underwrite these technologies. Targeted concessional financial measures that reduce risk, such as offtaker demand, could also play a role in scaling these climate finance solutions.

Increasing the speed to hit ambitious targets

For most goods and services, the emissions associated with their production and consumption are embedded in supply chains – in the materials used to create the products or to move them from point to point. Eight such value chains comprise over 50% of global emissions. Recognizing that cleaner technology in one part of a value chain will require collaboration with actors up and down the entire chain.

For instance, a transition to electric vehicles not only involves automakers but also requires investments in charging infrastructure, battery manufacturing and sustainable mining practices for critical minerals. By addressing the entire value chain, we can increase the velocity of climate finance and get more money deployed faster, address friction points and reduce risks. In this collective effort to combat climate change, each stakeholder has a vital role to play.

Cooperation and climate finance

At this juncture, our ability to scale and accelerate the climate transition is only constrained by how quickly projects can be developed, how effectively governments focus on the problem and enact incentives and how quickly consumers and businesses alike adopt newer, low carbon ways of living and working.

• The private sector must step up by financing bankable projects that utilize mature technologies at scale. Companies should prioritize reducing their own carbon footprints and adopting best-in-class technology. These actions contribute to climate action and demonstrate corporate responsibility.
• Governments need to deploy the necessary incentives, rules and policies that motivate climate action. They have the power to implement carbon pricing mechanisms, renewable energy subsidies and regulations that encourage sustainable practices. They should lead by example, committing to carbon neutrality and adopting green technologies in public services.
• Multilateral Development Banks can play a critical role in assisting EMDE countries with their energy plans, especially in terms of energy transmission and distribution. They can support climate adaptation efforts to mitigate the impact of climate change on vulnerable communities.

Climate change is not a standalone issue but intersects with energy access, job creation, food security and more. That means we have the opportunity to integrate climate action with broader socio-economic development goals. Expanding access to clean and affordable energy can simultaneously combat poverty and reduce carbon emissions. Investing in renewable energy infrastructure can create job opportunities, stimulate economic growth and contribute to a low-carbon future. Sustainable agricultural practices can enhance food security while reducing the environmental impact of farming.

The urgency of climate action cannot be overstated. We must act swiftly and decisively to combat the growing threat of climate change. While long-term goals are essential, we must prioritize short-term actions that are effective and scalable. Scaling proven technologies, adopting a value chain approach and leveraging the strengths of each stakeholder are key critical milestones in this marathon.