Global landscape of climate finance 2024

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Where are we now?

The need to raise ambition for climate action is more urgent than ever. The nine years from 2015 to 2023, inclusive, were the warmest on record, and extreme weather events have increased fivefold in the past 50 years.

Despite annual climate finance having more than doubled between 2018 and 2022 (from USD 674 billion to USD 1.46 trillion), a further fivefold increase is required to reach the USD 7.4 trillion needed on average each year through 2030 under the 1.5°C scenario. By comparison, consumer fossil fuel subsidies alone amounted to USD 1.4 trillion in 2022, and investments in new fossil fuel production and distribution reached USD 1 trillion that year. Current climate finance represents only 1% of global GDP, while some estimates for emerging markets and developing economies (EMDEs) suggest that specific countries might have to allocate around 6.5% of their GDP by 2030.

The cost of inaction

The projected economic losses that can be avoided by 2100 by realizing a 1.5°C warming scenario are estimated to be five times greater than the climate finance needed by 2050 to achieve it. While climate finance needs will likely ease beyond 2050, economic damages under a Business-as-Usual (BAU) scenario will continue to exponentially increase into the future. While we cannot put a true price on elements such as human suffering or loss of nature, conceptualizing climate finance through this lens of the cost of inaction and providing more granular estimates to this end could spur the investment needed to avoid future climate hazards and losses. In addition, this report includes a geographic regional analysis of the trends within each economic grouping. This allows for a more detailed view of the varying climate finance needs and challenges across different contexts.

Key findings

While still acute, the climate finance gap narrowed marginally between 2018 and 2022, driven by increased flows in advanced economies and some EMDEs.

Mitigation finance grew between 2018 and 2022 at a compound annual growth rate (CAGR) of 20% to reach USD 1.3 trillion. Investments in advanced economies and China drove this increase, primarily in buildings and infrastructure, energy efficiency, battery-electric vehicles (BEVs), and renewable energy (RE). As of 2022, renewable electricity generation capacity reached 42% in advanced economies and 45% in China. EMDEs (ex. Least Developed Countries (LDCs) and China) had an average renewable electricity generation capacity of only 33%, though this was highly variable; Brazil’s renewable electricity capacity reached 84% in 2022, for example, while Egypt’s was 11%. Private finance reached 54% of mitigation flows in 2022, with strong growth in private financing for the buildings and infrastructure sector, as well as transport, indicating that such projects are becoming more commercially viable. However, there are still significant opportunities to increase mitigation finance. EMDEs (ex. LDCs and China) accounted for just 12% of mitigation financing in 2022, while only 1% went to LDCs.

Adaptation finance more than doubled between 2018 and 2022, reaching USD 76 billion in 2022 The public sector has continued to provide the bulk of adaptation flows (92% in 2022), dominating water and wastewater (88% in 2022), Agriculture, Forestry, and Other Land Uses (AFOLU) (87% in 2022) and cross-sectoral adaptation finance (99% in 2022). Information on climate adaptation finance from public domestic budgets and the private sector remains opaque. However, in an effort to close data gaps, we tracked increased adaptation-relevant private finance through enhanced data collection resulting in USD 4.7 billion in additional flows (between 2019 and 2022) from asset managers, commercial Financial Institutions (FIs) and project-level flows.

Many EMDEs (ex. LDCs) experienced significant increases in private climate finance, particularly in the buildings and infrastructure sector, as well as energy systems, though such increases were highly dependent on country-specific factors. Private finance between 2018 and 2022 exceeded 50% of the total mitigation finance in EMDEs (ex. LDCs) located in Latin America and the Caribbean (LAC), Central Asia and Eastern Europe, South Asia, and the Middle East and North Africa (MENA). In 2022, domestic finance also exceeded international funding to EMDEs (ex. LDCs) in LAC, South Asia, and East Asia and the Pacific. In areas where local constraints have hindered progress, international public actors have continued to provide support to EMDEs.

However, increases in climate finance have been inconsistent across economies, with the urgency for funding in some regions and sectors now particularly severe.

While there was overall growth in EMDEs, this was largely driven by national policies and, therefore, varied across countries and economic groups. China had a compound annual growth rate (CAGR) of 36%, LDCs averaged 20%, and EMDEs (ex. LDCs and China) only 12%. The growth of climate finance stagnated in many EMDEs between 2018 and 2020 as strained public budgets and worsened borrowing conditions, as well as the COVID-19 pandemic, kept their costs of capital above those of advanced economies. Efforts to decouple economic development from greenhouse gas (GHG) emissions will need to be ramped up in EMDEs, which experienced a 1.8% average annual increase in CO2 emissions between 2010 and 2022.

LDCs and SIDS face acute challenges for public climate finance, including high debt burdens and stretched government budgets. Private finance has also remained low, contributing less than 10% of climate finance to LDCs every year except 2021 and under 2% to low- and lower- middle-income SIDS between 2018 and 2022.

Three persistent challenges across all economies are: lagging adaptation finance, a chronic investment gap in high-impact sectors, and the danger of increasing investment in fossil fuels.

Adaptation finance continues to lag. Despite more than doubling between 2018 and 2022, annual flows are currently at just one-third of the volume required until 2030 in EMDEs alone. In 2022, 19% (USD 14.5 billion) of adaptation finance went to LDCs, and 2% (USD 1.5 billion) went to SIDS. However, the total amounts remain highly insufficient, given that economies in these groupings are among the most vulnerable to climate impacts. For example, USD 12 billion is required annually across SIDS, which face some of the greatest risk of climate disasters (GCA and CPI, forthcoming).

Investment in climate mitigation remains slow outside of the energy, buildings and transport sectors. Although the AFOLU, industry, and water and wastewater sectors have a large mitigation potential, their climate investment levels have remained at low levels from 2018 to 2022. Countries need to provide strong enabling environments, investment in research and development, concessional finance for project preparation, and domestic policy contexts to facilitate climate mitigation investment in these sectors.

There is a looming danger of increased fossil fuel investment, particularly in advanced economies, despite commitments to phase out fossil fuel subsidies by G7/G20 countries. Between 2020 and 2022, advanced economies increased their investments in fossil fuels by 28% and tripled their fossil fuel subsidies for consumers. In EMDEs, investments into fossil fuels increased by 9% from 2020 to 2022, while fossil fuel subsidies for consumers increased fivefold to over USD 1.2 trillion. Fossil fuel investment continued to increase globally throughout 2023 and 2024, estimated to reach USD 1.12 trillion in 2024.

Recommendations

Several large-scale processes need to occur simultaneously in the next five years to accelerate the scale, speed, and quality of climate finance amid constrained budgets and conflicting political and financial priorities. The work program for the NCQG is expected to conclude at COP29, outlining new targets and responsibilities for various actors. This presents a unique opportunity to enhance ambition and increase international cooperation for a more coherent and transformative climate finance architecture, supported by other high-level processes in the G20, initiatives concerning international financial architecture reform, as well as the COP28 Global Climate Finance Framework.

Key strategies to enhance the scale and effectiveness of global climate finance include the following (and are detailed in more depth in the report):

1. Innovation & Replication: Scaling finance through a fit-for-purpose global climate financial architecture, using both established and innovative financing approaches to support climate, nature, and development goals.
2. Targeting & Allocation: Stepping up support for LDCs, SIDS, and low-income communities on the front lines of the climate crisis, as well as allocating finance to high-impact, hard-to-abate sectors or themes.
3. Domestic Policies & Ownership: Building the policy and enabling environment to mobilize domestic resources, bolstering domestic markets, and fostering country ownership of internationally funded climate action.
4. Cross-cutting & Multi-stakeholder Action: Calls for collaboration across governments, private sectors, and NGOs to bridge financing gaps and drive coordinated climate action.

Suggested citation

CPI. 2024. Global Landscape of Climate Finance 2024: Insights for COP 29.