(Bloomberg) — Investment in clean energy in emerging markets is less than a tenth of what’s required to keep the world on course to limit global warming to 1.5C, according to a new report from BloombergNEF.
While developing economies account for almost half of global greenhouse gas emissions and over a third of energy-related emissions, the volume of capital invested in moving these countries to lower-carbon sources of energy “is insufficient given the size of the climate challenge,” BNEF said in a report published on Tuesday. The International Energy Agency estimates emerging economies will need an additional $1 trillion of investment per year to achieve net-zero energy systems, yet just $67 billion went to emerging economies last year, BNEF data show.
The new report, which was commissioned by the Glasgow Financial Alliance for Net Zero to support its efforts in aligning the finance sector with carbon neutral aims, shows that the pipeline of new clean energy projects under development has shrunk and the investment gap between developed and developing economies has widened. Foreign direct investment for renewables in developing economies sank to a four-year low in 2021.Global investment in low-carbon energy technologies totaled $785 billion last year, up 24% from 2020, but the growth was limited almost entirely to richer nations, BNEF said. Energy transition investment in emerging economies is also skewed toward a handful of players. In 2021, India, Brazil and Vietnam were among the ten countries that attracted $50.4 billion, or 76% of the emerging-markets total.
The findings lay bare the scale of the challenge for world leaders gathering in Egypt next week for the United Nations’ annual climate change summit. A key topic for this year’s event, known as COP27, will be how to get rich nations that are responsible for the vast majority of planet-warming emissions to commit more funding to help developing nations adapt.
“The rate at which climate financing is being deployed in emerging markets and developing economies remains incompatible with keeping global warming on a trajectory that does not exceed 1.5C,” BNEF said.
In a separate report, GFANZ said achieving net zero “requires a truly global, whole-economy transition,” as decarbonizing developing economies is critical to achieving global climate goals. Increasing renewable energy investments to the necessary scale will require the development of “public sector risk-sharing mechanisms for blended finance” and the growth of high-integrity voluntary carbon markets to mobilize more private capital, GFANZ said.The alliance, which now has 550 members from banks to insurers and ratings agencies, released a series of publications on Tuesday “in support of the financial sector’s efforts turning net-zero commitment into financial decision-making and support the orderly transition of the global economy to net zero.” The documents included the clearest guidance yet on how financial firms can deliver on their commitment to reach net zero emissions by 2050.“GFANZ needs to insist that its member alliances incorporate many of the recommendations in this report into their guidelines and it must name and shame those that refuse to do so,” said Paddy McCully, a senior analyst at Reclaim Finance, a nonprofit.
A transition plan from a financial institution should include financing for so-called climate solutions, such as green hydrogen or regenerative agriculture projects, GFANZ said. It should also make provision for funding companies that are already aligned with the temperature goals of the Paris agreement, as well as those that are not, so long as they are committed to reaching net zero emissions. And it should include finance for the winding down of high-emitting assets like coal plants.
Firms taking these steps will have a “lens for understanding how assets, activities, or clients may be aligned with the transition and thus help form the basis of a transition strategy that can be embedded throughout the organization,” GFANZ said.
Having persuaded many of the biggest names in investment, insurance and banking to commit to net zero, Mark Carney, the former Bank of England governor who’s also the chief architect of GFANZ, has said the next step for these firms is to “operationalize” their zero-carbon pledges. A net-zero commitment is “a strong first step toward decarbonization” but to move forward from there “requires clear, credible net-zero plans,” GFANZ vice chair, Mary Schapiro, said in a statement on Tuesday.Carney and Michael R. Bloomberg, the founder of Bloomberg News parent Bloomberg LP., are the co-chairs of GFANZ. Schapiro is also vice chair for global public policy at Bloomberg LP.
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