Investor wake-up call: Global climate financing fell 11% last year 



ImpactAlpha, Nov. 7 – At a time the world needs to be radically ramping up financing for the low-carbon transition, investment is dropping instead. 

Global climate financing fell to $546 billion in 2018, a decline of 11% from $612 billion in 2017, according to the Climate Policy Initiative’s annual tally of climate-related primary investment.

The annual tally, which groups spending in two-year cycles to smooth out annual fluctuations, tried to put a brighter spin on the numbers. Looked at that way, average investment for 2017-18 was $579 billion, up 25% from 2015-16, and above a half-trillion dollars for the first time.

Even so, the investments in low-carbon energy generation and other climate-smart infrastructure don’t begin to approach the $1.6 trillion to $3.8 trillion per year that is needed  through 2050. 

“This is simply not enough, especially as investments in polluting industries continue to effectively cancel out these efforts to address climate change. Leaders should be focused on total economic transformation,” said Climate Policy Initiative’s Barbara Buchner. “Governments, development finance institutions, and investors need to make a major shift in how they invest if they want to avoid climate change.”  

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Investments in fossil-fuel generating capacity and infrastructure is still running at roughly three times the level of investments in renewable energy, the report found.

On Tuesday, more than 11,000 scientists issued a fresh alarm, declaring “unequivocally that planet Earth is facing a climate emergency.” Rising sea levels will threaten 40 million more people over the next 30 years, triple previous estimates, according to research in the journal Nature.

The market is not yet responding to the urgency of the situation. Or rather, it’s responding to signals that global climate action is stalled. This week: the Trump administration officially started the one-year countdown to pull out of the Paris Accords. The Saudi oil giant, Aramco, greenlighted a public offering of its shares, which is expected to value the company at as much as $2 trillion.

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The record $612 billion in climate-related funding in 2017 could represent the high water mark of the Paris-era optimism that global leaders across government, companies and communities would drive the agenda forward. The year marked renewable energy capacity additions in China, the U.S., and India and increased public commitments to land use and energy efficiency.

Renewable energy generation investment, the largest area of climate finance, reached an all-time high of $350 billion in 2017, up 30% from 2016, but then fell back to $322 billion in 2018.

Last year’s decline reflects, at least in part, the rapidly falling cost of renewables, which means that even lower investment totals are driving large increases in low-carbon generation and storage. Indeed, solar, wind and storage costs all fell, making possible “clean energy portfolio” solutions that are competitive with fossil fuels virtually anywhere in the world. 

Global cooperation

The declines may also reflect the political headwinds facing global climate action, including the U.S.’s reversal on the Paris agreement. Under the accord, countries were set to begin “ratcheting up” their nationally determined contributions to greenhouse gas reduction, with increased ambitions powered by those same falling cost curves. Instead, few countries are on track to meet even their initial, inadequate Paris commitments. (At the UN Climate Action Summit in September, 77 countries pledged themselves to net-zero carbon emissions by 2050; the U.K. has enshrined its commitment in legislation.)

Chinese-Indian-U.S. climate cooperation is another casualty of tense trade relations between the two mega-emitters. Capgemini’s World Energy Markets Observatory reports that India, the U.S and China accounted for some of the biggest increases in greenhouse gas emissions last year due to booming energy consumption dominated by fossil fuels. The 2018 slowdown in low-carbon financing reflected a downturn in Chinese solar investment and weakening growth in wind capacity outside of China and the U.S.

Making the sluggish pace of climate financing even more alarming is the continued growth of fossil-fuel financing. From 2016 to 2018, 33 of the largest banks collectively plowed an estimated $1.9 trillion into the fossil fuel sector, according to the Banking on Climate report. JP Morgan, the largest fossil fuel backer, alone financed nearly $200 billion over the three years between 2016 and 2018. 

JP Morgan, Citi and Wells Fargo appear to be on track to increase such financing in 2019, according to an updated analysis by the Rainforest Action Network for the Guardian. A report this week from Carbon Tracker found that top oil and gas producers need to slash combined production by 35% over the next decade to stay within climate targets set by the Paris Accord. 

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Corporate spending

The private sector response to the low-carbon opportunity would be impressive if it were not so inadequate. Private sector renewables financing was essentially flat at $323 billion in 2018, down from $330 in 2017. Institutional investors and funds are a tiny but growing part of the climate finance equation, but tripled to $9 billion in 2017/18 over 2015/16, mostly targeted at renewable energy, a sign that renewables markets are “increasingly perceived as more mature and less risky,” according to the CPI report. 

Corporations are the biggest private players, accounting for $183 billion, or 56% of private capital flows, up 50% from 2015/16 to 2107/18. Commercials banks on average raised their climate finance investments, particularly for renewable energy, to $73 billion in 2017/2018. Yet over the same period, they financed $178 billion into fossil fuel production, or almost $2.50 for every $1 of renewables financing, according to CPI.

Among public funders, investments by development finance institutions fell to $94 billion last year, a four-year low, from $171 billion in 2017. Climate Policy Initiative chalks up the decline to a global economic slowdown and domestic policy shifts to reduce debt and tighten financial risk management, especially in East Asia and the Pacific.

The fastest growing sector for private sector investment was low-carbon transportation. Household spending on eco-friendly goods such as electric vehicles and solar panels also surged, to an average of $55 billion in 2017/18.  Consumer electric-vehicle spending quadrupled from $9 billion in 2015 to $41 billion in 2018, driven by Chinese and U.S. households. 

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