We all know by now that we are warming the planet at an alarming rate due to our runaway greenhouse gas emissions and that we’re going to have to decarbonize very rapidly and arrive at net-zero emissions by mid-century in order to have a fighting chance to keep global temperature rise to below 1.5oC.
We also know that this is achievable, but it will take strong and unwavering policy action from governments, greater international cooperation, effort from all of us—and money. A lot of money: McKinsey estimates that more than $9 trillion per year on average will need to be spent between now and 2050 on physical assets for energy and land use systems. Not all of this is “new” spending, but even so, we will need to invest $3.5 trillion per year more than we currently do while reorienting some of our current spending away from carbon-intensive activity.
And just as we will all need to work together to decarbonize, we will need to bring all sources of capital to bear to pay for all this.
The bulk of the investment will have to come from the private sector. Companies will need to invest to concretize their net-zero commitments. They will need to raise debt and equity from capital markets, so financial institutions will play a critical role. In addition to setting the right policies, the public sector will need to invest, either directly in state-owned assets or indirectly, through (fiscal) support for private investment. Multilateral institutions—development banks as well as climate finance facilities like the Green Climate Fund—will need to step up and help countries make some of these investments. And developed nations will need to make good on their commitments to financially help developing countries achieve climate goals.
