The Untapped Trillions of Climate Finance

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By Amal Enan, Chief Investment Officer, American University in Cairo

Two to five trillion dollars a year is the widely familiar and extensively cited investment needed to save the planet. An accumulated investment of $200 trillion is now required to fuel a green transition by 2050. We finally surpassed $1 trillion in climate financing in 2023. Still, that is less than 1 percent of the global gross domestic product (GDP). Where is the rest going to come from?¹

To date, much of the debate has centered around how to galvanize that sum every year from a combination of domestic and international finance—private and public, concessional and non-concessional—to achieve the urgent goal of net zero by 2050.

The resulting climate financing pales in comparison to the urgency of climate action. To power what would be the biggest industrial transformation the global economy has ever seen, we need trillions in investments in infrastructure, technology, energy systems, mobility and food systems. Considering that public and private capital allocators manage more than $120 trillion in combined assets,² how do we interpret a climate-finance deficit that still stands at $4.3 trillion annually?³ Why are financial flows not being directed towards climate action at a scale commensurate with the actual financing needs?

Conversations on how to finance climate action are well rooted. The 1997 Kyoto Protocol legally bound industrial nations to greenhouse-gas reductions. The 2015 Paris Agreement further emphasized financial flows for carbon dioxide (CO2) abatement and climate-resilient development. Since then, and in between, climate-action circles have focused on how to financially implement the Paris Agreement’s goal of limiting global warming to below 2 degrees Celsius (°C).

Despite the extent and depth of discussions, climate action has not matched the level of debate, the urgency of the situation or the available capital for climate projects.

When we consider that many of these allocators’ very ethos—generational equity and financial sustainability—are closely aligned with the goals of climate action and that their investment portfolios are at risk from inaction, how do we justify their underweight allocation to climate solutions year in and year out? Add to that their failures to incorporate climate risks fully into their mitigation and portfolio-construction strategies.

In a context in which climate action is no longer an option but a regulatory, financial and justice imperative, where is public and private capital going?

Climate financing trends today

Limited partners

When it comes to investing in climate action, a common limited partnership (LP) position has been one of responsibility and caution. Whether sovereign wealth funds (SWFs), pension funds, endowments or insurers, achieving the right balance between stakeholder obligations, internal capabilities and fiduciary duties has been delicate.

A sovereign wealth fund’s…