Private investments in climate finance reach US$270 billion

2nd November 2017 Jack Aldane

Lower renewable energy costs are driving private investors to invest in climate finance projects, a report by the Climate Policy Initiative shows.

The report, entitled Global Landscape of Climate Finance 2017, reveals that while climate finance projects absorbed around US$14 billion in official development assistance from governments in 2015 and 2016, private finance averaged capital flows of US$270 billion during the same period as the price of solar technology fell and environmental policies begin to attract more private capital to climate finance.

The overall rise in private finance represents a sharp increase of 23 percent on the years 2013 and 2014. The report adds however that investment peaked at US$299 billion 2015 due to concentrated investment in rooftop solar panels across key markets including the US, China and Japan.

The report states that “a wide range of public and private finance actors are aiming to take advantage of the strong political signal delivered by the Paris Agreement”. Among these, multilateral development finance institutions (DFIs) are shown in the report to be closer than their national counterparts to reaching their stipulated targets for 2020.

Overall, development finance institutions were shown to have invested around US$124 billion in climate-compatible projects each year. They currently account for around 89 percent of total public finance mobilised towards climate finance. National development finance institutions made more commitments to new projects than at any time in the last three years, though in some cases have been forced to scale back operations in emerging economies by as much as 50 percent, due to currency devaluations and economic uncertainty. Multilateral DFIs reported an increase in private sector mobilisation from $11 billion to $15.6 billion between 2015 and 2016 .

Institutional investors accounted for just US$2 billion of investment over the two-year review period.

Nanno Kleiterp, chairman of the board of directors of European Development Finance Institutions (EDFI) and contributor to the report, commented:

“The report shows we are not doing enough yet. In the coming years it is key for all DFIs to catalyse and mobilise institutional investors to finance, as their contribution is less then 1 percent of the total flows.”

New actors weighing in on clean energy investments include the Green Climate Fund, the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank. Combined, these institutions provided a total of US$2.5 billion in new investment capital in 2016.

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