How do we transform our unsustainable world? By fixing climate finance

Firefighters attend a wildfire in Saronida, south of Athens, Greece, last week. Bloomberg

We are not on track to deliver the world’s sustainable development agenda by the end of this decade. This is especially the case for ensuring access to affordable, reliable, sustainable and modern energy for all – the seventh UN Sustainable Development Goal (SDG).

That was the overwhelming consensus from the 2023 UN High-Level Political Forum, held in New York last week, which took stock of the progress made in the past seven years since the SDGs were adopted by member states.

In particular, the dialogues that focused on energy access highlighted the concerning projections that by 2030, 650 million people will still lack access to electricity, and more than a third of the global population will be without access to clean cooking fuels, if we continue along the current course we are on.

Moreover, a mounting debt crisis for developing countries has saddled them with debt burdens from which it is becoming increasingly difficult for them to disentangle themselves under the current financial system.

With these alarming circumstances as the context for the discourse in New York around energy access, climate action and sustainable development, another clear consensus emerged: fixing climate finance holds the key to transforming the unsustainable world we have built.

It should come as no shock that a global economic model based on expansion, growth and profit at all costs has become unsustainable and could ultimately manifest in an unlivable planet. Now, the system must evolve if humanity is to survive. The time has come to rethink the relationship between our economic imperative, social progress and our ecological systems.

Nothing more than a systemic transformation of our current economic and financial systems can bring us back from the precipice of climate calamity.

Without such a transformation, climate frontline economies will remain unable to access and harness the natural resources they have in their own back yard, and they will fall further behind in the race to net zero and the energy transition.

The international scientific consensus says that, in order to prevent a worst-case scenario for the climate, global net emissions caused by humans need to fall considerably by 2030. So we have just a few years left to right this socioeconomic wrong.

The performance metrics of the current financial system do not recognise so-called “externalities”. We must move beyond entrenched metrics of success, like GDP, and instead also factor in the negative impact of greenhouse gas emissions, the positive impact of healthy ecosystems, contributions to greenifying supply chains or the boon of enhancing energy access.

We need to rethink how we assess the success of investments to a set of metrics that prioritises the long-term value of a sustainable economic system which can deliver a livable climate.

Advancing climate solutions, fast-tracking the energy transition and enhancing energy access requires what the climate investor Regine Clement has referred to as “catalytic capital”. And lots of it. We need to unlock and reallocate capital to the tune of trillions of dollars a year.

According to the International Renewable Energy Agency’s World Energy Transitions Outlook, a cumulative sum of $150 trillion of investments in renewable energy solutions is required to keep global warming to below 1.5°C by 2050. That’s an annual average of more than $5 trillion a year.

Although global investment across all energy transition technologies reached a record high of $1.3 trillion in 2022, annual investment must more than quadruple to remain on the 1.5°C pathway.

However, it also remains the case that although renewable energy investments are growing, they are increasingly focused in just a few countries. More than half of the world’s population received only 15 per cent of global investments in 2022, with least-developed countries receiving less than 1 per cent of the total.

Furthermore, 85 per cent of global renewable energy investment benefitted less than 50 per cent of the world’s population, and Africa accounted for only 1 per cent of additional capacity in 2022.

This chasm in renewable energy financing received by developed versus developing countries continues to increase. In fact, it has more than doubled over the past six years.

The urgent need to boost the flow of funds to the developing world could not be clearer. A just and inclusive energy transition will help to overcome the deep disparities that affect the quality of life of hundreds of millions of people, and not reinforce them.

We should also be clear that relying on one technology, fund or business will not work. Investments must span the energy system to propel transformative systemic change – from infrastructure to education.

No government can fund its way out of this climate crisis. We need to deepen collaboration between governments. And, crucially, we need to incentivise the private sector to partner with the public sector to drive investments into countries that currently face multiple barriers to entry, including high capital costs.

To unlock the promise of a more sustainable future, we need a decisive action plan that sets practical global renewable energy targets that work in parallel with the inevitable phase down of fossil fuels. These targets must be underpinned by a transformed financial system can deliver positive change for all economies, from Global South to Global North, East to West.

Such a plan is the crux of the UAE’s Cop28 vision. The plan laid out by the Cop28 Presidency last week focuses on four essential paradigm shifts, with the 1.5°C target as its north star: fast-tracking the energy transition, fixing climate finance, focusing on people, lives and livelihoods and full inclusivity.

And, if the global community can park partisan priorities and rally around this vision to build consensus, we can deliver one giant leap for sustainable development and climate action this November in the UAE.