Investment in newer innovations like green hydrogen-based fuels, carbon capture and bioenergy, needs to increase tenfold to meet ambitious net zero emission targets by 2050, according to the World Economic Forum.
The latest projections are from the forum's How to Finance Industry Net-Zero report, which outlines approaches that can address a large funding shortfall and enhance climate change-mitigating technologies, while seeing positive returns.
“The mobilisation of finance to breakthrough technologies presents a tremendous investment opportunity,” said Derek Baraldi, head of sustainable finance and investing, at the World Economic Forum.
The International Energy Agency issued a stark warning this week that countries are falling short on clean energy investments - with dire consequences for the planet. The agency found that today’s climate pledges would result in only a fifth of the emissions reductions by 2030 that are necessary to put the world on a path towards net-zero by 2050.
Industrial-level decarbonisation requires new, innovative technologies, such as carbon capture and storage, green hydrogen, sustainable aviation fuels and green ammonia, among others.
While these breakthroughs have been identified, most are not yet mature or competitive with their greenhouse gas-emitting alternatives and are not yet scaled commercially, the WEF said.
On the road to the 2016 Paris Climate Conference, the priority was estimating the research and development needed. Through successful venture funding, these technologies have now moved past the point of being proven, yet have not made the leap to market-based or commercial-scale funding.
During this transition point, investment to scale up these technologies and test on a commercial scale is urgently required, the WEF said.
The report lays out an initial set of financing approaches and ways to de-risk these investments, with the aim of educating the public and private sector on how to rapidly accelerate the money being poured into towards these breakthrough technologies.
The WEF sees potential in public-supported incentive schemes that reward early adopters of innovative technological solutions. Putting together public and private capital is also necessary to finance technology-specific projects, it said.
To invest effectively, mechanisms should be put in place that support collaboration among multiple stakeholders in these technologies. Non-traditional business models are also likely to be more effective. Industry participants and investors should work together to establish new contracts and ways of doing business to increase the probability of commercial success.
"We are now in a vital moment to accelerate the mobilisation of capital towards decarbonisation technologies in hard-to-abate industries,” Ted Moynihan, managing partner and global head of industries at Oliver Wyman, which co-wrote the report, said.
In recent years the financial sector has begun to direct capital toward sustainable finance. Sustainable lending totalled $321.4 billion in the first half of 2021, setting a first-half record. According to Bloomberg data, in 2020, despite the pandemic, global flows towards energy transition investments totalled approximately $501 billion. In the first half of 2021, about $552 billion in sustainable finance bonds were issued, a 76 per cent increase.
In the private sector, more than 250 institutions representing over $80 trillion in assets under management have committed to align their portfolios with net-zero pathways by 2050 through the Glasgow Financial Alliance for Net Zero.
While these are encouraging investment trends, the target "both on scale and coverage of investment is not being met", the WEF said.
