New study reveals USD200 trillion of investment will be needed to deliver Net Zero

The research finds that meeting the goals of the Paris Agreement will require USD6.4 trillion in annual climate finance between now and 2030, rising to USD7.3tn by 2050.

• Investment in physical assets to decarbonise our global economies is not happening quickly enough 
• USD6.4tn is required annually between now and 2030 to meet the goals of the Paris Agreement, rising to USD7.3tn by 2050. 
• Climate finance flows have grown consistently over the past decade, but still lag far behind the estimated need.
• Data suggests that concerted climate action and investment could add net USD43tn to the global economy – equivalent to a rise of up to 3.8% in global GDP – by 2070.
• The sectors with the greatest finance needs are transport, energy systems (including storage, transmission and distribution), building energy efficiency, and decarbonizing industrial processes.

The results of the study, How big is the Net Zero financing gap?, are available via a Net Zero financing tool that will be updated regularly. The research details the scale of the sector-specific investments required to meet the Paris goals, with the aim of focusing a wide range of stakeholders on how to close the financing gap.

The study finds that the sectors with the greatest climate finance needs are: 

• Transport: requiring 50% of the total estimated finance needs, or at least USD3.2tn annually through 2050. Current investment in electric vehicles will need to rise by 14x over this period to USD1.1tn per year.
• Energy systems: requiring 32%, or at least USD2.1tn annually through 2050. Investment in wind power will need to rise 3x, and investment in solar and nuclear power will need to more than double.
• Energy efficiency in buildings: USD731 billion annually through 2050.
• Decarbonizing industrial processes: USD320.2bn
• Clean energy storage solutions: USD251.3bn 

While the sums involved in decarbonization are substantial, the research explains that the benefits are even larger. Current data suggests that concerted climate action and investment could add net USD43tn to the global economy – equivalent to a rise of up to 3.8% in global GDP by 2070 – while delayed action could result in significant economic losses and social harm.

David Lee, partner at Allen & Overy commented: “The transition to a low-carbon, resilient, and just economy is the greatest investment opportunity in history. However current climate finance flows are currently nowhere near what is required to keep the world on a Net Zero pathway. We need to accelerate investment flows dramatically – and as soon as we can – to prevent the financing gap growing wider.” 

Matthew Townsend, partner at Allen & Overy commented: “This report provides an industry breakdown identifying the key areas that are desperately in need of investment in order to ensure that we meet these crucial climate finance needs. If we tackle this now, there is huge potential for economic growth in these industries over the next thirty years. The transport industry in particular makes up half the total investment needed to reach Net Zero.”

Scott Neilson, partner at Allen & Overy added: “It has never been more important for governments, policymakers, investors and businesses to work together. We need the right market and policy frameworks to unlock private investment, and for public financing to deliver greater impact than it is today.”

Barbara Buchner, Global Managing Director at CPI said: “We know that closing the climate finance gap will produce numerous economic and social benefits, while delay only increases cost and harm. Practical guidance like this study demystify transition needs, arming leaders with the information they need to take action.” 

The report explains that, currently, investment in renewable energy is unevenly distributed across the world, with 90% of the growth in clean energy investment in recent years occurring in advanced economies and China. Finding ways to support a just transition in emerging economies is therefore critical. 

In addition to scaling up investment in more mature sectors like renewable energy systems and low-carbon transport, policy and financial support will need to be directed to important technologies that are not currently at commercial viability, such as next generation nuclear and green hydrogen. And sectors with significant emissions reduction impact, like methane and agriculture and forestry, require relatively small investment amounts. 

To unlock all the necessary investment, urgent changes to public policy are required. Every effort must be made to ensure policy supports private capital flows in a way that transcends short-term political cycles. The private sector also has significant opportunities for near-term action, from increasing internal climate expertise to developing credible transition plans with short-and medium-term targets. 

To rise to these challenges, both public and private actors will need to increase their ambition, efficacy, and coordination.