Finance is increasing modestly, despite some setbacks in recent years, according to a new report by the Climate Policy Initiative, which tracks climate finance data globally.
From 2018 to 2023, the total invested in the sector increased from $40 billion to $65 billion. However, the high was in 2022, at $80 billion. (The report, out today, only covers data from the five-year period after 2018, due to “time lags in data availability” for 2024.)
The dip in funding from 2022 to 2023 is due to a roughly $20 billion decrease in financing directed solely to adaptation solutions from the China Development Bank. That drop was caused by a number of things, including currency depreciation and “methodological updates,” according to the report. It was partially offset by green bond issuances, which increased by $7.9 billion to reach $18 billion in 2023.
The numbers showcase the slow growth of a space that’s starting to consolidate investor interest while still struggling with major funding gaps. Companies developing first-of-a-kind projects and technologies, for example, have an especially hard time finding the financing they need, with some estimating that the market meets just 1% to 17% of the need for FOAK financing.
On a global level, the gap is particularly stark for emerging and developing economies, which saw $46 billion in adaptation financing in 2023. They are estimated to need over $220 billion annually on average between 2024 and 2030, and nearly $250 billion annually on average between 2031 and 2050. However, these estimates are highly uncertain because they depend on the progress of mitigation goals: “As mitigation finance growth lags what is needed, future adaptation needs are likely to be much higher,” the report notes.
The report also notes that while the data collected is useful to show the progress of the adaptation sector, its relative novelty and lack of clear definitions and boundaries mean that the numbers are probably conservative and “do not capture the full range of adaptation investments in the global landscape.”
In 2023, the majority of adaptation finance, 22.4%, went to water and wastewater solutions, including water supply, sanitation, and wastewater treatment. Energy systems such as battery systems, minigrids, and solutions to improve power lines’ resilience, by contrast, only got 0.5%.
Dual-benefit and mitigation finance
The report notes a potential shift from pure-play adaptation finance to “dual-benefit finance,” which targets solutions that tackle both adaptation and mitigation needs.
Dual-benefit finance reached $58 billion in 2023, tripling from $18 billion back in 2018, and funders “are increasingly designing their climate interventions to pursue synergies between both mitigation and adaptation action.” In this space, energy systems, transport, and waste together accounted for 14% of the total.
This slow rise of adaptation finance comes as global climate finance more broadly hits an all-time high of $1.9 trillion in 2023, according to the Climate Policy Initiative’s report. Early data indicates that the total breached $2 trillion in 2024, something that was reflected by BloombergNEF research as well.
Annual investments increased by an average of 26% between 2021 and 2023, and CPI estimates that “at the current rate, meeting $6 trillion — the most conservative estimate of required climate investment — may be reachable by 2028.”
The overwhelming majority of the $1.9 trillion went to climate mitigation finance, which received $1.78 trillion in 2023, more than double the $757 billion it got in 2018.
