At COP29 in Baku, I was asked to imagine a 2050 where we all lived on a sustainable and resilient planet. I was also asked to describe what had happened over the past 25 or so years to make that possible.
It was an interesting exercise, and it highlighted one fact: If we thrive in 2050, it will be because we made smart and informed choices now. A sustainable future is not impossible. But it will be built through deliberate action today, including smart policy choices, sound investments, and collective effort.
If we thrive in 2050, it will be because we made smart and informed choices now. A sustainable future is not impossible.
To get there, emerging market economies need $2.4 trillion annually through 2030 to fully transition to a low-carbon economy. Yet today global climate finance flows amount to only $1.3 trillion, half of what is needed.
How can we ensure this happens and make the sustainable planet of 2050 a reality, rather than just an inspiring thought experiment?
Moving Capital: The Smart Business Choice and New Asset Classes
The key? Moving capital at scale. This will also mean ensuring investors understand that climate finance isn’t just about responsibility—it’s smart business. Investing in sustainable infrastructure and economies unlocks new opportunities, creates stability, mitigates risks, and reduces costs in the medium and long term.
Take sustainable cooling. The cooling market in developing economies is expected to grow from about $300 billion to $600 billion per year, or more, by 2050, with space cooling (both residential and commercial) driving growth. If energy and efficient cooling equipment implemented at scale it would save consumers up to $0.6 trillion per year, which is half of the $1.25 trillion spent on fiscal subsidies for fossil fuels and agriculture.
To truly unlock private finance, we need to support reforms and policies that can catalyze low-carbon, sustainable investment and move markets in a climate-oriented direction. This includes targeted pro-climate reforms such as green taxonomies, carbon taxation, energy efficiency standards, and cost reflective tariffs. It also includes broader reforms such as regulatory certainty or the introduction of conducive public-private partnership (PPP) frameworks.
To truly unlock private finance, we need to support reforms and policies that can catalyze low-carbon, sustainable investment and move markets in a climate-oriented direction.
Green taxonomies have been particularly powerful.
By clearly defining “green” or sustainable investments, they are creating a new asset class drawing in institutional investors. With their clear, measurable criteria, taxonomies bring consistency and transparency to financial markets, enabling investors to confidently allocate capital to climate-friendly projects.
The impact of green taxonomies extends beyond clarity—they also reduce the risk of “greenwashing,” ensuring funds flow to projects that genuinely advance environmental and social goals. And they make it easier for institutional investors, like pension funds and sovereign wealth funds, to incorporate sustainability into their portfolios.
Innovative Financing Instruments: Unlocking Scale through Capital Markets
Thematic bonds increasingly offer another excellent tool to mobilize large-scale climate finance. Ranging from green bonds to blue, and sustainability-linked bonds, they offer investors an opportunity to align their capital with specific environmental and social outcomes, all while delivering competitive financial returns. The market size for thematic bonds reached an impressive $760 billion across forty-five countries which are part of the Sustainable Banking and Financing Network in 2023.
Their success lies in their ability to directly connect financial flows to specific outcomes. These bonds offer transparency to investors by ensuring proceeds are used exclusively for projects aligned with their themes. This targeted approach not only attracts traditional investors but also engages a new wave of capital from impact-driven funds, institutional investors, and retail markets. IFC was one of the earliest issuers of green bonds and has been driving innovation in the market to unlock investment. As of June 2024, there were more than $5.1 trillion outstanding bonds in the sustainable debt capital markets.
As of June 2024, there were more than $5.1 trillion outstanding bonds in the sustainable debt capital markets.
Thematic bonds have also served as catalysts for innovation in finance. Their growth has inspired new instruments such as biodiversity bonds, focusing on ecosystem conservation. Such innovations have broadened their scope, enabling them to address a wider range of global challenges.
Partnerships That Make It Work
Climate-friendly projects need to be perceived as bankable to ensure capital flows towards them. Right now, their return profile is not commensurate with the risks investors face, especially in emerging markets.
Concessional capital, or blended finance—in the form of grants, guarantees, and debt or equity at below-market rates of returns—is one of the most powerful mechanisms to mitigate this.
For every dollar of concessional capital, IFC, for example, has mobilized $8 in private sector investment, achieving a significant “crowding-in” effect. This ensures limited public funds are used to leverage vast amounts of private capital, maximizing the impact of every investment.
Concessional equity capital, which can absorb first loss risk, holds the promise of being truly catalytic in helping companies and funds attract capital at a much larger scale from commercial investors.
Looking into 2050
The road ahead will not be easy. Policy inertia and technological barriers could slow down progress. But taking deliberate action today, coupled with innovative financing solutions and strong partnerships, can help drive us forward and make that livable planet of 2050 a reality, rather than an impossible dream.
Source: blogs.worldbank.org