Improved financing could save the world $50tn in its decarbonisation drive

Low-cost financing can help power a green energy transition while saving the world $50 trillion in its goal to reach net zero by 2050, according to a report.

Governments, financial institutions and investors must jointly find ways to reduce the risk of investing in green projects by developing blended and low-cost finance solutions to attract private sector funding, global consultancy Deloitte said.

This will help countries balance economic growth and climate neutrality, especially in emerging economies.

Major investments of $5 trillion to $7 trillion per year are needed through to 2050 in the energy sector to drive the transition but less than $2 trillion is currently spent each year, according to the report.

This highlights underinvestment in green projects and the high return rates required because private investors perceive sustainability projects as riskier than alternative investments.

Taking swift action means that the projected savings of $50 trillion through to 2050 can reduce the annual investment needed by more than 25 per cent, Deloitte said in its Financing the Green Energy Transition report.

“Just as we are continually developing solutions and technology to rapidly decarbonise, we must take definitive steps to remove financial barriers in order to accelerate a just energy transition, especially in developing economies,” said Jennifer Steinmann, Deloitte’s global sustainability and climate practice leader.

“Decisive and co-ordinated policy support and hand in hand action across the global finance ecosystem are critical to guiding investments toward green projects and supporting the growth of sustainable economies.”

The report comes a day before the Cop28 UN climate summit in Dubai on Thursday, when world leaders will focus on accelerating the world’s transition to more sustainable forms of energy.

In a sluggish global economy, a major question is how to pay for it, and climate finance will be a key topic during the global gathering.

“If investments do not scale up rapidly, the world will fail to meet its climate objectives,” Deloitte said in its report.

Less than half of green investments are currently made in developing economies, mostly due to greater risks and stricter public budget constraints for energy transition projects. These projects are seen as less bankable, which means their risk-return profile does not meet investors’ criteria to inject capital.