Green Finance Briefing: Sustainable investments reached new records in 2021
- Investor appetite for sustainable investments is on the rise, with new records reached last year in green loans and investments.
- Early-stage climate fintechs are starting to attract investor capital, but the bulk of investments are still going to more established green projects.
Climate change awareness is growing, and it’s starting to bring more capital along with it.
Global issuance of sustainable bonds and loans hit record highs of over $1.4 trillion in 2021 and could reach over $7 trillion annually by 2025, according to the Institute of International Finance.
Venture capital dollars have also been flooding climate tech over the last year. Here, startups raised around $40 billion across venture deals, with funding rising 20% sequentially over each quarter. Around 1,400 investment firms joined at least 1 climate tech deal in 2021, according to Climate Tech VC.
The wider macroeconomic and political environment has been contributing to this surge in interest. The current US administration has been putting climate change at the forefront of its agenda, promising to commit trillions of dollars towards climate-related investments and tasking regulators to assess the country’s resilience towards climate risks that threaten the economy as a whole.
However, for the world to be on track for net zero emissions by 2050, transition-related investments need to accelerate from current levels to around $4 trillion annually by 2030, according to the International Energy Agency.
And if we actually meet this target, there would be enough pieces of the pie for everyone. The agency estimated that the cumulative market opportunity for manufacturers of wind turbines, solar panels, lithium-ion batteries, electrolysers and fuel cells amounts to $27 trillion – larger than today’s oil industry and its associated revenues.
These new investment prospects, paired with pressures coming from the public and regulators, are driving up interest in sustainable investing. There is a new status quo on the horizon – one that includes a portfolio with climate-related investments or an ESG stamp on it.
Chart of the week
Low-carbon energy transition reached a record $755 billion in 2021, up by more than a quarter year-on-year, according to a new report from BloombergNEF.
However, BNEF estimated that we’d need $2.1 trillion in investments – three times last year’s level – in the energy transition from 2022-25 in order to reach the net-zero carbon emissions target by 2025.
New renewable energy projects like wind and solar took the lion’s share of spending, attracting $366 billion - up 6.5% from a year earlier. This growth mostly came from Asia, as investments in renewables were flat year-on-year in the Americas, Europe, the Middle East and Africa.
What we’re reading
- U.S. markets regulator flags risks for ratings firms in ESG boom (Reuters)
- A CEO guide to net zero (BCG)
- If the U.S. wants to fully tackle inflation, it needs to tackle climate change (MSN)
- Top North American banks form consortium to address climate risks (Finextra)
- The sum of pension schemes committed to 'robust' net zero has reached £1 trillion in the UK alone (International Adviser)
- £262 billion investor says it will target bosses who fail on climate or human rights (Guardian)
What we’re writing
- How banks can tackle sustainable lending, in 4 charts
- How fintechs like Aquaoso help banks assess climate risks in their lending portfolios
- The Green Finance outlook for 2022: Trends, concerns and new entrants
- Transparency and the issues around green investments, hologram NFTs, and the new greentech taxonomy