- Study by KfW Research and BCG shows: Global investments for climate protection must increase by 30 percent annually
- Development and development banks can make a decisive contribution to closing the gap
- Through suitable framework conditions, politicians worldwide can help to exploit the full financing potential
Munich/Frankfurt: If global climate investments continue to develop at the current pace, around 27 trillion US dollars (24.6 trillion euros) will be missing from the fight against climate change by the end of this decade. This is shown by a new study by the strategy consultancy Boston Consulting Group (BCG) and KfW Research, the economic competence center of the KfW banking group. Along several dimensions – from the business model to the necessary framework conditions – the paper outlines how development and development banks worldwide can make a significant contribution to closing this gap. They do this by reducing barriers to private climate finance. The analysis includes central action-guiding recommendations, such as adapting the product portfolio, strengthening operational processes and using synergies with other players.
Meeting the enormous overall investment needs to achieve the goal of limiting global warming to 1.5 degrees Celsius compared to pre-industrial times requires both public and private capital. A central success criterion for this is the multilateral coordination of financing flows. In addition to diverse mandates, development and development banks around the world can also bring different skills to climate financing and thus help shape cooperation and strategic progress in the most urgent financing projects of our time.
“Global investments in climate protection must increase by at least 30 percent annually – that is about three times faster than before,” says Dr. Fritzi Köhler-Geib, chief economist at KfW. “Development and development banks can help reduce significant barriers to private climate finance: by reducing complex risk profiles, by supporting large initial investments and by providing long-term capital and closing knowledge gaps.”
“Development Finance Institutions (DFIs) like KfW play an enormously important role in financing measures against climate change,” says Dr. Alexander Noßmann, co-author of the study and partner at BCG. “DFIs will play a key role in building a bridge between public and private investors by making investments in climate transformation more attractive through their product offering and processes. This will have a decisive impact on tackling the climate crisis.”
To ensure that development and development banks as well as private financiers can exploit their full potential in climate financing, politics worldwide also has a central role to play, as the joint analysis shows. The aim is to gradually create framework conditions for climate-friendly investments and their financing in the real and financial economy. With the study published for the 28th UN Climate Change Conference (COP28), KfW and BCG emphasize the urgency of facing the financing challenges. The experts have outlined the following concrete steps:
- By focusing on regional and global cooperation, development and development banks can combine efforts in climate financing and leverage synergies, for example through common digital platforms
- They can adapt their product portfolio to meet the complex risk profiles of the transformation and to involve private capital extensively and over the long term, e.g. B. through investment consortia, risk assumption or the issuance of green bonds
- Development and development banks can align their operational processes more closely with the targeted mobilization of climate financing, for example through modern ESG risk management, efficient and customer-oriented structures and greater digitalization
- Real and financial economic conditions can support the financing of climate protection measures, e.g. B. through consistent CO2 pricing, incentives to establish green future technologies, differentiated regulatory treatment of climate investments and further integration of the capital markets
- The basis for optimal capital allocation is, last but not least, a sufficient basis of information, in particular greater and data-based transparency of the climate impacts of the investments made
