A recent study by Deloitte revealed that new cost-reducing finance instruments can help de-risk green projects in developing economies. Simultaneously, these instruments enhance the attractiveness of investments in such projects, contributing to the advancement of a worldwide, equitable energy transition.
The report, titled “Financing the Green Energy Transition,” not only underscores the pressing need for increased investments but also presents a comprehensive roadmap to surmount barriers hindering the transition to a low-carbon economy.
Achieving net-zero greenhouse gas emissions by 2050 requires an annual global investment in the energy sector ranging from $5 trillion to $7 trillion. However, current investments fall significantly short, languishing at less than $2 trillion annually.
Beyond financial gains, the report projects significant savings of $50 trillion through 2050, potentially reducing the annual investment needed by over 25 percent. This holistic vision extends beyond finance, emphasising the imperative to meet collective climate goals.
A critical challenge illuminated by the report is the underfunding and heightened required return rates of green projects. Private investors, perceiving green technologies as riskier compared to alternative investments, create a formidable barrier to the progress of sustainable initiatives.
To address these challenges, the report advocates for a collaborative approach, bringing governments, financial institutions, and investors into alignment. The goal is to develop blended, low-cost finance solutions capable of mitigating risks associated with green projects, thereby rendering them more attractive to private investors.
Jennifer Steinmann, Deloitte Global Sustainability and Climate Practice Leader, stressed the need for decisive and coordinated action. “We must take definitive steps to remove financial barriers to accelerate a just energy transition, especially in developing economies,” she emphasised.
She added, “Decisive and coordinated 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.”
To win the race to net-zero, the world must invest wisely and identify areas for cost reduction. In the current landscape, less than half of green investments find their way to developing economies, shackled by perceived risks and stringent public budget constraints. The report outlines a transformative vision, projecting that nearly 70 percent of green investments must be allocated to developing economies by 2030 to meet net-zero goals.
Hans-Juergen Walter, Global Financial Services Industry Sustainability and Climate Leader, echoed the sentiment, calling for the implementation of concessional finance — a loan made on more favourable terms than the borrower could obtain in the market—through innovative financing structures that mobilise private capital for climate action
“Major financial institutions, such as development banks and multilateral funds, play a pivotal role in this context,” he said.
