Editing IPCC:AR6/WGIII/Chapter-14 (section)

==== 14.4.1.3 Private Sector Financing ====

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There is a growing recognition of the importance of mobilising private sector financing including for climate action ( [[#World%20Bank--2015b|World Bank 2015b]] ; [[#Michaelowa--2020b|Michaelowa et al. 2020b]] ). An early example of the mobilisation of the private sector in a cooperative mode for mitigation outcomes is evidenced from the Clean Development Mechanism of the Kyoto Protocol and the linking with the European Union’s Emissions Trading System, both triggered by relevant provisions in the Kyoto Protocol ( [[#14.4.4|Section 14.4.4]] ) and lessons learned from this are relevant for development of market mechanisms in the post Paris Agreement period ( [[#Michaelowa--2019b|Michaelowa et al. 2019b]] ). In 2019 and 2020, on average for the two years, public and private climate financing was on the order of USD632 billion, of which USD310 billion originated from the private sector. However, as much as 76% of the (overall) finance stayed in the country of origin. This trends holds true also for private finance ( [[#CPI--2021|CPI 2021]] ). Figure 14.4 depicts the international climate finance flows totalling USD161 billion reported in 2020, about 19% of which were private flows. For (international) mitigation financing flows of USD116 billion, the share provided by private sources was 24%.

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'''Figure 14.4 | International finance flows.''' Total international climate financial flows for 2020 were USD161 billion. By comparison, public sector bilateral and multilateral finance in 2017 for fossil fuel development, including gas pipelines, was roughly USD4 billion. Part (a) disaggregates total financial flows according to public and private sources, and indicates the breakdown between mitigation on the one hand, and adaptation and multiple objectives on the other, within each source. Part (b) disaggregates total financial flows according to intended purpose, namely mitigation or adaptation and multiple objectives, and disaggregates each type according to source. Part (c) provides additional detail on the relative contributions of different public and private sources. Sources: data from [[#CPI--2021|CPI 2021]] ; [[#OECD--2021|OECD 2021]] .

Foreign direct investments and their greening are seen as a channel for increasing cooperation. An assessment of the greenfield foreign direct investment in different sectors shows the growing share of renewable energy at USD92.2 billion (12% of the volume and 38% of the number of projects) ( [[#FDI%20Intelligence--2020|FDI Intelligence 2020]] ). Coal, oil and gas sectors maintain the top spot for capital investments globally. Over the last decade there is growing issuance of green bonds with non-financial private sector issuance gaining ground ( [[#Almeida--2020|Almeida 2020]] ). While it is questionable if green bonds have a significant impact on shifting capital from non-sustainable to sustainable investments, they do incentivise the issuing organisations to enhance their green ambition and have led to an appreciation within capital markets of green frameworks and guidelines and signalled new expectations ( [[#Maltais--2020|Maltais and Nykvist 2020]] ). In parallel, institutional investors including pension funds are seeking investments that align with the Paris Agreement ( [[#IIGCC--2020|IIGCC 2020]] ). However, the readiness of institutional investors to make this transition is arguable ( [[#OECD--2019b|OECD 2019b]] ; [[#Ameli--2020|Ameli et al. 2020]] ). This evidence suggests that international private financing could play an important role but this potential is yet to be realised (Chapter 15).

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