Transition plans, including from governments in response to the Global Stocktake, will be crucial to bring about the shift to a low-emissions, climate-resilient world. Markets need clear implementation signals to align capital with the goals of the Paris Agreement. Our in-depth report calls for the creation of a transition-plan ecosystem connecting all levels of the global economy.

At the heart of the Paris Agreement is the crucial question of how the world finances the climate transition. We need to harness investment of US$4-6 trillion per annum and the whole of global finance in a way that both protects sustainable development and moves money incrementally towards activity aligned with a just transition to a sustainable future.

To put the scale of this challenge in context, the Marshall Plan of 1948 delivered $13 billion of funding to rebuild Europe after World War Two, around $165 billion in today’s prices. We need to mobilise the equivalent of 30 Marshall Plans every year to invest in the transition.

However, the fifth biennial assessment of climate finance by the UN Framework Convention on Climate Change (UNFCCC) Standing Committee on Finance, published in October 2022, identified an average of $803 billion deployed per year in 2019 and 2020. It is clear markets are not currently delivering investment at the scale required. It is also obvious private finance must be mobilised to close the gap. The key question is: How can the necessary shift in finance be achieved? 

A transition-plan ecosystem

We need to mobilise the equivalent of 30 Marshall Plans every year to invest in the transition

In this report, we offer our suggestions for a potential way forward. We highlight four principles: building a vision for the transition, providing economic fundamentals, renewing the international financial architecture, and building institutional capacity to synthesise a “transition-plan ecosystem”. We also highlight the central importance of transition planning at all levels of the global economy to appropriately incentivise markets.

Specifically, we believe four key steps are required:

  • Create a vision – The response to the Global Stocktake should include not only government and public body action, but detailed analysis of the progress made by private finance towards the goals of the Paris Agreement. A global vision is needed to make all financial flows consistent with Article 2.1.c of the Paris Agreement, which can be led by the creation and implementation of national transition plans.
  • Change economic fundamentals – The Stocktake should make clear it expects Parties to respond not only with essential and urgent enhancements of Nationally Determined Contributions (NDCs), but also a clear implementation plan – a national, whole-of-government transition plan with annual reporting on progress. These plans can send signals to markets about commitment to transition and policy shifts that will change future corporate cashflows and therefore market valuations.
  • Transition the international financial architecture – The Stocktake outputs should include a review of the international financial architecture. A detailed regulatory vision is needed to align the regulation and supervision of finance with the ambitions of Parties – a blueprint for a transition-aligned, purpose-enabled financial architecture. All bodies within the international financial architecture should respond to the signals sent by government stakeholders in signing up to the Paris Agreement, Kunming-Montreal Framework and Sustainable Development Goals by creating their own institutional transition plans. These will set out how their work will transition to take account of the global commitment to net zero, particularly the steps to be taken before 2030 to align with a 43 per cent cut in emissions against 2019 levels. These transition plans would send important signals about prioritisation to guide those they regulate and supervise.
  • Build institutions – An institutional guiding, monitoring and analysis mechanism is needed. We need clear guidance for national and financial architecture transition plans, along with an annual synthesis report that monitors implementation and supports iterative, dynamic and responsive plans that evolve with the accelerating transition.
The collective benefits from decisive action are too big a prize not to try. We need to start now

Putting these things in place will not be easy. But the collective benefits from decisive action are too big a prize not to try. We need to start now.

Download “The tipping point for climate finance” to understand:

  • The importance of transition plans in achieving the goals of the Paris Agreement.
  • The role of the international financial architecture in supporting the shift to a low-emissions, climate-resilient world.
  • How concerted action across the global economy can bring about positive tipping points for climate finance.

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