Understanding climate change requires wrapping your head around some crazy financial figures. To transition the global economy away from fossil fuels, governments, financiers, and businesses must invest some $4 trillion into clean energy every year beginning in 2030, according to the International Energy Agency. That sounds like a lot, but it’s dwarfed by the cost of doing nothing. Insurance giant Swiss Re warned last year that climate change could cut off nearly 15% of global economic output by 2050. In 2022, these numbers came to the fore as leaders grappled with the urgent need to find the green to go green.
Perhaps no single climate investment this year will go further than the $369 billion the U.S. is spending to catalyze renewables and cut emissions via the Inflation Reduction Act. After holding up the legislation for the first 18 months of Joe Biden’s presidency, West Virginia Democratic Senator Joe Manchin struck a deal in July to bring the law’s most significant provisions to life. Analysts say it will help dramatically cut U.S. emissions and incentivize trillions more in private investment.
Speaking of private investment, Yvon Chouinard, founder of retailer Patagonia, made waves in September when he announced he would donate the entire company—reportedly valued at around $3 billion—to save the planet. Future profits will be used to address climate change, not to benefit shareholders.
Elsewhere, satisfying shareholders has proved a difficult needle to thread. Many investors are eager to see companies prioritize environmental, social, and governance (ESG) issues, but some politicians, including in Florida and Texas, are trying to block state funds from making ESG investments. Perhaps no one is under more pressure than BlackRock CEO Larry Fink, who has advocated for sustainable investment. He wrote in his annual letter in January that his approach represents the latest iteration of capitalism and is “not woke.”
In the public sector, too, leaders widely agreed this year that the status quo must change. At COP27, the annual U.N. climate summit, governments struck a deal to create a fund to help pay for the losses and damages resulting from climate change that will disproportionately harm developing countries. While the issue has seen many champions over the decades, Mia Mottley, the Prime Minister of Barbados, has emerged as a key voice for overhauling the global financial system to help poorer nations invest in climate programs without relying on costly debt. In September, she released the Bridgetown Agenda, a proposal to remake the International Monetary Fund and World Bank with climate change in mind. These ideas gained initial support at COP27, including from the U.S., and are seen as a key complement to the loss and damage fund.
In Brazil, the election of Luiz Inácio Lula da Silva to replace the climate-change-denying Jair Bolsonaro as President led to an immediate rush of enthusiasm among climate advocates. Bolsonaro has allowed farmers to raze the Amazon with little concern for the severe climate costs. Lula has yet to take office but has already gotten to work crafting programs to facilitate wealthier countries’ paying for Brazil’s efforts to protect the rain forest.
All of these developments are groundbreaking. But they are still only baby steps toward a necessary restructuring of global climate finance.