Transforming Global Finance for Climate Action
Despite global recognition of the climate crisis, rational investors continue to be incentivised to fund unsustainable activities. The Global Sustainable Investment Alliance’s report – prepared by Canbury – reveals a fundamental “policymaker investment dilemma” at the heart of this issue: policymakers expect private capital to finance the transition without fully understanding investment decision-making, while investors respond with inflated promises based on anticipated policy changes that fail to materialise.
This impasse creates five critical barriers to climate finance, captured in the “PIVOT” framework:
Policy Vacuum: Clear, consistent policies and national transition plans are absent, creating uncertainty for investors. Without comprehensive frameworks that integrate climate goals with economic strategies, capital remains misdirected.
Self-Interest: The financial sector’s short-term focus and narrow performance metrics incentivise quick wins rather than tackling complex, long-term sustainability challenges.
Mis-Valuation: Traditional financial models fail to account for environmental factors, allowing money to continue flowing into environmentally harmful industries as these “hidden costs” remain unpriced.
Inactive Ownership: Limited investor engagement and structural challenges within financial institutions hinder redirection of capital toward sustainable initiatives.
Transition Misalignment: Certain business models inherently conflict with energy transition goals, creating resistance to implementation of comprehensive transition plans.
To address these barriers, coordinated action between policymakers and investors is essential. Policymakers must develop comprehensive National Transition Plans with clear timelines and funding mechanisms. These plans should eliminate contradictory policies like fossil fuel subsidies while creating regulatory frameworks that encourage long-term, sustainable investments.
Meanwhile, investors need to enhance corporate engagement, align investment strategies with longer time horizons, and redirect capital through updated valuation models that incorporate climate risks and opportunities.
The financial system stands at an inflection point. Meeting climate objectives requires global investment to increase sevenfold by the end of this decade, with a dramatic shift in private sector contribution in emerging markets and developing economies—from 40% to 90% of total climate finance by 2030.
Solutions cannot be one-size-fits-all. Different regions face distinct challenges in progressing toward global climate goals. By tackling misaligned incentives through targeted interventions across policy, market structures, and governance frameworks, we can create enabling environments where financial flows naturally align with climate action and sustainable growth.