“Capitalism and market forces got us into this warming planet, and it’s the only thing that’s going to get us out of it.” – Mike Rea, executive director of E8, a Seattle-based climate tech investment network
Sustainable finance, a catch-all term for primarily taking ESG considerations into account when making investment decisions, is at the threshold of a global investment revolution. Today, investment funds using ESG have more than $50 trillion in capital. This is astonishing growth, more than doubling in five years from $22.8 trillion in 2016. Two new ESG-focused funds are now being launched every single day.
Encouraging as this is, it may not represent enough capital, and it may not be flowing fast enough to keep up with the pledges of national governments and leading companies worldwide. Net-zero commitments today cover 68% of global GDP. If these pledges are to be upheld, it means that between now and 2050, all activity on Earth (finance, production, consumption, everything) must gradually adapt to the point that two-thirds of it is fully sustainable and carbon-neutral.
This is a daunting prospect, one that needs faster and more ambitious investment. Currently, ESG assets are predicted to reach between $53-60 trillion by 2025. Impressive growth in this area is important, but not the only metric that matters.
According to the UN Environment Programme (UNEP), there is a $4.1 trillion financing gap in nature-based investments that needs to be closed for the world to hit its climate change, biodiversity, and land degradation targets. This means that the current level of investment will need to triple by 2030 and quadruple by 2050.