UN Race to Zero and the Glasgow Financial Alliance for Net Zero (GFANZ) – a net zero alliance responsible for more than $130 trillion in assets in 40 countries across the financial sector, today publishes its Net Zero Financing Roadmaps.

These roadmaps, developed with support and analysis from Vivid Economics, identify for the first time the key potential sources of private and public investment by key sector and region over the next decade that could help to reach net zero by 2050. The roadmaps aim to stimulate increased climate ambition by helping actors across the financial system understand where and how they can drive climate investment and seize new opportunities.

70% of the direct investment globally could come from private investors, offering huge opportunities for investors. Over half of this figure could also come from corporates, who are potentially the largest direct investors in decarbonization projects or assets, contributing approximately 40% of total investments or $960 billion annually for 2021-2025. Corporate investments would be supported and enabled by a range of private actors from commercial banks, to infrastructure funds, institutional investors, private equity and venture capital.

$32 trillion of investment by 2030 could transform our economy, avoiding the worst physical impacts of climate change and putting the world on a path to net zero by 2050, aligned with a leading net zero scenario.

The roadmaps identify the scale of the opportunities for private investment across six key sectors: electricity, buildings, transport, industry, low-emissions fuels and agriculture, forestry and other land use. The potential big investment areas vary significantly across geography: $100 billion in clean transport in China, just over $60 billion in clean electricity in Africa, and $30 billion in low emission fuels in the US.

The analysis highlights the importance of private sector capital, given that achieving net zero means tripling overall decarbonization investment for 2021-2025 compared to current investment levels. Public support, including net zero policy and regulation and public investment, will be crucial to realizing the full potential of private capital. Blended finance plays an important role: by increasing the share of public investment that is blended and by focusing on approaches that enable private investment, the analysis suggests that between 2021 and 2030 $110 billion of public finance could enable $300 billion of private finance annually.

Crucially, the economics of low carbon investments are rapidly improving. For example, solar PV technologies are already or almost cost-competitive with high-carbon alternatives today, while passenger car electric vehicles may be cost-competitive in around five years due to improved equipment efficiency and economies of scale. By 2030, 70%-80% of decarbonization investments are estimated to be in technologies that are cheaper than conventional emission-intensive alternatives.

The roadmaps identify that corporates, which encompass large companies and small and medium enterprises including venture-backed start-ups, could provide over a third of total direct expenditure for decarbonization. Households will also play an important role in decarbonization through investments in buildings and transport, including purchasing low emissions vehicles, retrofitting homes, and purchasing low-carbon heating equipment. Between 2021-50, households could provide 25-30% of the investment into the transport sector and around 30-35% for buildings.

The research identifies four investment archetypes that stress the importance of innovation and deployment in meeting net zero, and 17 example opportunity roadmaps across the four archetypes. $1.8 trillion could be invested by 2025 in early technology bets or maturing technologies in emerging regions, alongside $800 billion to support the creation of markets for opportunities with currently mixed incentives and for more mature technologies that face non-financial barriers to their uptake. Publicly funding R&D and commercialization, and blended finance instruments could also enable financing in high-risk areas.

“For the first time, the Net Zero Financing Roadmaps help to provide a mapping for where the additional decarbonization investments could come from over this decade to help the world reach net zero,” said Cor Marijs, Principal at Vivid Economics. “The roadmaps can help different private financial actors understand how and where they are best placed to make net zero by 2050 a reality, and help them set tangible, realistic and ambitious climate investment goals.”

“Mobilising private finance is critical if we’re going to triple the scale of investment required for net zero over the next five years” said Nigel Topping, High Level Climate Action Champion for COP26. “The good news is the potential capital is there; and so is the investment case. In a net zero world where 70-80% of decarbonization investments could be cheaper than high emission incumbents by 2030, the zero-carbon transition increasingly looks like the greatest commercial opportunity of our time. To unlock and accelerate the scale of capital required we need finance actors to understand the implication of this analysis, and factor sector transition into their implementation of net zero targets while working together with policymakers.”

Realizing increased investment on this scale requires increased ambition on all sides, and targeted public action to support private investment. The new analysis, which can be accessed through an interactive tool on the GFANZ website, finds that with decisive policy and blended finance support, 70% of the net zero required investments may come from private financiers, with over half of this figure coming from corporations.

In order to realize this potential, private investors would be required to commit to tangible green investment goals and take steps to develop the information and new approaches to support those investments. Public actors would be required to provide more – and more effective – blended finance to help de-risk and accelerate private investment, particularly into earlier-stage technologies or emerging markets. They would also be required to focus support on setting policies and regulations and on developing financial markets and enabling environments to support greater private investment.

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Analysis by Sector:

Transport

• Transport investment is projected to triple from USD 390 billion per year in the early 2020s to USD 1.2 trillion in the 2030s – the highest of any end-use sector. In 2040, investments could be over ten times their level in 2020.
• Households are projected to invest in road transport, supported by consumer loans from commercial FIs. Corporations could provide direct capital expenditure on road infrastructure, aviation, and maritime transport.
• For EV chargers, critical enabling policies could reduce uncertainty around EV uptake and costs (including for electricity prices and land) and integrate chargers into grid and land planning. Early policy commitments on phasing out ICE vehicles could incentivize private sector investments in infrastructure and individual investments in vehicles.

Electricity

• Electricity could require the highest investment of any sector, as scaling renewables capacity is crucial to decarbonizing end use sectors. Annual investment is projected to reach USD 1.3 trillion in the next five years and rise to USD 2.2 trillion by the 2030s.
• Corporates could provide one third of direct capital expenditure, often due to ownership of electricity generating assets.
• Enabling policies include facilitating permitting and improving contract or auction design to increase investor incentives. Capacity development for related infrastructure could also help market growth.

Low Emission fuels

• By 2025, annual investments could be required to increase over tenfold relative to current levels, hitting USD 110 billion per year. By 2040, investments may be required to almost double again to USD 220 billion per year.
• Corporations could provide 50-70% of direct capital expenditure to 2040, supported by SOEs, governments and DFIs.
• Enabling actions could support investment through increasing certainty in market development and transferring risks away from private investors.

Industry

• Annual industry decarbonization investments may be required to increase to USD 170 billion by 2025, and USD 360 billion by 2040. Steel, cement, and chemicals could each require an extra USD 20-30 billion annually by 2025.
• Around 30% of industry decarbonization investments could flow from corporations themselves, while government financing might support the development of immature technologies through co-investment.
• Enabling policies could improve regulatory certainty (such as through carbon pricing and tax credits) and transfer risk away from investors (such as capital grants, contracts for difference and offtake agreements).

Built environment

• Investments to decarbonize buildings could almost quadruple between 2020 and 2040, from USD 190 billion to USD 710 billion per year. The majority of investments are projected to be in retrofits and heating appliances.
• Owners of building assets – whether households or corporations – could each provide over a third of total investments. Governments and SOEs could collectively contribute around 10% of overall financing.
• Public policy can both mandate building standards, and incentivize investments through measures such as tax incentives, dynamic tariff rating, CAPEX subsidies and improving consumer access to finance.

Nature and Food

• Targeted investments of at least USD 150 billion per year may be required across agriculture, food, and land use over the coming decades. Between USD 55 and 60 billion of investments will be in nature restoration.
• Corporations, including agri-food companies, provide around half of all investments, and could be particularly active in financing agriculture. A wide range of corporates may invest in nature-based offsets.
• A range of enabling actions may be required, from creating markets for nature restoration and offsets, to regulating alternative proteins to build trust without erecting excessive barriers to their competitiveness.

Approach and Sources:

• The Net zero Financing Roadmaps identify direct capital provision by different financial actors given expected changes in technology and market maturity.
• The primary data source for potential investment requirements is the IEA ‘Net zero by 2050’ report, from which global investment projections for the energy-related sectors (electricity, fossil fuels, low emission fuel supply, industry, transport, and buildings) are downscaled to specific geographic areas, sectors, and technologies.
• Supplementary data for potential investment requirements in the Agriculture, Food and Other Land Use (AFOLU) sector was drawn from the Food and Land Use Coalition (FOLU)’s ‘Growing Better’ report, which provided technology-level additional investment requirements to 2030 across ten critical transitions for sustainable food and land use systems.
• The allocation of potential investment requirements to specific public and private actors is based on the combination of three analytical frameworks: the region-specific capital and ownership structure of a sector; the risk and return profile of each underlying opportunity, including projected evolutions in risk and return based on technology and market developments over time; and the availability of investment capital.

About GFANZ

ABOUT GFANZ The Glasgow Financial Alliance for Net zero (GFANZ) was launched in April 2021 by Mark Carney, UN Special Envoy for Climate Action and Finance and UK Prime Minister Johnson’s Finance Adviser for COP26, and the COP26 Private Finance Hub in partnership with the UNFCCC Climate Action Champions, the Race to Zero campaign and the COP26 Presidency. Bringing together existing and new Net zero finance initiatives in one sector-wide coalition, GFANZ provides a forum for leading financial institutions to accelerate the transition to a NetZero global economy. See link to list of member firms and sub-sector alliances here.

About Vivid Economics

Vivid Economics provides economic and financial insight that enables clients to navigate climate change and move towards net zero carbon emissions and other ambitious environmental goals. An internationally recognized consultancy with offices in London, Amsterdam, and Washington DC, we combine expertise in sustainability and macroeconomics for clients across the public and private sectors, from financial services to infrastructure and energy systems. Widely recognized for our deep expertise, rigorous analytics and flexible approach to making change happen, our consultants ‘put economics to good use’ to help clients tackle some of the world’s most urgent climate-related challenges. Our leading-edge quantitative analyses assess and predict changes in demand, commodity prices, competition dynamics, and system behaviours and assess the impact on jobs and the environment. Planetrics, our suite of climate analytics tools, helps investors quantify, report, and manage climate risks across their portfolios.