Citi GPS - Climate Finance

CLIMATE FINANCE
Mobilizing the Public and Private Sector to Ensure a Just Energy Transition
Citi GPS: Global Perspectives & Solutions

November 2022
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Citi GPS: Global Perspectives & Solutions November 2022
Elizabeth Curmi is a global thematic analyst within Citi’s Global Insights division working on developing
thought-leadership content on sustainability and ESG. Prior to joining Citi, she worked as a postdoc
researcher at the University of Cambridge focusing on the interconnections between water, energy, and food
resources and their impacts on greenhouse gas emissions. Liz has published a number of academic papers
and has also co-authored a number of the most-read Citi GPS reports including the United Nations
Sustainable Development Goals, Energy Darwinism series, Technology at Work, Feeding the Future, and
Sustainable Cities. Liz has a PhD in environmental economics and has presented her work at many academic
conferences, to the United Nations Economic Commission for Europe (UNECE), as well as to corporates
and government officials. She is particularly interested in researching sustainable and economic solutions
for corporates, institutional investors, and governments to develop a low carbon and sustainable world
through technology and innovation, economic instruments, government policies, and sustainable finance.
+44-20-7986-6818 | elizabeth.curmi@citi.com
Jason Channell is Head of Sustainable Finance within Citi's Global Insights division. Jason previously built
and led Citi’s Sustainable and Responsible Investment Research team from within Citi Research to a #1
ranking around the world in the Institutional Investor survey. Throughout his career Jason's research has
covered many sectors, spanning the energy spectrum of utilities, oil & gas, and alternative energy, and has
been highly ranked in many sectors. Jason started his career at Fidelity Investments, and prior to joining Citi
in 2011 worked for Goldman Sachs, where he built and led the Alternative Energy & Cleantech coverage
globally in Equity Research. In addition to his extensive exposure to institutional investors and corporates,
Jason’s broad knowledge base has led him to present to countless governments, policymakers,
supranationals, and regulators around the world on energy policy and sustainability, including members of
the U.S. Senate Energy & Finance committees in Washington, as well as at various United Nations fora and
to institutions as diverse as NASA and the Vatican. Jason is the lead author of some of the most-read Citi
GPS reports, covering all aspects of sustainability from the UN SDGs to Infrastructure. His most notable
publications remain the Energy Darwinism series, which gained significant traction with institutional
investors, corporates, governments, and supranationals around the world, culminating in its presentation to
the United Nations with Jason chairing the related session of UNECE at the Palais des Nations in Geneva.
Jason features widely in the international media in print, online, and on TV. He holds a degree in
Engineering Science and Management from the University of Durham.
+44-20-7986-8661 | jason.channell@citi.com
Ying Qin is a thematic analyst within Citi’s Global Insights division working primarily on ESG and
sustainability-related topics. Ying has contributed to several Citi GPS reports including the UN Sustainable
Development Goals, the Energy Darwinism series, as well as Feeding the Future. She most recently led the
Citi GPS report on The Case for Holistic Investment in Girls. Prior to joining Citi in May 2018, she worked at
Chatham House in the Energy, Environment and Resources department as well as the Hoffmann Centre for
Sustainable Resource Economy. Ying has a PhD in sustainable development from the University of
Cambridge which focused on natural resource use and governance in China. Her doctorate was funded by
BP, and she has presented the research to a wide range of stakeholders including BP executives as well as
Chinese government ministries.
+44-20-7986-8325 | ying.qin@citi.com
Amy Thompson is a senior research associate with Citi’s Global Insights division where she primarily works
on social economics and related topics. She has contributed to previous Citi GPS reports, including the
Philanthropy and the Global Economy series and the Women in the Economy series. She started with Citi in
2020, and has worked in various research, sales, and structuring teams. Amy holds a BA in Classics and a
BPhil in Philosophy, both from the University of Oxford.
+44-20-7986-3542 | amy1.thompson@citi.com
November 2022 Citi GPS: Global Perspectives & Solutions 3
CLIMATE FINANCE
Mobilizing the Public and Private Sector to Ensure a Just
Energy Transition
Kathleen Boyle, CFA At the UN Climate Change Conference (COP26) in November 2021, world leaders
Managing Editor, Citi GPS came together and set a global agenda on a path to net zero emissions. Pledges
were made to further cut carbon dioxide emissions, reduce the use of coal, lower
methane emissions, and stop deforestation. Importantly, an actionable framework
was put around the promises made in the Paris Agreement.
There are volumes of literature explaining why the world needs to focus on lowering
greenhouse gas emissions. Countless experts list the devastating effects rising
global temperatures will have on weather, crops, biodiversity, migration, and health.
And a continuous stream of politicians and public figures tell us how important it is
to support a green agenda. But unfortunately, there has been little focus on what is
likely the most important subject — how do we pay for global action on climate
change?
In the report that follows, we aim to answer two questions: (1) What investment is
needed in different regions and countries for climate mitigation and adaptation? and
(2) How can we mobilize this investment efficiently to enable the world to reach its
climate goals while still growing in population and developing the economy?
Overall, it is estimated that $125 trillion will be needed for the world to reach net
zero by 2050. From 2021-25, that equates to $2.6 trillion per year, rising to $3.8
trillion from 2026 through 2030. Although climate finance has increased over the
past decade, it is still significantly below the levels required for us to be on the path
to net zero. Average annual climate finance flows in 2016-20 were estimated at
between $600 billion and $900 billion meaning there is a $1.7 trillion gap between
what the world has been delivering each year towards climate financing and what is
required through 2025. Alarmingly, no single country or region is currently on track
to meet its individual climate financing targets.
Mobilizing climate financing is a challenge as there is no one global solution. The

public sector, including governments and development finance institutions, has
played an extremely important role in mobilizing finance and the private sector has
contributed 49% of investment funds. Unlocking private sector capital for climate
finance is crucial as private actors could provide 70% of the $2.6 trillion needed in
investment every year (on average in 2021-25) to put the world on a path to net
zero by 2050.
Financial instruments, such as blended finance, in conjunction with development

finance institutions can increase private sector investment in developing economies.
And green banks, which develop clean project pipelines, are using innovative
financing to accelerate the transition to clean energy.
Collaboration — between developed and developing economies as well as the

public and private sectors — is key to making this a just transition.
© 2022 Citigroup
CLIMATE FINANCE FOR A JUST ENERGY TRANSITION
Climate Finance Gap $1.7 Trillion Annually in 2021-25 CLIMATE FINANCE GAP
Climate-related projects mobilized
2031-2040 between $600 billion and $900
2041-2050
billion on average annually in
2026-2030
6.0 2016-20. The IEA Net Zero Scenario
US$ trillions
estimates $125 trillion is required

5.0 2016-2020 2021-2025 to reach net zero over the next 30
US$ trillions
years. Therefore, getting on a path

4.0 to net zero requires an additional
annual investment of $1.7 trillion
3.0
in 2021-25 in mitigation alone.
Developing countries especially
2.0
need support as they do not have
1.0 the fiscal capacity to invest in
climate action.
0
Africa Asia Pacific Central & South America Eurasia Europe

Africa Asia Pacific Central and South America Eurasia
Global Middle East North America Investment gap $1.7 trillion
Europe Global Middle East North America
Source: UNFCCCgap
Investment Race$1.7
to Zero Campaign with support and analysis from Vivid Economics
trillion
SUBSTANTIAL INVESTMENT SCALE IS NEEDED ACROSS ALL REGIONS

Current climate investment flows need to be scaled up substantially as no region is currently on track to deliver enough investment
to meet their climate finance needs. For example, investments need to reach $170 billion in Africa, $1.1 trillion in Asia Pacific, and
$500 billion in North America annually between 2021 and 2025 in order to build low-carbon economies and adapt to climate
change, with even higher needs in 2026-30. In all three regions, current investment flows are substantially below what is needed.
Comparing Current Climate Flows with Average Investment Needed
2000
urrent Flows
C
(2020)
1800
ASIA Investment Needed
PACIFIC (2026-2030)
1600
1400
1200
US$ billion
1000
NORTH
800 AMERICA
600
400
AFRICA
200
Source: CPI, UNFCCC Race to
Zero campaign with support and
0 analysis from Vivid Economics
2020 2026-30 2020 2026-30 2020 2026-30
© 2022 Citigroup
MAKING IT HAPPEN
Mobilizing climate finance is challenging, but we need to start looking at climate action as an opportunity versus a cost. Making this
happen will require mobilizing the private and public sectors to work together, to create projects that are bankable, and to ensure
a just transition. Since not one solution applies to all countries, we outline which key actors and financial instruments can scale up
climate finance for countries at different levels of economic development.
Key Actors and Financial Instruments by Stage of Development
PUBLIC FINANCIAL PRIVATE

SECTOR INSTRUMENTS SECTOR
Governments & Other Corporates

Grants
Agencies
DEVELOPED DFIs Tax Credits Commercial Institutions

COUNTRIES
Enabling Framework: Green Banks Institutional Investors &

Guarantees
• Clear Policy Strategies Infra Funds
• Net Zero Commitments
• Green Taxonomies
Market-Based Instruments Private Equity & VC
• Mandatory Disclosures
Governments & Other Grants Philanthropy/NGOs

Agencies
DFIs Tax Credits Corporates
MATURE Multilateral Climate Guarantees

Change Funds Commercial Institutions
EMS
Enabling Framework: Institutional Investors &

Green Banks Concessional Loans
• Clear Policy Strategies Infra Funds
• Net Zero Commitments

• Green Taxonomies Market-Based Instruments Private Equity & VC
• Mandatory Disclosures
Governments & Other First Loss Capital Philanthropy/NGOs

Agencies
DFIs Currency Hedging Commercial Institutions

DEVELOPING
Blended
COUNTRIES Finance
Multilateral Climate Guarantees/ Insurance Institutional Investors &
Enabling Framework: Change Funds products Infra Funds
• Clear Policy Strategies
• Net Zero Commitments Technical Assistance
Green Banks Grants Corporates
• Better Data
• Detailed project financial
analysis and grouping up Concessional Loans
of different projects
Market-Based Instruments
6 Citi GPS: Global Perspectives & Solutions November 2022
Contents Guarantees ........................................ 72

Grants ................................................................... 72
Introduction 7 Tax Credits ........................................................... 73
Equity .................................................................... 73
Chapter 1: Understanding the Climate
Carbon Taxes/Carbon Markets ............................ 73
Finance Landscape 11 Blended Finance ................................................... 76
Climate Finance Flows ......................................... 12 Debt-for-Climate Swaps ....................................... 76
Chapter 2: How Much of the Global Appendix 3: Detailed Analysis of Public and
Financial System Is Aligned with Climate Private Actors and Financial Tools Available
Goals 16 77
Sustainable Debt .................................................. 16 Developed Countries ............................................ 77
Science-Based Targets Initiative .......................... 18 Mature Emerging Markets .................................... 77
Conclusion ............................................................ 19 Developing Countries ........................................... 78
Chapter 3: An Analysis of Finance Needed
Across Different Regions 20
Africa .................................................................... 22
Asia Pacific ........................................................... 25
Central and South America .................................. 28
Middle East ........................................................... 31
North America....................................................... 33
Europe .................................................................. 35
Adaptation Funding .............................................. 37
Summary .............................................................. 38
Chapter 4: Public and Private Finance 39
Sources and Intermediaries of Climate Finance .. 39
Private Finance..................................................... 41
Financial Instruments ........................................... 45
Summary .............................................................. 51
Chapter 5: Making It Happen 52
Developed Markets............................................... 54
Mature Emerging Markets .................................... 55
Developing Countries ........................................... 55
Other Financial Instruments Not Included Above:
Bilateral Deals, Carbon Credits, and REDD+ for a
Just Transition ...................................................... 56
Mobilizing Adaptation Finance ............................. 58
Conclusion ............................................................ 58
Appendix 1: Detailed Description of Various
Public and Private Sector Actors 62
Public Sector Actors .................................................... 62
Governments: Domestic and International Climate
Financing .............................................................. 63
State-Owned Enterprises (SOEs) ........................ 64
Sovereign Wealth Funds ...................................... 64
Green Banks ......................................................... 64
Development Finance Institutions (DFIs) ............. 65
Private Sector Actors .................................................. 67
Corporates ............................................................ 67
Institutional Investors ............................................ 68
Private Equity and Venture Capital ...................... 69
Commercial Financial Institutions ......................... 69
Philanthropy .......................................................... 70
Appendix 2 71
Financial Instruments .................................................. 71
Non-Concessional and Concessional Loans ....... 71
Introduction
The focus on emissions and climate change is expected to reach new heights in
November 2022 with the advent of the UN Climate Change Conference (COP27) in
Sharm El Sheikh, Egypt. The event will focus on action towards four main goals:
(1) mitigating global greenhouse gas emissions — including a call for countries to
review their National Determined Contribution (NDC) ambitions; (2) increasing
progress on climate resilience and adaptation; (3) mobilizing finance — including,
but not limited to, the $100 billion dollar commitment by developed countries; and
(4) enhancing collaboration between governments, the private sector, and civil
society.
In this report, we focus on climate finance and aim to answer the following
questions: (1) What investment is needed in different countries/regions for
mitigation and adaptation; and (2) How can we mobilize this investment efficiently to
enable the world to reach its climate goals while still growing and developing? Given
no one model or approach fits all countries, our analysis and discussion differentiate
between regions and include some individual country case studies. Several reports
already exist on climate finance, but none of them effectively determine both what
needs to be done and explain in detail the various actors involved — including what
the public sector and/or the private sector should be doing in different regions and
what financial instruments should be used and by whom.
Before we discuss our findings, it is important to contextualize what is happening in

current climate finance discussions. It is acknowledged that developed countries are
responsible for most of the cumulative greenhouse gas emissions currently in the
system and continue to add to emissions, while developing countries, in particular
vulnerable ones, bear most of the brunt of these past actions. At the 2009 UN
Nations Climate Change Conference in Copenhagen, rich nations promised to
channel $100 billion per year by 2020 to less-wealthy nations for climate adaptation
and mitigation. It is apparent today this commitment was not met: the Organisation
for Economic Co-operation and Development (OECD) found only $83 billion of
climate finance was passed from developed to developing countries in 2020.
However, there is a broad disagreement on these estimates, and some state that
the OECD figures are inflated. Oxfam estimates $19 billion to $22.5 billion of climate
finance in 2017-18 was mobilized from developed to developing nations, which is
around one-third of the OECD’s figures ($78 billion in 2018). The aid agency argues
that besides grants, only the benefit accrued from lending at below-market rates
should be counted towards this $100 billion goal and not the full value of the loans.
It also argues that some countries incorrectly count developed aid as going toward
climate projects. Many low- and middle-income countries agree with Oxfam’s lower
assessment, while others go even further — for example, in 2015 India’s Ministry of
Finance disputed the OECD’s figure of $62 billion of climate finance in 2014, stating
that it was actually only $1 billion.1
Another discussion taking place in many developing nations centers on developed

countries paying for loss and damage. In the Paris Agreement, Article 9 recognizes
the importance of minimizing and addressing loss and damage associated with the
adverse impacts of climate change. There was some movement on this front at the
COP26 meeting in Glasgow, where the Glasgow Climate Pact makes reference to
“Loss and Damage,” but it is vague, saying that it “urges” developed countries and
others to provide additional support about this issue.
1 Jocelyn Timperley, “The Broken $100-Billion Promise of Climate Finance — and How
to Fix It”, Nature, October 20, 2021.
© 2022 Citigroup
The agreement does reference the role of the Santiago Network to provide support
and technical assistance that could help minimize and address loss and damage
associated with climate finance; however, no specific funds or provisions have been
agreed upon to address this issue.
Both the $100 billion commitment and the issue of loss and damage will be the
focus of many discussions at the COP27 meeting. However, the $100 billion dollar
commitment is minuscule when compared to the trillions needed every year for
climate action, as we describe in more detail below. The commitment, however, is a
symbol of the good faith of developed nations and should be reached to ensure we
move towards a more just transition.
In total, an estimated $125 trillion will need to be mobilized over the next 30 years if
we want to reach net zero. Our analysis shows current climate investment flows
need to be scaled up substantially, despite increasing over the past few years.
Climate-related projects have mobilized $600 billion to $900 billion on average per
year between 2016 and 2020. However, to get on the path to net zero, an estimated
$2.6 trillion annually needs to be mobilized between 2021 and 2025 — $1.7 trillion
more than what was spent on average in 2016-20.2 And this figure only reflects the
capital investment required for mitigation projects. Investment is also needed for
adaptation and climate resilience projects, which are important for all nations but
especially for the most vulnerable. No region is currently on track to meet their
commitments; however, some countries are moving in the right direction.
Figure 1. Climate Finance Gap $1.7 Trillion per Year (2021-25)
Note: Current annual climate flows are estimated on average at between $600 billion and $900 billion depending
on the data source used. CPI estimates climate finance flows in 2020 amounted to $640 billion, including both
mitigation and adaptation. BNEF estimates total investment in Energy Transition was $611 billion in 2020 and
increased to $798 billion in 2021. Vivid Economics estimates total investment averaged $900 billion annually
between 2016 and 2020.
Source: UNFCCC Race to Zero campaign with support and analysis from Vivid Economics, Citi GPS
2 Current climate finance investments are extremely uncertain: In supporting research for
the UN Framework Convention on Climate Change (UNFCCC) Race to Zero campaign,
Vivid Economics estimates that $900 billion was spent on average annually in 2016-20;
Climate Policy Initiative (CPI) estimates that over $630 billion was mobilized for both
mitigation and adaptation on average in the two years 2019 and 2020 (2019-20) and
$640 billion in 2020 alone; and BloombergNEF (BNEF) estimates $611 billion was
invested in energy transition in 2020, increasing to $800 billion in 2021.
© 2022 Citigroup
The figures above might seem enormous, and no one is denying the difficulty of
reaching net zero. However, huge opportunities will come from this green transition
including new jobs, better health outcomes as air pollution decreases, and better
energy security as we are less reliant on international oil and gas prices. According
to The New Climate Economy, bold climate action could yield a direct economic
gain of $26 trillion through 2030.3
How do we make this happen? In the report that follows, we describe the main
private- and public-sector actors involved in climate financing and the financial
mechanisms that can be used to mobilize this funding. There is no single solution
available to tackle the issue, and each country will need to assess which financial
instruments work best for their economy. The private sector has a large role to play
to help mobilize this finance; in fact, an estimated 70% of total finance needed could
come from the private sector, including corporates, commercial financial institutions,
institutional investors, and philanthropic organizations.4 However, mobilizing finance
from the private sector is easier in developed and mature emerging markets than
developing markets, especially if the right financial instruments are used by public-
sector actors to create a clear plan for this investment to flow. For developing
countries, collaborations between public- and private-sector actors through
innovative financial instruments such as blended finance structures and instruments
such as debt-for-climate swaps are essential, together with the $100 billion
commitment by developed countries.
The economic backdrop going into COP27 is not the most encouraging, with high
inflation, rising food and energy prices, huge debt burdens, and geopolitical unrest.
However, we have just a decade to get this right in order to seriously avoid the
catastrophic damage that climate change could have on many countries.
3 The New Climate Economy, Unlocking the Inclusive Growth Story of the 21st Century,
2018.
4 UNFCCC Race to Zero campaign with support and analysis from Vivid Economics,
“Financing Road Maps,” accessed November 2, 2022.
© 2022 Citigroup
Figure 2. Main Actors and Financial instruments Used for Climate Financing
Source: Citi GPS
This report is divided into five chapters:
1. A review for understanding the climate finance landscape.
2. An analysis of how much of the global financial system is aligned with climate
goals.
3. An analysis of the finance needed across different regions.
4. A description of public- and private-sector finance, including main actors and

financial instruments.
5. An analysis of how to make it happen.
There are also three detailed appendices focused on: (1) the main actors involved
in climate finance; (2) a detailed description of the main financial instruments used
to mobilize climate finance; and (3) an analysis of the main actors and financial
instruments that can be used in developed nations, mature emerging markets, and
developing countries.
© 2022 Citigroup
Chapter 1: Understanding the

Climate Finance Landscape
The current climate finance landscape is extremely complex, includes many
sources and intermediaries providing different forms of climate finance that flow
through various channels, and is evolving. It uses a variety of instruments and
approaches, which we discuss in more detail in Chapter 4. There currently is no
consistent and widely accepted definition of what counts as climate finance, which
means it is open for ambiguity and interpretation. UN Framework Convention on
Climate Change (UNFCCC) discussions are ongoing regarding operational
definitions for climate finance, but broadly the UNFCCC refers to climate finance as
“local, national, or transnational financing — drawn from public, private, and
alternative sources of financing — that seeks to support mitigation and adaptation
actions that will address climate change.”
Mitigation and Adaptation Finance
Two terms are used with regards to climate change — mitigation financing and adaptation financing. Mitigation financing refers
to investments aimed at reducing global greenhouse gas emissions, such as investments in renewables, while adaptation
financing refers to financing greater resilience to climate change, such as water infrastructure, and protection of coastal areas.
Mitigation and adaptation are interlinked — the more one invests in mitigation, the less is needed for adaptation. In some cases,
if adaptation investment builds greater resilience, it might even moderate mitigation financing costs.5
The term “climate finance” is also often used to refer to the transfer of capital from
developed to developing countries for funding climate mitigation and/or adaptation
activities. This was agreed at COP15 in Copenhagen with a goal of $100 billion a
year by 2020. The commitment was reiterated at COP21 in Paris where it was
extended to $100 billion every year to 2025. It is generally agreed that this finance
target has not been met.
To complicate matters, the terms green and sustainable finance are also used in
financial circles. Green financing involves collecting funds for addressing climate
and other environmental matters such as water use and air pollution and improving
the management of financial risk related to these activities. Sustainable finance
takes into consideration environmental, social, and governance (ESG) issues and
risk, with the aim of increasing investments into sustainable activities.6
For this report, we use the UNFCCC definition of the term “climate finance” that
includes financing from both public and private sources for mitigation and/or
adaptation, can be directed at both developing and developed economies, and can
be used domestically or internationally.
We also need to make a distinction between climate finance costs and climate
finance needs. Although similar and used interchangeably in many reports, they
mean different things. These terms are usually used when addressing the
investment required in emerging and developing nations. Climate finance costs
refer to the total financial investment to support the implementation of a country’s
Nationally Determined Contribution (NDC). This includes the unconditional part of
the NDC commitment, i.e., what can be financed through national resources, and
what must come from other (public and private) financial resources.
5 Intergovernmental Panel on Climate Change (IPCC), “Chapter 15: Investment and
Finance” in Climate Change 2022: Mitigation of Climate Change, 2022.

6 European Parliament, “Green and Sustainable Finance,” PDF, February 2021.
© 2022 Citigroup
Climate finance needs refer to the part of the investment that a country is not able
to finance with its resources and for which it requires some support. Where possible
this report tries to capture all the investment required to put us on a path to reach
net zero and not just the part of the capital costs that cannot be financed domestically.
Climate Finance Flows

There are several published reports that calculate annual climate finance
investment flows and investment needed over time to reach net zero, including from
the UNFCCC, OECD, Climate Policy Initiative (CPI), BloombergNEF (BNEF), and
the International Energy Agency (IEA), among others. Different academic models
have also been used to assess the capital investment required to reach a net-zero
world. Each model and analysis uses different assumptions and variables, and
much of the data is either unavailable or uncertain, especially in terms of adaptation
financing. Although caution needs to be taken when using some of the available
data, it does provide a sense of scale in terms of where we are on current climate
finance flows and the investment required to reach a net-zero world.
Current climate finance flows
The UNFCCC produces a Biennial Assessment and Overview of Climate Finance

Flows report every two years, while CPI publishes an annual overview of climate-
related financing, which considers different sources, instruments, uses, and sectors.
The CPI overview is used to inform the UNFCCC biennial report; however, the end
figures of the two reports differ (Figure 3) — CPI estimated a total of $632 billion of
climate finance was invested on average in 2019-20, while the UNFCCC estimated
these flows to be $746 billion in 2018. There is a lot of uncertainty in these
aggregate climate finance numbers as it is difficult to track all financial flows. For
example, CPI’s analysis notes the limited data availability on full accounting of
domestic government expenditures and of private sector investments in energy
efficiency, transport, land use, and adaptation. In its analysis, the UNFCCC
complements this missing data with other sources, such as the IEA’s energy
efficiency investment data; however, it does not divide this data across regions.
Analysis by Vivid Economics for the UNFCCC’s Road to Zero campaign, found an
average annual investment of $900 billion between 2016 and 2020, higher than
both the CPI and UNFCCC estimates.7
BNEF, on the other hand, calculates energy transition investment figures. It

estimates around $800 billion was invested globally in energy transition in 2021,
with the majority of the investment going towards renewable energy (Figure 4).
BNEF data does not include energy efficiency and has limited information on some
sectors. It also only relates to energy transition investment and does not include any
investment in adaptation or other sectors such as agriculture or land use. However,
this data is a good point of reference, and we use throughout this report together
with data from Climate Policy Initiative and the UNFCCC.
7 Definitions and methodologies differ.
© 2022 Citigroup
Figure 3. Annual Climate Finance Flows Figure 4. Energy Transition Investment
Source: UNFCCC Standing Committee for Finance, CPI, Citi GPS Source: BNEF, Citi GPS
Mitigation and adaptation
Most climate finance flows in 2019-20 were invested in mitigation projects, with over
53% coming from the private sector, the majority of which came from corporates
and commercial financial institutions. Only 13% of total climate finance flows were
invested in adaptation projects with nearly all coming from the public sector, in
particular development finance institutions (DFIs) and governments.
Figure 5. Climate Finance Flows Split by Mitigation and Adaptation
Source: CPI, Citi GPS
Recipient geographies
According to CPI, around three-quarters of climate finance ($479 billion) in 2019-20

was used domestically. The rest flowed internationally to finance projects/programs
across borders. A few key findings from the latest CPI climate finance data include:
 The East Asia and Pacific region was the main recipient of climate finance,
accounting for 46% of total global flows (both domestic and international).
 China accounted for the majority (81%) of climate finance in East Asia and
Pacific.
 Eighty percent of finance that went to non-OECD countries came from non-
OECD sources, suggesting that non-OECD countries are largely funding their
own climate activities.
© 2022 Citigroup
 Private finance mainly targeted domestic projects, with only 11% funding projects
across borders.
 More than half (58%) of climate finance used domestically came from private
actors.
Figure 6. Domestic and International Climate Finance Flows by Figure 7. Public and Private Climate Finance Flows by Destination
Destination (2019-20 Annual Average) (2029-20 Annual Average)
Source: Citi GPS Source: Citi GPS
International climate financing
CPI also finds that climate finance from OECD to non-OECD countries amounted to
$79 billion in 2020. This is assumedly part of the $100 billion climate finance
promised by developed countries to developing countries at COP15 in Copenhagen
and reiterated during the Paris Agreement in 2015. The OECD in its analysis states
a total of $83 billion of climate finance was passed from developed to developing
countries in 2020. Based on annual averages for 2016-20, Asia was the main
recipient region, accounting for 42% of total climate finance, followed by Africa
(26%), and the Americas (17%). Looking at the data with an income group lens
shows that lower-middle income countries (LMICs) were the main recipients, with
43% of total climate finance mobilized in 2016-20, followed by upper-middle income
countries (UMICs) at 27%. Low-income countries (LICs) received only 8% of total
climate finance.8 Some experts point out that most of the climate finance provided is
not going to the poorest and most vulnerable countries, and even the money that
does get mobilized might not actually be reaching its intended target.9
8 Organisation for Economic Co-operation and Development (OECD), Aggregate Trends

of Climate Finance Provided and Mobilised by Developed Countries in 2013-2020, 2022.
9 Jocelyn Timperley, “The Broken $100-Billion Promise of Climate Finance — and How
to Fix It.” Nature, October 20, 2021.
© 2022 Citigroup
Contributions toward the $100 billion climate finance goal can include all financial
instruments, and multilateral funds use a variety of financial instruments. Some
experts stress the overreliance of international climate finance on loans and
question the inclusion of private financing, making the case that it only flows to
“bankable” projects and not necessarily to where it is needed the most — the
poorest and most vulnerable countries.10 There is also a huge discussion as to what
is defined as “climate finance” and what to include under this term towards the
$100 billion goal. As part of this discussion, institutions such as Oxfam claim the
climate finance figures are much lower than the analysis done by the OECD, as
described in the introduction.
Figure 8. Climate Finance Provided and Mobilized by Developed Countries to Developing

Countries as Part of the $100 Billion Commitment
Note: The gap in mobilized private finance in 2015 is due to the implementation of enhanced measurement
methodologies. As a result, private flows for 2015-18 cannot be directly compared with private flows for 2013-14.
Source: OECD, Citi GPS
In summary, climate finance flows have increased over the years, reaching on
average $600 billion to $900 billion annually from 2016 through 2020, depending on
which data source is used. However, the $100 billion commitment from developed
countries to emerging and developing countries was not reached in 2020. This
commitment ends in 2025, and there have been calls for this to be extended even
further. However, as we will see later in Chapter 4, $100 billion per year for
emerging and developing countries will only go so far.
10Anis Chowdhury and Jomo Kwame Sundaram, “The Climate Finance Conundrum,”
Development, Vol. 65, No. 1, February 15, 2022.
© 2022 Citigroup
Chapter 2: How Much of the Global

Financial System Is Aligned with
Climate Goals
We know that climate finance has increased over the years, but what does
increasing climate finance actually mean in terms of global financial flows? Are we
moving into the right direction? Article 2.1c of the Paris Agreement calls for “making
financial flows consistent with a pathway towards low greenhouse gas emissions
and climate-resilient development.” However, there is currently no common
understanding amongst countries on what constitutes “climate consistent” finance
flows. Developing countries want to address the potential unintended consequences
of implementing Article 2.1c, in particular with regard to the consequences of
stranded assets and fossil fuel dependencies of many economies and their public
finances. They also stress the need for a just transition as well as to consider
national capacities and different timelines for decarbonization. Many countries note
that the private sector has developed its own approach to “Paris alignment”, and
therefore more public oversight and transparency is needed.
To get a sense of the global efforts in achieving climate finance, we need to

understand how much of the global financial system is currently aligned with climate
goals, and how current climate finance fits within the broader perspective of total
investment and financial flows. This enables us to not only identify what is currently
happening in financial markets, but also whether we are moving in the right
direction. To do this we look at several indicators including: (1) sustainable debt
(issuance and outstanding), and (2) market capitalization of companies with
Science-Based Targets initiative (SBTi) goals.
Sustainable Debt
According to the Climate Bonds Initiative, total sustainable debt issuance in 2021
reached a total of over $1 trillion, up from over $730 billion the previous year. This is
divided into:11
 Green Bonds, which use general proceeds for green activities.
 Sustainable Bonds, which are used for a combination of green and social
projects, activities, or expenditures.
 Social Bonds, which relate exclusively to social projects.
 Sustainable-Linked Bonds, which raise general purpose finance and involve

penalties or rewards for meeting or not meeting a pre-defined sustainable key
performance indicator (KPI).
 Transition Bonds, which are instruments with a short- or long-term role to play
in decarbonizing an activity or supporting an issuer in its transition to the Paris
Agreement but are not low or zero emission.
11Climate Bonds Initiative, Sustainable Debt Global State of the Market 2021, April
2022.
© 2022 Citigroup
Figure 9. Sustainable Bond Issuance
Source: Climate Bonds Initiative, Citi GPS
Not all sustainable debt issued in 2021 was climate-related. If we just focus on
green bonds, whose net proceeds are dedicated specifically to green activities,
assets, and/or expenditures, issuance was estimated at $578 billion in 2021 — an
89% increase compared to 2020 figures. Over 70% of green bond issuance in 2021
was in developed markets, with 21% in emerging economies and just 5% for
supranationals. Most of the issuance was done in Europe ($288 billion), followed by
Asia Pacific ($148 billion), and North America ($102 billion).
Figure 10. Green Bond Issuance (DM, EM, and Supranational) Figure 11. Green Bond Issuance by Region
Note: 2022 figures refer to 1H 2022. Note: 2022 figures refer to 1H 2022.
Source: Climate Bonds Initiative, Citi GPS Source: Climate Bonds Initiative, Citi GPS
Total outstanding green bonds as of the first half of 2022 were estimated at
approximately $1.9 trillion, with the majority of originating in Europe.12 However, this
does not show the full picture as there are also unlabeled climate-aligned bonds
which are not included in Figure 11. These bonds are not labeled green bonds by
the issuer; however, they finance climate-aligned activities/assets. According to
Climate Bonds Initiative, outstanding, unlabeled climate-aligned bonds amounted to
$913 billion in 2020.
12 Climate Bonds Initiative, Sustainable Debt Market Summary H1 2022, August 2022.
© 2022 Citigroup
Unfortunately, there is no data available for 2021, but if we add up the two figures
($1.9 trillion of outstanding green bonds and $913 billion of outstanding climate
aligned activities/assets) we get very close to $3 trillion of outstanding bonds where
proceeds are climate-aligned. This is around 2.4% of all global outstanding
securities. Although this figure seems small, it is important to note that global debt
capital markets are large and include a lot of different issuer types (e.g., currencies).
It is therefore more useful to look at annual trends in green bond issues, which have
increased substantially over the years. Regionally, the majority of green bond
issuance has occurred in Europe, Asia Pacific, and North America, with very small
issuance occurring in Africa and Latin America.
Science-Based Targets Initiative

Another indicator be used to assess progress in climate finance is looking at the
number of companies signed up to the SBTi, which works with companies to define
and promote best practice in emissions reductions and net-zero targets, in line with
climate science. As of August 2022, there were nearly 3,000 companies that set up
an SBTi target, and of these, over 1,340 companies have set science-based targets
aligned with a temperature increase of 2°C or below. Total market capitalization
(market cap) of these 1,340 companies was approximately $21 trillion at the end of
June 2022. This value has increased immensely since the SBTi started in 2015, and
more companies are committing to these targets. However, the total amount of
market cap committed to SBTi targets still only represents 20% of total equity
market cap, estimated at $105 trillion as of June 2022.13 Market cap refers to how a
company is valued as determined by the stock market — it is defined as the total
market value of all outstanding shares (i.e., the number of available shares)
multiplied by the share price and it changes daily. The market cap of a company
does not capture the total picture of emissions, as there may be smaller market cap
companies that are more emission-intensive than larger ones. However, it does
provide some indication of the commitments of large companies.
Figure 12. Number of Companies With Aligned Targets of 2°C or Less Figure 13. Total Market Cap Split of Companies Signed Up to SBTi
With a Target of 2°C or Less, by Region
Source: SBTi, BNEF, Citi GPS Source: SBTi, BNEF, Citi GPS
13This figure represents domestic equity market capitalization worldwide taken from
Statista.
© 2022 Citigroup
Conclusion
In summary, financial flows and commitments from companies around climate are
increasing, and we are moving in the right direction. However, as we will see from
the next chapter, this investment needs to be scaled up significantly in order to
reach the level needed for a green transition.
© 2022 Citigroup
Chapter 3: An Analysis of Finance

Needed Across Different Regions
There are several ways to assess the capital investment needed to reduce
emissions over time and reach net zero. One is to model the investment needed
based on a particular net-zero scenario. The UNFCCC Race to Zero campaign, with
support and analysis from Vivid Economics, uses the IEA Net Zero Scenario and
estimates that $125 trillion is required globally to reach net zero through 2050. This
translates into an annual investment of $2.6 trillion between 2021 and 2025,
increasing to $3.8 trillion from 2026 to 2030 (as shown in Figure 14). A total of
$32 trillion is needed through 2030.
The annual average costs differ per region and depend on several factors, including
project energy demand, population growth, and current energy supply. Annual
capital investment figures required from 2021 to 2025 for Africa are estimated at
$200 billion per year, $1.1 trillion per year in the Asia Pacific region, and $500 billion
per year for both North America and Europe. These figures only include capital
investment for mitigation, and do not include the investment needed for adaptation
purposes. If we look at sectors, the largest capital investment would need to take
place in the power sector, followed by transport and buildings.
Figure 14. Average Annual Investment Required Across Regions Figure 15. Average Annual Investment Required Across Sectors
Note: Global refers to mining of minerals for electric vehicles, which is not allocated to
any region.
Source: UNFCCC Race to Zero campaign with support and analysis from Vivid Source: UNFCCC Race to Zero campaign with support and analysis from Vivid
Economics, Citi GPS Economics, Citi GPS
Other ways to calculate the required costs and needs to reduce emissions over time
and reach net zero is by combining information from several sources, including the
National Determined Contributions (NDCs), Biennial Update Report submissions
(BURs), and National Adaptation Programmes of Action (NAPAs), which provide
some quantitative information on a country’s investment needs (needs are defined
here as part of the investment a country is not able to finance with its resources and
requires some support). Figure 16 shows the expressed needs for developing
economies based on their NDCs. There is, however, a lack of information as to how
these needs have been calculated, with some countries providing detailed
information and others very limited information.
© 2022 Citigroup
Figure 16. Number of Costed Needs Expressed in NDCs

No. of Costed Needs Based
No. of Costed
Region Expressed on Financial
Needs
Needs Information ($ bns)
African States 1529 874 $2,459.56-$2,460.56
Asia-Pacific 1677 630 $3,180.39-$3,250.39
Eastern European States 282 112 $9.36
Latin American & Caribbean States 771 166 $168.18-$168.26
Western Europe & Other States - - -
Source: UNFCCC, Citi GPS
Whichever data set is used — whether it is the modeled capital investment required
based on a particular net-zero scenario or the quantitative needs identified by
individual countries — the fact remains that current annual climate finance flows
need to increase by more than $1.7 trillion per year in 2021-25 (additional
investment over and above current climate investment) if we want to limit the
negative impacts of climate change and be on the path to net zero. This is just for
mitigation.
Figure 17. Comparing Current Finance Flows With Estimated Average Annual Capital
Investment Requirements Based on the IEA Net Zero Scenario
Note: Current climate flows are estimated on average at approximately $600 billion to $900 billion depending on
the data source used. CPI estimates average climate finance flows in 2020 amounted to $640 billion, including
both mitigation and adaptation. BNEF estimates total investment in Energy Transition was $611 billion in 2020
and increased to $798 billion in 2021. Vivid Economics estimates total investment averaged $900 billion annually
between 2016 and 2020.
Source: UNFCCC Race to Zero campaign with support and analysis from Vivid Economics, Citi GPS
Clearly, we need to increase global investment substantially, but how does this
stack up in different regions? In the next section, we provide analysis on how
current climate finance flows compare to the investment required in different
regions, including developing and emerging economies as well as developed
countries. We also provide several individual country case studies. Given the lack
and uncertainty of available data, we make use of several different data sources,
including Climate Policy Initiative (CPI), BNEF and NDC reports, to assess the
current climate finance flows and investment costs in different regions.
© 2022 Citigroup
Africa
With nearly one-fifth of the world’s population, Africa accounts for less than 3% of
today’s energy-related carbon dioxide (CO2) emissions and has the lowest per-
capita emissions of any region.14 Approximately 600 million people, or 43% of the
total population, lack access to electricity, with the majority residing in sub-Saharan
Africa. According to the IEA, demand for energy services is expected to grow rapidly
in Africa and maintaining affordability for energy is an urgent priority. 15
African nations through their National Determined Contributions have estimated that
the region requires a total investment of $2.8 trillion and total needs of $2.5 trillion.
They estimated total investment costs for mitigation purposes at approximately
$1.9 trillion. For the UNFCCC Race to Zero campaign, Vivid Economics estimates
total investment to be $1.7 trillion in the same period, approximately $200 billion per
year. Adaptation costs are estimated at $61.5 billion per year. Africa will undoubtedly
be affected by climate change given its exposure to weather-related disasters and
the reliance of rain-fed agriculture. Therefore, investment in climate resilience and
adaptation projects is a must. Each African nation has its own commitment under its
NDC. In total 12 African countries — representing over 40% of the continent’s CO2
emissions — have committed to reaching net zero by a certain date.
Figure 18. Annual Estimated Costs and Needs to Reach Africa's NDCs Figure 19. Annual Estimated Needs to Reach Africa's NDC by Region
and Type
Source: CPI, Citi GPS Source: CPI, Citi GPS

Figure 20. Announced Net Zero Pledges in African Countries
Share of Africa's
Population GDP CO2 Emissions Announced Pledge
Cabo Verde 0.0% 0.1% 0.0% Climate neutral by 2050
Cote d'Ivoire 2.1% 2.2% 0.8% Climate neutral by 2030
Liberia 0.4% 0.1% 0.1% Climate neutral by 2050
Malawi 1.6% 0.3% 0.1% Climate neutral by 2050
Mauritania 0.4% 0.4% 0.3% Climate neutral by 2050
Mauritius 0.1% 0.4% 0.3% Climate neutral by 2070
Namibia 0.2% 0.2% 0.3% Climate neutral by 2050
Nigeria 16.7% 16.3% 8.4% Climate neutral by 2050
Rwanda 1.1% 0.5% n.a. Climate neutral by 2050
Sao Tome and Principe 0.0% 0.0% 0.0% Climate neutral achieved in 1998
Seychelles 0.0% 0.0% 0.0% Climate neutral by 2050
South Africa 4.8% 11.0% 32.7% Climate neutral by 2050
Total 27.4% 31.7% 43.0%
Source: IEA, Citi GPS
14 International Energy Agency, Africa Energy Outlook 2022, June 2022.

15 Ibid.
© 2022 Citigroup
Current climate finance flows — estimated at $30 billion in 2020 — are a fraction of
what is needed to help the African region build a low-carbon economy and adapt to
climate change. If we just look at mitigation costs, an additional $170 billion per year
is needed through 2030. Governments can only do so much as they have other
issues to deal with, including poverty, energy security, unsustainable debt, and lack
of infrastructure. Some do not have the fiscal capacity to invest in mitigation and
adaptation projects, and some African countries rely on oil and gas production for
their export revenues. For example, petroleum exports in Nigeria are estimated to
account for more than 85% of the government’s total revenue exports.16 These
countries would need to find other sources of revenue.
Figure 21. Africa: Comparison of Current Climate Finance Flows With Projected Capital
Investment Need
Data from CPI include current investment figures for mitigation and adaptation; however, the majority of this
finance has been invested in mitigation activities. Future annual average investment numbers include the capital
investment required for mitigation for Africa under the IEA Net Zero scenario.
Source: CPI, UNFCCC Race to Zero campaign with support and analysis from Vivid Economics, Citi GPS
However, investing in a green economy should not just be seen as a cost. The
green transition can open huge opportunities in the region, especially in places
where there is potential for cheap renewable generation. Africa has vast resource
potential in wind, solar, hydro, and geothermal energy, and falling costs are bringing
these resources within reach. Central and Southern Africa also have abundant
mineral resources that are essential for producing electric batteries, wind turbines,
and other low-carbon technologies.17 Although the transition away from fossil fuels
may be difficult for many countries in the region, when this transition is accompanied
by appropriate and adequate policies, the promise for Africa could be huge.
16 Acha Leke, Peter Gaius-Obaseki, and Oliver Onyekweli, “The Future of African Oil and
Gas: Positioning for the Energy Transition,” McKinsey & Company, June 8, 2022.
17 International Renewable Energy Agency (IRENA) and African Development Bank
Group (AfDB), Renewable Energy Market Analysis: Africa and Its Regions, 2022.
© 2022 Citigroup
Case Study: South Africa
South Africa is the 17th highest emitter in the world and the highest emitter in Africa with an estimated 562 metric tons of
carbon dioxide equivalent (MtCO2e) of carbon emissions, which translates to 1.13% of global emissions. Energy, in particular
coal use, is responsible for most of these emissions. Coal is also a major export for the country and has been a critical part of
South Africa’s economy for over 100 years. Unemployment in Africa is high, estimated at approximately 30% in 2020, a
5 percentage point increase since 2010; according to the World Resources Institute, the coal sector employs up to 200,000
workers. To ensure a just transition, any declines in jobs in the coal sector must be replaced by new job openings in other
sectors. South Africa also has to deal with extremely pressing issues such as poverty and inequality.
State-owned company Eskom produces approximately 90% of South Africa’s electricity needs, and the company has estimated
that it needs around $27 billion for an accelerated transition away from coal.18 South Africa is notorious for blackouts, primarily
caused by Eskom’s frequent unplanned outages, which have increased lately, according to BNEF.19
Figure 22. South Africa: Total Energy Supply (TJ) Figure 23. South Africa: Total Greenhouse Gas Emissions (MtCO2e)
Source: IEA, Citi GPS Source: Climate Watch Data, Citi GPS
In its NDC, South Africa has committed to reduce emissions to 398-510 MtCO2e by 2025 and to 350-420 MtCO2e by 2030.
Currently total greenhouse gas emissions are estimated at just over 560MtCO2e — this means a planned reduction in
emissions of 9%-29% in 2025 and 25%-27% in 2030 compared to current levels. The country has also committed to reaching
net zero by 2050. However, it has stressed it needs financial support to reach these targets estimated at over $100 billion per
year in capital investment with over 70% of this earmarked for mitigation. This is approximately 37% of the total capital
investment required by all African states as listed in their NDCs. At COP26 in Glasgow, a deal was reached under the banner
called “Just Energy Transition Partnership” that provides $8.5 billion in grants and cheap loans over the next five years to help
South Africa decarbonize. It is funded by the U.S., the U.K., France, Germany, and the EU. The aim of the agreement is to
achieve the lower bounds of South Africa’s emission targets under its NDC. There are three main goals of this agreement:
1. Early retirement of coal plants.
2. Build cleaner energy sources.
3. Support for coal-dependent regions.
This deal amongst a small group of countries could produce concrete progress. However, more needs to be done to help South
Africa decarbonize and change its economy while increasing employment and investing in climate resilience and adaptation.
18 World Resources Institute (WRI), “South Africa: Strong Foundations for a Just
Transition,” December 23, 2021; Christopher Cassidy, “The Just Energy Transition
Partnership With South Africa Will Hinge on Domestic Reform,” Atlantic Council, August
30, 2022.
19 S’thembile Cele, “South Africa Fears Deeper Power Outages as Plants Deteriorate,”
Bloomberg, September 15, 2022.
© 2022 Citigroup
Asia Pacific
Asia Pacific is a very large region with countries at various stages of development
and with different climate challenges and opportunities. This region is extremely
diverse, with 4.4 billion people living in 58 markets, ranging from the world’s largest
consumer of energy to small island economies that are the most vulnerable to
climate change. The region, in fact, has the largest share of annual greenhouse gas
emissions estimated at nearly 50% of total annual emissions, with China and India
responsible for 24% and 6.7% amount, respectively.
CPI estimates that $305 billion was invested in 2020 in East Asia and the Pacific,
while in South Asia $30 billion was spent in the region. BNEF estimates a total of
$400 billion was invested in energy transition in the region; however, more than
70% of this occurred in China. We can see that investment in energy transition has
increased substantially in 2021 when compared to previous years (see Figure 24),
but investment flows are clearly not enough compared to projected capital
investment costs as shown in Figure 25.
Figure 24. Asia Pacific: Energy Transition Investment ($ bns) Figure 25. Asia Pacific: Comparison of Current Climate Finance Flows
With Projected Capital Investment Need
Note: Data from CPI include current investment figures for mitigation and adaptation;
however, the majority of this finance has been invested in mitigation activities. Future
annual average investment numbers include the capital investment required for
mitigation for Asia Pacific under the IEA Net Zero scenario
Source: BNEF, Citi GPS Source: CPI, BNEF, UNFCCC Race to Zero campaign with support and analysis from
Vivid Economics, Citi GPS
© 2022 Citigroup
Case Study: India
India is responsible for 6.7% of global greenhouse gas emissions in 2019, estimated at approximately 3.4 gigatonnes of carbon
dioxide equivalent (GtCO2e). The majority of these emissions are attributed to the electricity sector, which is dominated primarily
by the use of coal; however, emissions from the agriculture sector are also quite large. India’s energy demand is expected to
increase rapidly as its population grows and urbanization and industrialization increase. The affordability of energy and reliability
are major concerns for India.
Figure 26. India: Total Energy Supply (TJ) Figure 27. India: Total Greenhouse Gas Emissions (MtCO2e)
Source: IEA, Citi GPS Source: Climate Watch Data, Citi GPS
In its NDC, India has committed to reducing the emission intensity of its GDP from 2005 levels by 45% by 2030 and achieving
about 50% cumulative electric power installed capacity from non-fossil fuels energy resources by 2030. Its renewable
commitment would require 500 gigawatts (GW) of power generation to come from non-fossil fuels. It also announced that it
would reach net zero by 2070.
CPI estimates that India would need a total investment of $2.5 trillion between 2015 and 2030 (approximately $170 billion per
year) and upward of $10 trillion to meet its net zero commitment in 2070. Climate finance flows in India reached just $44 billion
per year on average in 2019-20, falling well short of what is required. Eighty-five percent of this came from domestic sources,
while 15% came from international sources of finance. Out of this amount, $5 billion was earmarked for adaptation purposes
and the rest for mitigation.
India is moving in the right direction. It has been rapidly investing in renewables, and its renewable capacity has increased
substantially over the years as shown in Figure 28. India has become one of the largest renewable energy markets in the
world. This is mainly due to its rise in power demand coupled with government support for renewables and market
transparency.20 Funding for renewables in the form of equity and debt has come from several sources, including a variety of
players such as foreign utilities, oil and gas majors, Indian conglomerates, international banks, Indian private banks, and
development finance institutions.21 However, meeting its 2030 commitment of 50% of cumulative electric power from non-fossil
fuel sources would require India to have 500 GW of non-fossil fuel power generation by 2030, compared to 158 GW at the end
of 2021. BNEF estimates this would require an additional investment of $363 billion for building new power projects and
batteries in 2020-29 and $175 billion for investment in the transmission and distribution grid. Therefore, investment needs to be
scaled up further over the next decade.
20 Shantanu Jaiswal and Rohit Gadre, Financing India’s 2030 Renewables Ambition,
BNEF, June 2022.
21 Ibid.
© 2022 Citigroup
Figure 28. India: Cumulative Power Generation Capacity (GW)
Source: BNEF, Citi GPS

ESG-focused investments, though small, are also gaining popularity in India. According to the Securities and Exchange Board of
India (SEBI), there are currently 10 mutual fund schemes in India with ESG as their theme and total assets under management
of about $1.6 billion (120 billion rupees).22 SEBI has also revised its framework governing ESG data disclosures by Indian
companies, which will increase transparency and will increase pressure on Indian companies to disclose ESG data.
All this is encouraging, and we expect India’s positive momentum to increase. India also has other pressing matters that it needs
to invest in such as reducing poverty and pollution and improving infrastructure and education. Adaptation financing is also a
must in the region, with the Indian government stating it requires around $206 billion between 2015 and 2030 for adaptation
purposes in sectors such as agriculture, forestry, fisheries, and water resources.23
22 Archana Chaudhary, “New ESG Rules will improve reporting by Indian Firms,”
Bloomberg, September 2, 2022.
23 $206 billion at 2014-15 prices. Dhanasree Jayaram, “Why Has Climate Change
Adaptation Become More Important Than Ever in India?” Climate Diplomacy, July 24,
2019.
© 2022 Citigroup
Central and South America

Central and South America is a heterogeneous region, with different levels of
economic development. There are 23 countries in this region and approximately
520 million people. The region is responsible for 10% of global greenhouse gas
emissions, with Brazil and Mexico being the largest contributors.24 The main
sources of emissions in this region are land use, land-use change and forestry
(35%), and agriculture (23%). Transport and energy account for another (20%). This
is very different from other regions where energy accounts for most emissions. The
region already has a lot of green energy mainly through hydropower; however, there
are countries such as Mexico that rely mainly on fossil fuels for power generation.
Poverty and inequality are two of the main pressing issues in the region, and these
may accelerate further given that the most vulnerable groups in the region are
currently being hard hit by increases in food and energy prices.25
For the UNFCCC Race to Zero campaign, Vivid Economics estimates this region
would need $1.5 trillion in 2021-30 to have a chance of reaching net zero over time.
This is equivalent to $100 billion per year from 2021-2025, increasing to $200 billion
per year through 2030 and then maintaining that level through 2040. According to
CPI, climate finance flows in the region amounted to $37 billion and $33 billion in
2019 and 2020, respectively.
Figure 29. Central and South America: Capital Investment Current Flows and Estimates
Note: Data from CPI include current investment figures for mitigation and adaptation; however, the majority of
this finance has been invested in mitigation activities. Future annual average investment numbers include the
capital investment required for mitigation for Central and South America under the IEA Net Zero scenario.
Source: CPI, BNEF, UNFCCC Race to Zero campaign with support and analysis from Vivid Economics, Citi GPS
24 Mexico, which is sometimes considered part of North America, is included under

Central and South America in the analysis.
25 Santiago Acosta-Ormaechea, Ilan Goldfajn, Jorge Roldós, “Latin America Faces
Unusually High Risks,” International Monetary Fund (IMF) blog, April 26, 2022.
© 2022 Citigroup
Case Study: Brazil
Brazil is the seventh-largest greenhouse gas emitter in the world with a total share of 2.92%. The greatest source of emissions
comes from the agriculture sector, which together with land-use change and forestry is responsible for over 60% of Brazil’s
emissions. Deforestation in Brazil has also been on the rise in recent years, despite pledges at COP26 to end and reverse
deforestation by 2030. Official data from Brazil’s National Institute for Space Research shows that deforestation increased in the
Brazilian Amazon by 22% during 2020-21 and hit its highest level in over 15 years.26 Energy-related emissions only account for
30% of total emissions, as Brazil generates much of its electricity from hydropower. In fact, over 45% of its total energy supply
comes from biofuels, hydropower, and renewables. However, recent hydropower shortages caused by record droughts have led
to the government increasing the use of fossil fuels for power generation as well as imports from neighboring countries.
Figure 30. Brazil: Total Energy Supply by Source (TJ) Figure 31. Brazil: Total Greenhouse Gas Emissions (MtCo2e)
Source: IEA, Citi GPS Source: Climate Watch, Citi GPS
In its March 2022 NDC update, Brazil committed to reduce GHG emissions from 2005 levels by 37% in 2025 and by 50% in
2030. It has also committed to reaching net zero by 2050. Climate Action Tracker currently rates Brazil’s climate targets and
policies as “insufficient” in its alignment with the Paris Agreement and highlights that under current policies, emissions will
continue to increase, and the country will not be able to meet its 2030 NDC target.27
For the UNFCCC Race to Zero campaign, Vivid Economics estimates that Brazil will need to invest $700 billion in
decarbonization in 2021-30, which is equal to around $70 billion per year. In terms of current climate finance flows, there is
limited information on Brazil, with the CPI reporting that even though Brazil is using climate finance mechanisms, no precise
figures are available on the total amount of investment disbursed.28 Kahlen et al. (2021) add that there is no mechanism to
monitor domestic climate finance and climate finance from international non-governmental donors.29 BNEF does provide an
insight into energy transition investment in Brazil (Figure 32), which shows that the vast majority of funding has gone to
renewable energy and reached a high of $12.54 billion in 2021.
26 Andrei Ionescu, “Deforestation in the Amazon Rainforest Hits New Records,”

Earth.com, November 20, 2021.
27 Climate Action Tracker, “Brazil,” accessed November 1, 2022.
28 Gabriela Coser, “Innovative Approach to Mapping Climate Finance for Agriculture,
Forestry and Other Land Use in Brazil,” CPI, June 9, 2021.

29 Lukas Kahlen et al., “Climate Investment in Latin America: Sectoral Policies for
Scaling-Up Low-Carbon Investments in Argentina, Brazil and Peru — Analysis of a

Dynamic and Ongoing Process,” New Climate Institute, October 2021.
© 2022 Citigroup
Figure 32. Energy Transition Investment in Brazil Over Time
It has been noted that although climate finance channels have decreased in recent years, Brazil has historically had a strong
track record of raising climate finance from international climate funds/initiatives and investments for decarbonization via the
Brazilian Development Bank (BNDES) through green bonds and credit lines.30 Brazil also established two funds in 2009: (1) the
National Fund on Climate Change to finance mitigation and adaptation efforts, with funding mainly from revenues generated
from a tax on oil companies; and (2) the Amazon Fund which supports projects aimed at preventing, monitoring, and combating
deforestation in the Brazilian Amazon, and is funded by donations from companies and foreign governments. Both funds have
been inactive in recent years, but in July 2022 the Supreme Court of Brazil ordered the government to fully reactivate its national
climate fund.
Similar to other case studies we have discussed above, Brazil is an emerging country and also has to balance climate action
with development challenges such as poverty eradication. It also notes in its latest NDC update the need for improvements
across education, public health, employment rates, housing, and social inclusion. The COVID-19 pandemic and subsequent
economic crisis on top of the country’s 2014 economic recession has worsened social inequality and food insecurity, in addition
to threatening poverty reduction progress in the country. The World Bank notes that supporting the transition to a greener and
more resilient growth model in Brazil remains a key challenge.31
However, progress is being made:
1. There has been a steady increase in energy supply from wind and solar (Figure 30).
2. An agreement was signed in April 2022 between Brazil’s BNDES and the Climate Bonds Initiative to promote sustainable
finance in Brazil and attract international investments that support sustainable projects.
3. In addition to ordering the government to fully reactivate the national climate fund, the Supreme Court also recognized the
Paris Agreement as a human rights treaty — the first country to do so.
If Brazil chooses to fully commit to climate action, it already has the enabling structures and processes in place as well as
experience in mobilizing and utilizing resources. To really move the dial towards net zero, a substantial boost in investment and
action is needed towards stopping emissions from deforestation and agriculture, as well as directing more finance to increasing
solar and wind capacity rather than pursuing the use of more fossil fuels to address hydropower shortages.
30 Climate Action Tracker, Climate Governance: Assessment of the Government’s Ability

and Readiness to Transform Brazil to a Zero Emissions Society, February 2022.
31 World Bank, “The World Bank in Brazil,” accessed November 1, 2022.
© 2022 Citigroup
Middle East
The Middle East is often grouped with North Africa and commonly referred to as the
MENA region. In this section, we separate the two regions and focus on the Middle
East alone, which includes 17 UN-recognized countries. The region is home to a
significant share of the world’s oil and gas reserves, and in 2020 accounted for 31%
of global oil production and 18% of gas production.32 The Middle East is the largest
exporter of oil, accounting for 34% of global trade. Within the region, oil accounted
for the majority (43%) of energy consumption, and even though renewables grew
quickly in 2020 (up 34%), it still made up only 0.5% of energy consumption.33 In
terms of emissions, the region produced 2 billion metric tons of CO2 in 2020, which
equates to ~3% of global GHG emissions. The energy sector is a crucial sector that
needs to be addressed if the region is to transition to net zero.
For the UNFCCC Race to Zero campaign, Vivid Economics estimates $1.2 trillion of
decarbonization investment is needed in the Middle East in 2021-30, which equates
to ~$120 billion per year. From 2031-40, investment needs per year increase to
$200 billion and then $300 billion in 2041-50. Of the 17 critical investment
opportunities identified around the world to enable net-zero transition pathways,
Solar PV as well as Buildings Retrofits and Efficiency are in the Middle East.34 In
order to get a sense of current climate flows in the region, we use two indicators.
According to BNEF, energy transition investment in the Middle East reached
approximately $11 billion in 2020, with Saudi Arabia accounting for $2.9 billion,
followed by the UAE with $2.7 billion.
Figure 33. Energy Transition in the Middle East Over Time
CPI reports a 2019-20 biennial average in climate flows for the MENA region of
$15.3 billion. However, both of these current figures pale in comparison to the
estimates of investment needed to achieve net zero in the region based on the IEA
Net Zero scenario.
32 bp, Statistical Review of World Energy 2021, July 2021.

33 Ibid.
© 2022 Citigroup
Figure 34. Middle East: Comparison of Current Climate Finance Flows and Estimated
Investment Needs
Data from CPI include current investment figures for mitigation and adaptation; however, the majority of this
finance has been invested in mitigation activities. These figures are for the MENA region and not just the Middle
East. Future annual average investment numbers include the capital investment required for mitigation for
Central and South America under the IEA Net Zero scenario
Many countries in the region are still heavily reliant on hydrocarbons, e.g., Kuwait,
Qatar and Oman where oil and gas production account for over 40% of GDP, and oil
and gas revenues make up over 70% of total revenue.35 Transitioning to a low-
carbon future will require countries in the region to actively and purposefully reduce
their dependence on hydrocarbons and diversify their economies. Countries in the
region are becoming increasingly aware of the need to transition to a greener
economy and taking action. For example, the UAE and Bahrain have pledged to
reach net zero emissions by 2050 and 2060, respectively, and Saudi Arabia has a
2060 net zero goal in policy document. Saudi Arabia, in partnership with regional
countries, launched the Middle East Green Initiative in 2021 — the region’s first pact
on climate change, which aims to plant 50 billion trees across the region (reducing
global CO2 emissions by 2.5%), and reduce CO2 from regional hydrocarbon
production by more than 60%. Qatar has committed to reducing CO2 emissions by
25% by 2030.
However, a significant step-up in climate finance is needed in the Middle East to

reach net zero. Challenges lie ahead, especially given the region’s current
dependence on fossil fuels. At the same time, a low-carbon future also presents
many opportunities for the Middle East. Renewable energy, for example, can play a
much larger role in the region, which the International Renewable Energy Agency
(IRENA) highlights can create a ripple effect across society through economic
growth and diversification as well as job creation, better balance of trade, and
improved water security.36
35 World Bank Group, Gulf Economic Update: Economic Diversification for a Sustainable
and Resilient GCC, December 2019.

36 IRENA, “Middle East and North Africa,” last accessed November 1, 2022.
© 2022 Citigroup
North America
The U.S. and Canada are the two major economies in North America (Mexico,
which sometimes is considered part of North America, is covered under the section
on Central America and South America). According to CPI, climate finance flows in
the U.S. and Canada amounted to approximately $80 billion in 2020, mostly from
the private sector. According to BNEF, energy transition investment in the U.S. and
Canada amounted to $130 billion with the majority occurring in the U.S. However,
an estimated $500 billion per year needs to be invested in this region from 2021-25,
increasing to $700 billion in 2026-30.
Figure 35. North America: Current Climate Investment Against Total Investment Need
Notre: Data from CPI include current investment figures for mitigation and adaptation; however, the majority of
this finance has been invested in mitigation activities. Future annual average investment numbers include the
capital investment required for mitigation for North America under the IEA Net Zero scenario
© 2022 Citigroup
Case Study: United States
The U.S. is the world’s second-largest emitter of annual global greenhouse emissions, estimated at 5.7 GtCO2e. Energy-related
emissions are responsible for over 90% of total emissions in the country. Total energy supply comes from a variety of sources,
with natural gas and oil having the largest share of total energy supply.
Figure 36. U.S.: Total Energy Supply (TJ) Figure 37. U.S.: Annual Greenhouse Gas Emissions (MtCO2e)
Source: IEA, Citi GPS Source: Climate Watch, Citi GPS
In its NDC, the U.S. set a target of reducing emissions below 2005 levels by 50%-52% by 2030 and committed to reaching net
zero by 2050. Several studies have estimates around the capital investment needed for the U.S. to reach net zero. For example,
Princeton University analyzed five different approaches to decarbonization and costed each approach. The UNFCCC Race to
Zero campaign, with support and analysis from Vivid Economics, estimates the U.S. needs approximately $5 trillion through
2030 — approximately $500 billion per year since 2021. CPI estimates climate finance flows in the U.S. averaged $74 billion in
2017-18 with the majority coming from the private sector. No further data is available for later years. In its energy transition
investment data, BNEF find the U.S. invested close to $120 billion in energy transition in 2021, with the majority going towards
renewable energy and transportation (see Figure 38).
Figure 38. U.S.: Energy Transition Investment
© 2022 Citigroup
Overall, the U.S. is currently underinvesting in climate action, although there are regional differences. On a national level, the
U.S. government passed the Inflation Reduction Act (IRA), which is considered by many to be the most meaningful climate
legislation passed in recent years in the U.S. As part of this legislation, a total of $369 billion has been earmarked for clean
energy and climate change mitigation initiatives. Tax credits and funds for several different activities have been approved
including for renewables, energy storage, nuclear, clean hydrogen, carbon capture and storage (CCS), biofuels and renewable
fuels including sustainable aviation fuels (SAFs), electric vehicle subsidies, decarbonization of buildings, and forestry support,
as well as new waste emission charges for methane leakages. The bill also formally creates a National Green Bank dedicated to
climate mitigation and directs the federal government to deposit $27 billion into this bank. According to the Coalition of Green
Capital, which represents over 13 green bank and state climate fund initiatives across the United States, including the
Connecticut Green Bank, for every dollar invested or financed into green projects, the National Green Bank can attract an
additional 3x in co-sponsor private capital.37 It is expected this legislation will reduce U.S. greenhouse gas emissions by 40% by
2030, compared to 2005 levels.
Europe
Europe is made up of 43 countries with just 27 countries part of the European
Union. An estimated $500 billion per year is required through 2025, increasing to
$800 billion from 2026-30 for Europe to be on track to reach net zero. Data on
current climate finance flows are divided between Western Europe, estimated at
$110 billion in 2020; and Eastern Europe and Central Asia, estimated at around
$29 billion in the same period. According to BNEF a total of nearly $200 billion was
spent on energy transition in 36 countries in Europe ($156 billion in the EU as
stated in Figure 39).
Figure 39. Europe: Current Climate Investment Flows Versus Investment Required
Note: Data from CPI only includes Western Europe, and this is both for mitigation and adaptation. Data on
Energy Transition investment only includes 33 countries in Europe with the majority in the EU. Future annual
average investment numbers include the capital investment required for mitigation for Central and South
America under the IEA Net Zero scenario.
37Citi Research, Manchin-Schumer Proposal Could Revive Faltering U.S. Climate

Change Ambitions…If It Passes, August 3, 2022.
© 2022 Citigroup
Case Study: The European Union (EU)
The EU is the world’s fourth-largest emitter, accounting for 6% of global annual emissions. The EU has committed to reduce
emissions by 55% by 2030 compared to 1990 levels and committed to reach net zero by 2050. The EU has already reduced its
emissions over the years and has reached a 32% reduction between 1990 and 2020. The EU has climate change at the
forefront of its policies. However, it has embarked on a very different strategy to reduce emissions than the U.S.
It is estimated the EU would need to invest approximately $4.7 trillion (~$470 billion per year) over the next ten years if it wants
to be on course to reach net zero. According to BNEF, a total of $156 billion was invested in energy transition in the European
Union in 2021 with over 50% spent on electrified transport.
Figure 40. EU: Energy Transition Investment
Although the EU has been a major player in climate change discussion, it too must substantially increase investment over the
next decade. Currently the region is facing energy security issues as gas production is cut off from Russia due to the conflict in
Ukraine. This will undoubtedly increase emissions over the next few years as European countries scramble to find enough
energy to get them through the winter. In some countries, this means reopening coal plants or delaying the closures of coal-fired
power generation sources. However, this crisis should also help galvanize EU governments to collectively invest more in energy
security, which could ultimately mean increasing investment in renewable power generation and nuclear.
The EU’s strategy to reduce emissions over time is different to what the U.S. government is doing. Its central strategy is its
Emissions Trading System (ETS), which was the world’s first established carbon emissions market and the largest in volume
until the launch of China’s ETS system in 2021. It is operational across all EU 27 member states and three other European
Economic Area countries (Norway, Iceland, and Liechtenstein). The EU also proposed its European Green Deal, which presents
a road map for making the EU’s economy more sustainable. The Deal contains a number of different policy areas, including
increasing the EU’s climate ambition for 2030 and 2050, mobilizing industry for a clean and circular economy, and supplying
clean and affordable and secure energy, among others. The EU also presented its “Fit for 55” policy proposal, which strengthens
the EU ETS further and establishes higher CO2 emissions standards for cars and vans, an obligation for fuel suppliers at EU
airports to use sustainable aviation fuels, and a Carbon Border Adjustment Mechanism.
The EU Commission in May published REPowerEU plan, which contains concrete measures to phase out the use of Russian
fossil fuels by 2027 and increase the EU’s renewable energy production target from 40% to 45%. This plan compliments key
energy legislation that is being negotiated as part of the EU Fit for 55 package.
© 2022 Citigroup
The EU also published the European Green Deal Investment Plan, also known as the Sustainable Europe Investment Plan
(SEIP), which provides details on how the EU Commission proposes to finance the European Green Deal. The Plan aims to
mobilize $1 trillion in sustainable investments over the next decade, with at least half of this coming from the EU budget and an
additional $29 billion coming from the EU ETS. Countries in the EU are also setting up other fiscal measures to provide
incentives to move to a low-carbon economy.
Figure 41. Financing the European Green Deal
Source: EU Commission, Citi GPS
Adaptation Funding
The data used above on the amount of investment needed in different regions only
relates to mitigation. We also need to mobilize finance for climate resilience and
adaptation purposes. However, there is limited or no data available on adaptation
needs on a country level, let alone at a regional level. Some data is available
through individual countries NDCs — for example, India estimates it needs over
$200 billion of investment in adaptation between 2015-30, and Africa has stated it
needs approximately $61.5 billion per year for adaptation. However, many claim
these costs are underestimated. It is not just developing and emerging countries
that need to invest in adaptation; developed countries also need to invest to ensure
their infrastructure is resilient to the negative impacts of climate change. The UN
Environment Programme (UNEP), in its Adaptation Gap Report 2021, stated the
gap between what we need to spend to adapt and what we are actually spending is
widening. It states these costs could reach $280 billion to $500 billion per year by
2050 for developing countries. Even if we manage to meet net zero, and limit
temperature increase to 1.5°C or even 2°C, we will still need to adapt as we will still
be facing some impacts from climate change. Small island states are particularly
vulnerable to impacts from climate change and, hence, why they have been so
vocal in COP meetings on the importance of adaptation.
It was agreed at COP26 that 5% of the share of proceeds from the carbon credit
mechanism under Article 6.4 would be set aside for the adaptation fund set up by
UNFCCC. We are also seeing more countries set up their National Adaptation Plans.
© 2022 Citigroup
Summary
As discussed in this chapter, climate finance flows are substantially lower than what
we need to be on a path to net zero. No region is currently investing enough in
mitigation and adaptation, and we are in danger of pushing the can down the road,
despite this decade being extremely important. Some countries are really stepping
up — e.g., India, which has become one of the strongest emerging markets for
renewables, and the U.S., where legislation was finally passed that will support its
net zero commitment. How do we mobilize the capital that we need? In the next
chapter, we discuss the various actors that are important for this climate transition
and the different financial instruments that can help raise the capital needed.
© 2022 Citigroup
Chapter 4: Public and Private

Finance
In this chapter, we try to breakdown the complexity of the global climate finance
architecture and unpack (1) who the key players are in terms of sources of finance
and intermediaries, and (2) what financial instruments are available.
Figure 42. Summary Chart of Key Players and Flows in Climate Finance
Source: Adapted from Climate Investment Funds (CIF), Citi GPS
Sources and Intermediaries of Climate Finance

The main sources of climate finance are often categorized into public and private
finance (or a combination of the two). We start by examining public climate finance
and its key players, including governments and its agencies, state-owned
enterprises, sovereign wealth funds, and development finance institutions (DFIs) —
which could be divided into national (e.g., China Development Bank, Brazilian
Development Bank or BNDES), bilateral, and multilateral DFIs (see Figure 43 below
and Appendix 2). DFIs play an extremely important role in mobilizing finance in
developing countries. Other important key actors include state-owned financial
institutions, which include green banks that actively develop a clean pipeline of
projects and opportunities from the private sector, although we cover them
separately given their potential role in climate action. Currently in the U.S., green
banks have been set up at state and local levels; however, the U.S. government
intends to set up a National Green Bank. The U.K., Australia, Japan, New Zealand,
and Malaysia have all created national banks dedicated to leverage private
investment in clean energy technologies.
The latest Global Landscape of Climate Finance report from Climate Policy Initiative
(CPI) found that $321 billion of climate finance (51%) came from public sources in
2019-20, up by 7% from 2017-18. DFIs in total accounted for the majority of public
finance, contributing 68% ($220 billion).
© 2022 Citigroup
Figure 43. Public Financing Actors
Source: Citi GPS
© 2022 Citigroup
Figure 44. Global Climate Finance From Public Sources
Source: CPI, Global Landscape of Climate Finance 2021, Citi GPS
Private Finance
The second major source of climate finance comes from private actors. Private
climate finance includes financing provided by commercial financial institutions,
investors, and corporations in low-carbon projects and financial assets, as well as
spending from households and individuals on low-carbon technologies, such as
electric vehicles. Commercial financial institutions, institutional investors, and funds
are not only important for providing direct capital investments, but also for
supporting and enabling other private actors such as corporations, philanthropic
investors, and individuals with their climate financing. It is worth highlighting that
private sector actors are not just sources of capital, but have expertise, innovation,
networks, and other resources that can be leveraged in addition to being financiers.
We describe different types of private actors in Figure 46 below. For a more detailed
description of private actors, refer to Appendix 1.
According to CPI, private actors provided 49% ($310 billion) of total climate finance
per year during 2019-20 with the majority of investment coming from corporations
and commercial institutions. Institutional investors — which include a variety of
asset owners, asset managers, pension funds, insurance, hedge funds, mutual
funds, and endowments — only invested $3.2 billion in 2019-20; however, this only
includes “direct” project investment. Institutional investors effectively finance
corporations and financial institutions, so they are “indirectly” responsible for almost
all private investment. These entities typically pool assets from their clients to invest
in public securities, real estate funds, and other investment products. They are
typically looking for low-risk investments as strict solvency requirements, and risk
management regulation currently limits the risk these entities can take. Institutional
investors also have a fiduciary responsibility to their clients. They are extremely
active in developed markets and in some mature emerging economies, but they
have a very limited role in developing nations, mainly due to the perceived risks in
these countries.
Private equity and venture capital funds play an extremely important part in financing
start-up and private companies and are mostly active in developed markets due to
the availability of funding, good governance policies, and highly skilled workers.
Philanthropic organizations are also increasing their investment in climate-related
projects and are an extremely important source of income for developing countries.
© 2022 Citigroup
Case Study: Philanthropy
Philanthropy is increasingly addressing climate-related causes. A 2021 report noted that giving by individuals and foundations to
climate change mitigation grew by 14% in 2020, outpacing growth in overall philanthropic giving, which the report puts at 3% for
the same year. Despite this growth, giving to climate-related causes remains small: in the U.S., where donations as a share of
GDP are highest each year, just 3% ($16.3 billion) of the dollars given by individuals, corporates, and foundations went to
environment- and animal-related causes in 2021 (see Figure 45). Looking at the specific issue of climate change mitigation, a
global estimate of individual and foundation giving found that just 2% of dollars, totaling between $6 billion and 8 billion in 2020,
went to this cause. However, growth is set to continue, driven by increased awareness of climate challenges and the coming
transfer of wealth to younger groups.
Figure 45. Growth in Giving to Environment and Animal-Related Causes in the U.S. (1991-2021)
Source: Giving USA 2022, Citi GPS
While the funds available may seem small, institutional philanthropy can play a role far beyond the dollars that the field itself
contributes by strategically deploying charitable assets to catalyze investment in climate change mitigation and routing this
investment towards the areas of greatest need. In a recent Citi GPS report, Philanthropy and the Global Economy v2.0:
Reinventing Giving in Challenging Times, we illustrated how the distinct characteristics of philanthropic capital, including its
ability to accept below-market (including zero) returns, can crowd in investors. Two elements are particularly salient for climate
finance:
 Philanthropy can provide seed funding to support early-stage ventures that are unsuitable for commercial investment in the
short term, perhaps because they have a long road to profitability or have yet to refine an operating model. An example is the
Prime Impact Fund, an equity fund backed by more than 70 foundations and family offices that invests in technologies
designed to reduce greenhouse gas emissions. It aims to support companies seeking to bridge an “innovation gap” before
they can attract market-rate capital.38 Here, philanthropy funds innovation and, by doing so, creates future investment
opportunities.
 Philanthropy can support the expansion of existing projects into new geographies which often include emerging markets or
new, more challenging client bases. An example is BlackRock’s Climate Finance Partnership, which brings together
philanthropic capital with institutional investors to invest in climate-related infrastructure in emerging markets (see the case
study further in this chapter).39 Here, philanthropy provides first-loss capital to alter the risk-return profile of opportunities and
mobilize investors seeking market-rate returns. In this case, bringing together these two pools of capital routes funding
towards projects that would otherwise have gone unfunded.
38 Catalytic Capital Consortium, “Prime Impact Fund: Catalytic Capital for Climate
Innovation,” downloaded from the MacArthur Foundation website, PDF, July 2020.
39 Marilyn Waite, “Blending Philanthropic, Public and Private Capital to Finance Climate
Infrastructure in Emerging Economies,” ImpactAlpha, January 23, 2020.
© 2022 Citigroup
Finally, philanthropy can play a broader role than as a source of funds. The nonprofit sector holds significant expertise, derived
from its experience both in grantmaking and on the ground in delivering programs. This expertise can be used in the design and
implementation of programs, especially those that target harder-to-reach communities or those operating in lower-income
countries — both of which may be more challenging contexts for investors without specialist experience. Further, philanthropy
has significant convening power. As such, it can initiate and facilitate partnerships between organizations, including NGOs,
investors, and the public sector, which, together with philanthropy, all play a role in mitigating for and adapting to climate change.
© 2022 Citigroup
Figure 46. Private Financing Actors
Source: Citi GPS
Figure 47. Global Climate Finance From Private Sources
Source: CPI, Global Landscape of Climate Finance 2021, Citi GPS
© 2022 Citigroup
Financial Instruments
A variety of financial instruments can be used to mobilize investment including
grants, debt, equity, and guarantees, as highlighted in Figure 48 below. In 2019-20,
non-concessional loans accounted for 53% ($337 billion per year) of total climate
finance, followed by equity mainly from corporates.
Figure 48. Examples of Financial Instruments That Can Be Used to Mobilize Climate Finance
Source: Citi GPS
© 2022 Citigroup
Figure 49. Financial Instruments Used in 2019-20
As we highlighted in the case studies in the previous chapter, many governments

are incorporating a number of these financial tools to mobilize investment in climate
action. Appendix 2 in the report contains detailed information on the financial
instruments that can be used by both the public and private sectors. However,
developing countries have a harder time attracting private sector investment for a
number of reasons:
 Many have below investment grade sovereign credit. The sovereign risk
rating of 140 Low-Income Countries (LICs) and Middle-Income Countries (MICs)
is Highly Speculative from the Big 3 rating agencies.40 Using country ceiling
conventions, this implies most public sector and private sector debt investment
opportunities in LICs and MICs are “B” and “CCC” — beyond most private debt
investors’ fiduciary responsibility.41
 Currency risk exposure. Currency risk is a major investment barrier for debt
and equity investors and often results in high risk to borrowers and beneficiary
countries jeopardizing debt sustainability.
 Small investment amounts. The investment needs of most individual projects

that are related to climate and UN Sustainable Development Goals (SDGs) are
low, usually below the minimum size threshold to attract cross-border investors
and asset managers directly.
40 Trading Economics, “Credit Rating,” accessed October 24, 2022.

41 Fitch Ratings, “Fitch Ratings Updates Country Ceilings Criteria,” July 1, 2020.
© 2022 Citigroup
 Lack of reliable data. There are significant data, information, and knowledge
gaps among investors of LICs and MICs, which causes most investors to
continue investing in high-income countries. More than 200 large investors in four
separate investor groups interested in sustainable investing and climate action in
LICs and MICs have written about the critical importance of credible data when
evaluating investments in riskier, more opaque markets outside their comfort
zones. In the absence of reliable data, which is a common factor in developing
countries, investors typically default to the sovereign risk rating of the country
they are investing in, using it as a proxy for country risk and avoiding non-
investment grade countries — thereby limiting themselves to only 11% of the
LICs and MICs. This practice will likely not change without greater availability of
reliable investment data that investors can use to evaluate and benchmark risk.
Due to these issues, we need to look at how we can scale up blended finance
structures to increase private sector investment in LICs and MICs. Blended finance
is a structuring approach that allows actors with different objectives to invest
together while delivering on their own objectives. It utilizes catalytic capital from
public or philanthropic sources to attract private sector investment to currently
challenging markets and/or technologies by combining concessional and
commercial financing.
Catalytic Funding
Catalytic funding is defined as financial resources that are deployed: (1) with the intent to make a positive economic
development, social, and/or climate impact in developing countries; (2) with the intent to mobilize private investors to make an
investment they would not otherwise make; and (3) at non-commercial financial terms, which basically means that the funding is
concessionary or at below-market rates.
There are two main types of catalytic funding:
Catalytic Grants: These funds are fully, mostly or partially granted usually through a grant agreement. The grantor typically
expects none or only some of the funds to be returned.
Catalytic Capital: These funds accept disproportionate risk or concessionary returns, allocated in a manner that improves the
risk-return profile of a transaction to attract investment from the private sector.
Mechanisms that facilitate blended finance include: (1) guarantees; (2) insurance products, which can protect investors against
capital loss; (3) currency hedging; (4) technical assistance grants; (5) first loss capital; and (6) loan syndication. There are many
key players that can provide catalytic funding including governments, DFIs, and philanthropic organizations.
© 2022 Citigroup
Figure 50. Blended Finance Architecture
Source: Citi GPS, adapted from Convergence
According to Convergence, which tracks blended finance, climate finance has

consistently represented a strong segment of the blended finance market. Between
2015 and 2020, approximately $39 billion of blended finance targeted climate-
focused investment, and accounted for nearly half (47%) of all blended transactions
during that time.42 Using Convergence data, CPI shows the public and private actor
shares of blended climate finance from 2015-17 and 2018-20 (see Figure 51 and
Figure 52). The most common source of public blended climate finance changed
from multilateral development banks (MDBs) in 2015-17 to national/bilateral DFIs in
more recent years. For private sector blended finance, financial institutions were the
most active source in 2015-17, but from 2018-20, institutional investors accounted
for more than 50% of private blended finance.
Figure 51. Public Share of Blended Climate Finance Figure 52. Private Share of Blended Climate Finance
Source: CPI, Global Landscape of Climate Finance 2021, Citi GPS, Convergence Source: CPI, Global Landscape of Climate Finance 2021, Citi GPS, Convergence
42 Convergence, The State of Blended Finance 2021, October 2021.
© 2022 Citigroup
For public blended climate finance, market-rate debt is the most commonly used
instrument and, according to Convergence, accounted for 40% of public blended
climate finance between 2018-20. However, Convergence notes the rise in the use
of equity by public institutions, which is also seen in private blended finance activity.
DFIs can provide both commercial and concessional finance in blended finance
structures and can blend their own commercial capital. In The State of Blended
Finance 2021 report, Convergence notes that for blended finance more broadly, the
data suggests that MDBs and DFIs largely use concessional capital to reduce their
own risk and not to mobilize external commercial partners.43 MDBs and DFIs
provide concessional finance mostly in the form of technical assistance grants,
partial guarantees, and subordinate debt.44 Some experts make the point that the
major role public actors play in providing project-level, market-rate debt risks
crowding out private finance, especially in markets where private sector business
models are well established, such as in large-scale renewable energy projects.45
The potential for using blended finance structures to enable more private
investment for climate mitigation and adaptation is immense, but careful design will
be needed to help ensure each actor’s mandate is being used effectively, and this
will likely vary across sectors and markets.
Case Study: BlackRock’s Climate Finance Partnership
In September 2018, BlackRock initiated a blended finance investment fund called the Climate Finance Partnership (CFP)
targeting climate infrastructure in emerging economies. The partnership consists of 22 global partners including governments,
philanthropic organizations, and institutional investors. At COP26, BlackRock announced an initial financial close of $673 million.
Most existing large renewable energy funds have focused on projects in more developed markets which offer investors lower
risk, but CFP demonstrates how public capital can be leveraged to mobilize private capital for climate action in developing
countries. For CFP, catalytic capital is provided by the governments of France, Germany, and Japan, as well as by philanthropic
institutions such as the Quadrivium Foundation and the Jeremy and Hannelore Grantham Environmental Trust. BlackRock
emphasizes the economic opportunity in climate finance — nearly half of global energy capacity by 2050 will be non-OECD
renewables, which the company describes as “one of the largest infrastructure growth opportunities over the coming decades.”
Unsustainable Debt-for-Climate Swaps
According to the International Monetary Fund (IMF), 60% of low-income countries

are now at high risk or are already in debt stress. According to the Brookings
Institution, the number of emerging markets with sovereign debt that trades at
distressed levels has more than doubled. Given that many developed countries
issue debt in other currencies such as U.S. dollars, monetary tightening in the U.S.
and other developed countries is driving up the cost of debt in many of these
countries. This debt crisis is not only impeding economic recovery after the
pandemic but also hindering the investment needed for climate action.46 In fact, it is
estimated that the portion of energy transition finance flowing to developing markets
fell to 43%, a 17% drop from 2017, as financing shifted to “less risky” markets
during the pandemic.
43 Ibid.
44 Ibid.
45 Mónica A. Altamirano, Leveraging Private Sector Investments in Adaptation: The
Evolving Role of Climate Finance in Enabling a Paradigm Shift, Climate Markets &
Investment Association, July 1, 2021.
46 Ulrich Volz, “The Debt and Climate Crises Are Escalating—It Is Time to Tackle Both,”
Brookings Institution, July 8, 2022.
© 2022 Citigroup
Figure 53. 60% of Low-Income Countries Are Now at High Risk of or Are In Debt Distress
Source: IMF, Citi GPS
It is for this reason that some countries are voicing their support for debt-for-climate
swaps. Debt swaps are not new — they involve agreements between a creditor and
a debtor, where the existing debt is replaced by a new instrument or commitment,
entailing some financial relief for the debtor and a reallocation of cash flows towards
targeted objectives.47
“Debt-for-nature” deals have existed for more than 30 years, including

arrangements in Belize and Seychelles, but only in small sums. According to the UN
Development Programme (UNDP), there has been just $2.6 billion in forgiven debt
since the 1980s. Debt swaps for climate would involve forgiving a portion of a
country’s debt conditional on increasing climate mitigation spending. The idea
gained a lot of interest among several African nations at the Africa Climate Week
meeting in Gabon.
Case Study: Belize Debt-for-Nature Swaps
In November 2021, the government of Belize and The Nature Conservancy (TNC)
announced the completion of a $364 million debt conversion for marine
conservation that reduced Belize’s debt by 12% of its GDP. It created long-term
sustainable financing for conservation and locked in the commitment of the
government to protect 30% of Belize’s ocean.
Belize had $553 million in a single Eurobond (superbond) — this represented all of
Belize’s commercial debt and a quarter of its total debt. The bond was trading at a
deep discount, given market concerns that the government would not be able to pay
due to its economic slowdown and high debt burden. TNC, on the request of the
government of Belize, organized a unique financial structure (a “Blue Loan”)
between the Belize Blue Investment Company (BBIC), a subsidiary of TNC, and
Belize that allowed the country to repurchase the Eurobond.48
47 European Commission, Debt-for-SDGs Swaps in Indebted Countries: The Right

Instrument to Meet the Funding Gap, September 29, 2021.
48 The Nature Conservancy, Case Study: Belize Debt Conversion for Marine
Conservation, May 17, 2022.
© 2022 Citigroup
The TNC subsidiary lent funds to Belize to buy back the superbond at a discounted
price of 55 cents per dollar. It financed this by issuing $364 million in blue bonds in a
sale. The U.S. International Development Finance Corporation (DFC) provided
insurance; this allowed the loan to have a low interest rate, a 10-year grace period
where no principal was paid, and a long-maturity date of 19 years. In return, the
government of Belize would set aside $4 million a year on marine conservation until
2041.
According to the IMF, two things stand out of this deal: (1) the bond market itself
provided the grant in the form of a discount rate; and (2) the deal involved debt
owed to private investors which was, in the end, financed by a different class of
private investors.49
Summary
There are many different actors that are involved with climate finance, from public
entities such as governments and DFIs to institutional investors, corporates, and
commercial financial institutions. Private finance also contributes towards
multilateral institutions through donations, investments, co-financing and market
mechanisms. In most multilateral institutions, there are separate divisions that
oversee public sector and private sector projects. There are also many financial
instruments that can be used from grants to concessional loans, other debt,
guarantees, among others. So, we have the mechanisms, but how do we make it
happen on a global scale? In the next chapter, we map the actors and financial
tools available across developed countries, mature emerging markets, and
developing nations.
49 Nicholas Owen, “Belize: Swapping Debt for Nature,” IMF News, May 4, 2022.
© 2022 Citigroup
Chapter 5: Making It Happen

How do we mobilize the substantial investment needed for both climate mitigation
and adaptation? While the majority of financial instruments mentioned in the
previous chapter could be used in all countries — not all are appropriate across all
economies and country contexts. There is not one approach that can work in all
countries, so it is important that governments and other entities take time to
determine which of these instruments are most appropriate. Some of these financial
mechanisms can be promising, but if not understood well and regulated
appropriately they could have an unforeseen effect on the economy.
In this chapter, we map out the different actors and financial tools that can be used
across developed nations, mature emerging markets, and developing countries.
The figure below shows a simple schematic of all the financial tools that can be
used theoretically across these groups of countries. What the diagram below does
not show is the importance of different actors in mobilizing this capital. For example,
the importance of development finance institutions (DFIs) and philanthropic
organizations in developing countries, and the role that these institutions have not
only in mobilizing capital but also in providing technical assistance in these
countries.
Figure 54. Public and Private Actors and the Financial Instruments That Could Be Used
Multilateral climate change funds are used only in emerging and developing countries, while philanthropic organizations would also be more valuable in these countries to
help mobilize finance for climate action.
Source: Citi GPS
© 2022 Citigroup
We also need enabling frameworks for many of these financial instruments to work.
This includes clear climate change strategies, net zero commitments, mandatory
disclosures, taxonomies, and other considerations. In the case of developing
nations, detailed assessments of green projects need to be provided to attract
private investment together with the development of blended finance structures.
Figure 55 below sets out the enabling frameworks needed and provides more detail
on the different financial instruments that could be used and by whom across these
groups of countries. Governments and other public sectors actors should choose
financial instruments that not only mobilize investment for green projects but also
help provide incentives for private sector investment. Appendix 3 provides additional
detailed analysis.
Figure 55. Actors and Financial Instruments to Mobilize Private Capital
Source: Citi GPS
© 2022 Citigroup
Developed Markets
Developed markets have a whole range of financial tools that they could use to
finance the green transition. Governments across high-income countries are
implementing different instruments such as grants, loans, tax credits, and green
banks to mobilize financing for green projects and encourage private investment.
Carbon taxes and carbon markets can also help raise some of the revenue needed
for green projects, and then these funds can be allocated to projects either through
grants, guarantees, loans, and other instruments. These countries have the right
enabling framework to attract private investment such as sovereign credit ratings
that are of investment grade, detailed strategies for how to achieve net zero over
time, taxonomies for green investment, appropriate disclosures through the TCFD
and TNFD (see box below), and efficient and reliable institutions.
Private equity and venture capital also play a significant role in these countries.
Many developed countries have set up innovation clusters for startups. There are
several characteristics that regional innovation clusters have in common. The first is
the availability of highly skilled workers — it is no coincidence that most regional
innovation clusters are located close to universities and research centers such as
Boston’s Route 128 corridor, which has MIT and Harvard at its doorstep. The
second is the availability of funding. Good government policies and incentives are
also essential. It is more likely because of these attributes that new technologies for
climate action will first be adopted in developed countries, and then will expand to
other emerging market and developing countries once they become cheap enough.
Developed countries also need to meet their international climate finance

commitments, and this funding should really go towards helping low-income
countries the most.
Case Study: The Task Force on Climate-Related Financial Disclosures and Taxonomies
Standards and disclosures are becoming increasingly important for ESG investing. The Task Force on Climate-related Financial
Disclosures (TCFD) was set up by the Financial Stability Board to improve and increase reporting of climate-related financial
information. The main aim of the TCFD is to develop recommendations on the types of information that companies should
disclose to support investors, lenders, and insurance underwriters in assessing and pricing risks related to climate change. The
TCFD is voluntary, but many countries are making these disclosures mandatory. For example, the Central Bank of Brazil has
announced mandatory TCF-aligned disclosure requirements that will initially focus on qualitative aspects, with a second phase
incorporating quantitative aspects. In the U.K., the Chancellor of the Exchequer announced the intention to mandate climate
disclosures by large companies and financial institutions by 2025. The Taskforce on Nature-related Financial Disclosures
(TNFD) is similar to the TCFD, but it focuses on nature disclosures.
A taxonomy regulation is different to the TCFD but it is equally important. It establishes a classification system (or taxonomy)
that provides business with a common language to identify whether or not a given economic activity should be considered
environmentally sustainable. When done well, taxonomies can provide several benefits, such as: (1) providing more consistent
definitions of what is considered “green” and “sustainable,” which could facilitate investment by giving assurance to investors;
(2) avoiding and improving the avoidance of greenwashing; and (3) enabling easier tracking of sustainable finance flows. These
taxonomies are increasingly being used in many countries. For example, the EU has developed an EU Taxonomy regulation and
China has developed its Green Bond Endorsed Project Catalogue, referred to as the “the Chinese taxonomy.”50 The U.S. does
not have a taxonomy per se, but the U.S. Securities and Exchange Commission (SEC) has proposed amendments seeking to
enhance and standardize disclosures related to ESG factors considered by funds and advisors.
50OECD, Developing Sustainable Finance Definitions and Taxonomies: A Brief for

Policy Makers, October 6, 2020.
© 2022 Citigroup
Mature Emerging Markets

In mature emerging markets, we are seeing similar financial instruments being
deployed as those in developed markets — again, this depends on where, as each
country is rather different. The primary distinction is that even though institutional
investors operate in these areas, in general (and again depending where) the funds
available are smaller. The perceived risk in mature emerging markets is higher than
developed countries, but those that have investment-grade sovereign credit ratings
are more likely to tap into capital markets through the issuance of debt and equity.
Improving enabling frameworks such as establishing green taxonomies and more
concise climate change policies, as well as more structured government finance to
encourage more private investment, would increase climate change financing even
further. State-owned enterprises (SOEs) are also more active in these countries
compared to developed countries, and therefore have a larger role to play in climate
financing. The use of concessional finance through DFIs, and grants from
philanthropic organizations and NGOs are still important in certain regions of these
countries, especially where there is a lack of available infrastructure such as water,
which will become increasingly important for adaptation purposes. The advantage of
some emerging markets is really the volumes needed, the scale of some of these
investments (for example, ever increasing power demand), growing populations,
and the emergence of a more highly skilled workforce.
Developing Countries
There are many countries that fall into this category, each with different income
levels, economic growth forecasts, and sovereign credit ratings. However, in
general, many developing nations have a difficult time attracting private investment
for several reasons including: (1) a lack of the enabling frameworks needed for
financial institutions to operate there; (2) a lack of clear climate change policies;
(3) common perception of high risk in many of these countries; and (4) sovereign
credit ratings that are below investment grade for some countries. For these
reasons, a different model is generally needed to mobilize investment for mitigation
and climate resilience in developing countries.
Governments in many developing nations have many issues that they need to
grapple with — including poverty, inadequate infrastructure, and the lack of access
to water, energy, and education — and many do not have the fiscal capacity to
introduce some of the measures that developed or mature emerging countries are
doing to mobilize climate financing. Many developing countries have been
accessing capital debt markets, but some, due to currency issues, are issuing
bonds tagged to other currencies such as U.S. dollar-denominated bonds, which
enable countries to attract a greater breadth of investors because of less currency
risk. However, borrowing in a foreign currency exposes the government or the entity
issuing the debt to exchange rate risk: If local currencies drop in value, then paying
down international debt becomes considerably more expensive. We are currently
seeing this scenario play out: as the U.S. dollar continues to appreciate,
repayments of some of these debts for many developing countries are increasing.
Coupled with the COVID-19 pandemic and the issuance of debt during this period,
some developing countries are seeing their debt levels rise substantially. This is
why many countries such as Nigeria are advocating for debt-for-climate swaps as
an ideal tool for climate finance, as discussed in Chapter 4.
© 2022 Citigroup
To attract private investment, blended finance structures need to be put in place.

Governments, DFIs, and philanthropic organizations are ideal institutions to put
down catalytic capital to attract private sector investment in projects. This could
include guarantees, insurance products, first loss capital, currency hedging, and
other instruments, as shown in Figure 55 above. However, given that many
investors lack the time or capability to do due diligence on single small projects,
combining projects together could be an added advantage — which we term
blending finance at scale. Concessional loans from DFIs and grants from
philanthropic organizations and NGOs are also important for direct project finance.
Other Financial Instruments Not Included Above: Bilateral

Deals, Carbon Credits, and REDD+ for a Just Transition
Many emerging and developing markets can also seek out direct deals with other
countries. For example, in November 2021 the U.S., U.K., France, Germany, and
the EU pledged to give $8.5 billion in grants and cheap loans to South Africa to
decarbonize. These types of deals amongst a small group of countries could
produce more concrete progress in many emerging market and developing nations.
Article 6.2 and Voluntary Agreements
Article 6.2, which was agreed upon at COP26, also calls for more voluntary
collaboration between nations. It is the first market mechanism of Article 6 and
states that parties engaging on a voluntary basis in cooperative approaches could
make use of internationally transferred mitigation outcomes (ITMOs) towards their
Nationally Determined Contributions (NDCs). This mechanism would allow a
country that has beaten its Paris Agreement climate pledge to sell any over-
achievement to another country that has fallen short of its goals. The aim is to help
countries meet their climate pledges by allowing parties to use ITMOs to achieve
their NDCs.
As noted in our Citi GPS report Global Carbon Markets: Solving the Emissions
Crisis Before Time Runs Out, some countries are already making use of Article 6.2
in some form or another even before the rules were agreed upon. For example,
Switzerland has signed partnership agreements with Peru and Ghana, and initial
agreements with Senegal and Thailand on the transfer of mitigation outcomes.
Switzerland will fund sustainable development projects in these countries and use
the transfer of ITMOs to meet its NDC targets. For sellers, ITMOs represent a way
of generating revenues to support sustainable development and mobilize
decarbonization beyond their NDC targets.
© 2022 Citigroup
Figure 56. Example of Bilateral Trade of ITMOs Under Article 6.2
Source: Citi GPS
Article 6.4 and Voluntary Carbon Credits
Article 6.4, the second market mechanism of Article 6, calls for a new international
carbon market, supervised by a UN body, for the trading of emissions reductions
created anywhere by the public or private sector. This new proposed market — the
Sustainable Development Mechanism (SDM) — would replace the Clean
Development Mechanism (CDM) that operated under the Paris Agreement’s
precursor, the Kyoto Protocol. It is related directly with projects and could be a
source of revenue for many emerging and developing economies.
The voluntary carbon offset market, if done well, could also be a source of revenue
for many emerging and developing countries. It functions outside of the compliance
market, which usually forms part of an emissions trading scheme, and enables
entities (and individuals) to purchase offsets on a voluntary basis. Many companies
and organizations offer carbon credits/offsets for the voluntary market. These
organizations offer hundreds of carbon offset projects in different parts of the world.
The majority of voluntary offsets are third-party verified; however, the protocols
around which offsets are verified varies amongst the different programs. Each
organization has different projects listed on its website — relating to, as examples,
energy efficiency, biogas digesters, efficient stoves, and forestry — and each project
has a different price per metric ton of CO2. The variation of pricing between carbon
offsets provided by different organizations can vary immensely for reasons that are
far from transparent. This market is growing very fast: The market value for
voluntary carbon market transactions in 2021 was nearly $2 billion, a four-fold
increase compared to 2020 transactions, according to Ecosystem Marketplace.
© 2022 Citigroup
REDD+
REDD+ is a UN-backed framework that aims to reduce carbon emissions by

stopping the destruction of forests.51 There are three phases included in REDD+:
(1) the development of national strategies or action plans, policies, and measures;
(2) the implementation of these strategies; and (3) results-based payments following
the verification of emission reduction. REDD+ projects can either be part of the
voluntary or compliance carbon market or else multilateral and bilateral sources of
climate finance may support projects that deliver REDD+ credits. REDD+ remains
the most promising source of low-cost emissions reduction potential at scale but,
after more than a decade since its launch, there remain challenges to mobilizing
REDD+ at scale such as transparency, corruption, permanence, and additionality.
However, for many developing countries that have large untouched forests, finance
to keep these forests intact and improve their management is crucial for climate
action. REDD+, if done well, can be a source of income for many developing
countries.
Mobilizing Adaptation Finance

Mobilizing adaptation finance is harder than for mitigation activities. This is because
many see adaptation projects as ones that do not give a return and therefore should
fall under the remit of governments, DFIs and philanthropic organizations. However,
investment from corporations should also be seen as important and should be
scaled up, especially given that some of adaptation projects could increase
resilience in global supply chains. For example, drought conditions in a particular
country that is important for certain food commodities will not only impact food
prices but affect the reliability of global food supply chains, which will affect food
manufacturing companies. Investing in irrigation projects and not just rain-fed
agriculture will reduce the risk. However, at the moment, not only is adaptation
financing rather low, but most of it is financed by the public sector.
Conclusion
Even though there are many actors and financial instruments that can be used to
scale up climate finance, there are still several challenges that we need to
overcome, especially as the world tries to recover from the socially and
economically devastating COVID-19 pandemic, as well as deal with geopolitical
instability (i.e., the Russia-Ukraine war), rise in inflation, and an increase in interest
rates in several countries. These crises do respectively need urgent attention, but
so very often are climate and other environmental action the victims of economic
and political crises.
51The UNFCCC Conference of the Parties created the REDD+ framework to “guide
activities in the forest sector that reduces emissions from deforestation and forest
degradation, as well as the sustainable management of forests and the conservation and
enhancement of forest carbon stocks in developing countries.”
© 2022 Citigroup
The IMF has warned that COVID-19 and its associated economic crisis layered on
top of rapidly increasing debt in lower-income countries is contributing to what may
become an emerging market debt crisis. Financial support for developing countries
in tackling the climate crisis is now greatly needed. This has led to calls for new
solutions that tie debt relief to climate and can help to address the climate finance
gap — for example, through debt-for-climate swaps as described in Chapter 4.52
In April 2022, the IMF established a Resilience and Sustainability Trust (RST) to
complement its existing lending toolkit by helping countries build resilience and
focusing on longer-term structural challenges including climate change and
pandemic preparedness.53
Meanwhile, political instability risks hampering the international cooperation and

coordination needed to mobilize the flow of finance and resources from developed
to developing countries to achieve the $100 billion goal and beyond. It can also
have far-reaching consequences for climate-related challenges: for example, the
issue of food insecurity that was ignited by the Russia-Ukraine crisis.
The current economic and political backdrop makes mobilizing climate finance
challenging, but we need to start looking at climate action as an opportunity and not
as a cost. There is great potential for many countries and for the private sector. Yes,
there will be some that will gain more than others, and some that will lose out from
this transition include oil- and gas-rich nations, even though these countries can re-
position themselves and become big players in this green transition. In the private
sector, there will be some companies that will gain tremendously from this transition
and others that will lose. There will also be new companies that will form and
become extremely important in this transition.
The New Climate Economy estimates that there could be direct economic benefits
of up to $26 trillion from this transition — 65 million additional low-carbon jobs
(equivalent to the entire workforce of the U.K. and Egypt combined), an increase in
government revenue from carbon taxes and a review of fossil fuel subsidies, and
most importantly, we would avoid over 700,000 premature deaths from air
pollution.54 The authors state that these figures are conservative, and they believe
that the economic benefits could be much higher than this. They do not include any
indirect economic benefits (which are hard to measure) in their analysis. The green
transition should be seen as a growth opportunity. The consequences of not doing
anything are far greater and will be felt by all.
There are still many barriers that will need to be overcome to increase capital for
climate action; however, it is all doable if there is collaboration between the public
and private sectors. Below are several steps that could help mobilize investment for
climate action.
52 Katharina Lütkehermöller, Veronica Hector, and Aki Kachi, “Climate, COVID-19, and
the Developing Country Debt Crisis,” New Climate Institute, March 2021; Kristalina
Georgieva, “IMF Chief: How the World Can Make the Most of New Special Drawing
Rights,” Financial Times, August 23, 2021; Marcos Chamon et al., Debt-for-Climate
Swaps: Analysis, Design, and Implementation, IMF, August 2022.
53 IMF, “IMF Executive Board Approves Establishment of the Resilience and
Sustainability Trust,” April 18, 2022.

54 The New Climate Economy, Unlocking the Inclusive Growth Story of the 21st Century:
Accelerating Climate Action in Urgent Times, August 2018.
© 2022 Citigroup
General
1. We need to develop consistent, clear, and commonly accepted definitions,

taxonomies, and methodologies to be able to assess current flows, and
accurately evaluate and effectively direct investments to where they are
needed.
2. We need to reduce the complexity and fragmentation of the global climate

finance architecture that may create barriers to access for developing
countries, some of whom lament the difficulties in accessing multilateral climate
funds, including the processing time, data requests, and bottlenecks in the
process.55 This complexity also makes tracking and monitoring of finance flows
challenging.
3. The opportunity for private finance to help plug the climate finance gap is
immense, but there appears to be a disconnect between public and private
actors. A better understanding of respective mandates, objectives, financial and
non-financial barriers, risk appetites, and time horizons is needed to facilitate
better collaboration and mobilization of capital.
Mobilizing Climate Finance
1. All countries should establish clear and concise policies and strategies for how
they intend to meet their climate change commitments. This will provide some
clarity for the private sector.
2. Developed countries and emerging mature economies that have enabling

frameworks should use financial instruments that encourage more private
investment such as tax credits, guarantees, green banks that specialize in
mobilizing finance for low carbon projects, and other forms of regulatory
support. All of these will encourage more private investment.
3. Developed countries need to reach their $100 billion commitment as promised.
4. Developing countries that do not have enabling frameworks or fiscal capacity to

invest in climate action should develop detailed analysis of green projects. This
should include an analysis of costs, timeframes, and potential returns. They
should also discuss these projects with DFIs, philanthropic organizations, and
others that could potentially provide catalytic capital to develop blended finance
structures to attract private investment.
5. DFIs are essential in mobilizing finance, especially in developing countries.

They should help develop blended finance structures. Grants and loans, among
others, should also be mobilized to help developing and emerging economies
scale up projects. DFIs should not only invest in “easy” projects — these should
be left to the private sector. DFIs need to work with both the public and private
sectors. They are major providers of market-rate debt at the project level, which
risks crowding out and disincentivizing private sector investors who may view
public institutions as competition and not as partners in channeling finance to
developing countries.
6. The private sector should also scale up initiatives that encourage private and
public collaboration in financing climate action.
55Emma Rumney and Simon Jessop, “That Sinking Feeling: Poor Nations Struggle With
U.N. Climate Fund,” Reuters, November 11, 2021.
© 2022 Citigroup
7. We need to scale up adaptation — this will require all governments to provide

some additional details of what adaptation projects are needed. Adaptation is
harder to finance than mitigation, as many of the projects are deemed to be the
remit of the public sector. However, there is a risk to many if these projects are
not financed, including to supply chains of many companies.
Unlocking private sector capital for climate finance is crucial. Analysis by Vivid
Economics for the UNFCCC Race to Zero campaign found that private actors could
provide 70% of the $2.6 trillion needed in investment every year (on average in
2021-25) to put the world on a path to net zero by 2050.56 However, it stresses
increased and smart public support will be needed to support increased private
ambition such as policy and regulation, market building, direct investments as well
as other financial instruments including blended finance.57 Governments all over the
world have a critical role in developing clear and concise strategies that can
encourage private investment to flow even in countries that lack good enabling
frameworks. DFIs also have a huge role; they are crucial in attracting private capital,
as they are the preferred co-investor for institutional investors that lack experience
in a certain country. They can help de-risk a project through guarantees and can
help provide due diligence on a project. Other important actors include philanthropic
organizations and NGOs. The private sector also has an essential part in scaling up
joint projects like BlackRock’s Climate Finance Partnership, which is a collaboration
between public-sector actors and the private sector. Such partnerships are
important for reaching a just transition and limiting the negative impacts of climate
change.
So, mobilizing climate capital and investment is doable, we just need good planning,
motivation, and will by both the public and private sectors.
57 Ibid.
© 2022 Citigroup
Appendix 1: Detailed Description of

Various Public and Private Sector
Actors
Public Sector Actors
There are several public sector actors that are key to helping mobilize capital
needed for climate action and to also helping mobilize investment from the public
sector. These include governments, development finance institutions (DFIs),
sovereign wealth funds, green banks, and others that we highlight below.
Figure 57. Examples of Public Sector Actors
Source: Citi GPS
© 2022 Citigroup
Governments: Domestic and International Climate

Financing
Governments are focused on achieving economic growth and improving the welfare
of their citizens. They have a range of financial tools available at their disposal to
achieve this, such as concessional debt, guarantees, grants, and tax credits.
Governments have a higher risk appetite than other public sector institutions such
as bilateral and multilateral funders, and therefore have a crucial role in financing
several climate mitigation and adaptation projects that do not have an immediate
financial return. They are also instrumental in setting up legislation and policies with
regards to climate change mitigation and adaptation, and in establishing enabling
frameworks that can attract private investment into the country.
Governments also have a crucial role in mobilizing climate finance internationally.

Most international climate finance comes from the governments of developed
economies and are largely channeled through intermediaries such as DFIs and
multilateral climate funds, but direct bilateral agreements are also used. Estimates
on how much money has been mobilized from developed to developing countries in
support of the $100 billion goal commitment discussed in the report vary immensely,
but one thing is generally agreed upon: the pledged climate finance of $100 billion
every year by 2020 has not been achieved. There has also been no agreement on
what each nation should be contributing.
Figure 58. Climate Finance by Country and Channel, Annual Averages Post-Paris Agreement
(% of Annual Averages 2016-18)
Note: Japan figures include coal-related financing which are included in their climate finance report to UNFCCC.
Source: WRI (2021): Datasheet for Technical Note: A Breakdown of Developed Countries "Public Climate
Finance Contributions Towards the $100 Billion Goal, Citi GPS
© 2022 Citigroup
State-Owned Enterprises (SOEs)

SOEs remain significant players in both OECD and non-OECD economies. Their
size varies across different countries; however, usually they operate in carbon-
intensive sectors such as energy, transport, and infrastructure. According to the
OECD, collectively, SOEs are responsible for one-fifth of global annual CO2
emissions. It is estimated that over 70% of oil and gas production assets and 60%
of coal mines and plants globally are state-owned, as well as over half of global
power generation capacities.58 Some of the largest companies globally are state-
owned including PetroChina, Petrobras, and Saudi Aramco. In many Western
economies, large-scale privatization in the 1980s and 1990s led to a decline in the
state’s role in business; however, there are still some large companies operating in
this space such as EDF Group and ENGIE (formerly GDF Suez) in France. SOEs
are significant players in promoting the low-carbon transition and their engagement
and finance will be crucial to meeting many countries’ climate change commitments.
Sovereign Wealth Funds

Sovereign wealth funds are a state-owned investment fund comprised of a country’s
surplus reserves. Typically, these reserves come from revenues from state-owned
natural resources, trade surpluses, foreign currency operations, and other sources.
They are usually very large and include Norway’s Government Pension Fund
Global, China Investment Corporation, Abu Dhabi Investment Authority, Hong Kong
Monetary Authority Investment Portfolio, among others. These funds prefer to invest
in climate-related projects through private equity, real assets, listed equity, and fixed
income. Many sovereign wealth funds are adopting an ESG approach or climate
strategy and are addressing their portfolio exposure to climate change risks.
Sovereign wealth funds typically invest in longer-term investments when compared
to traditional institutional investors; however, this depends on strategy and on the
purpose of the fund. According to the International Forum of Sovereign Wealth
Funds (IFSW), a total of $3.3 billion in 2021 (Q1, 2, and 3) was invested in climate
change-related sectors by sovereign wealth funds, with the majority in renewable
energy and water. This increased by $1 billion from the previous year.
Green Banks
A green bank is a specialized financing institution that is public or quasi-public
owned (or even private) and commercially operated. It acts as a focal point for
scaling up domestic investment in climate-friendly sustainable projects. Though
most existing green banks were capitalized from domestic public sources,
capitalization can come from a variety of sources including the private sector. They
rely on a variety of financial instruments including debt instruments, equity
investments, grants, guarantees, credit enhancements, and technical assistance.
The main motivation is to create a credit investment signal to attract private co-
investment into projects. Nearly 30 green banks already exist worldwide: some
operate at the national level, while others at the regional or local level. The U.S.
government in its Inflation Reduction Act has proposed to set up a National Green
Bank to encourage more co-investment from the private sector. Currently green
banks in the U.S. operate on the state level.
58OECD, Climate Change and Low Carbon Transition Policies in State-Owned

Enterprises, June 2022.
© 2022 Citigroup
According to the Rocky Mountain Institute, there are also many other countries that
are planning to establish green banks including in low-income countries and middle-
income countries. It is estimated that in less than a decade, green banks have
deployed $24.5 billion and attracted twice as much from the private sector.59
Development Finance Institutions (DFIs)

DFIs are specialized development banks that generally provide risk capital for
economic development projects either within countries (such as national DFIs) or in
other countries (bilateral and multilateral DFIs) as described below. They are usually
majority-government owned and capitalized with public funds and provide a variety
of forms of financial support.
1. National banks are usually government owned and operate mostly but not
exclusively on domestic issues such as the Brazilian Development Bank
(BNDES) and China Development Bank.
2. Bilateral DFIs are also usually government owned, but direct finance
internationally such as the U.S. International Development Finance Corporation
(DFC), Norway’s Norfund, and British International Investment (formerly CDC
Group).
3. Multilateral DFIs (also known as multilateral development banks or MDBs) such

as; African Development Bank (AfDB); Asia Development Bank (ADB); and
European Investment Bank (EIB).
DFIs are usually majority-government owned and capitalized with public funds and
provide a variety of financial and technical assistance to both states and private
sector entities, including grants, guarantees, loans, equity investments, and support
through blended instruments. They play an extremely important role in mobilizing
finance to support sustainable development and combat poverty particularly in low-
and middle-income countries. DFIs together mobilized approximately $220 billion
annually in climate finance in 2019-20. They can either direct funding directly to
governments or use dedicated climate funds to do so.
There are several bilateral and multilateral public climate funds that have been
created by DFIs. The OECD’s Climate Fund Inventory database currently covers 99
climate funds.60 Some argue that even though the multitude of channels increases
options for recipient countries, it also introduces considerable fragmentation in
finance delivery which could lead to difficulties in tracking fund flows and result in
large transaction costs.61 Even if there are a multitude of climate funds, there are
several multilateral climate funds that are worth noting. Some are established as UN
Framework Convention on Climate Change (UNFCCC) finance mechanisms such
as the Green Climate Fund and Adaptation Fund, as well as the Special Climate
Change Fund (SCCF) and Least Developed Countries Fund (LDCF), which are both
managed by the Global Environment Facility (GEF).
59 Angela Whitney et al., State of Green Banks 2020, Rocky Mountain Institute,
November 2020.
60 OECD, “Climate Fund Inventory: Report and Database,” accessed August 10, 2022.
61 Mónica A. Altamirano, Leveraging Private Sector Investments in Adaptation: The
Evolving Role of Climate Finance in Enabling a Paradigm Shift, Climate Markets &
Investment Association, July 1, 2021.
© 2022 Citigroup
Notable funds established outside of the UNFCCC and administered by the World
Bank in partnership with regional development banks include Climate Investment
Funds (CIF), such as the Clean Technology Fund (CTF) and the Strategic Climate
Fund (SCF). Some experts make the point that donor countries often prefer to
channel their largest climate finance contributions through multilateral development
banks where they are significant shareholders and have more influence rather than
directly through multilateral climate funds, which give developing countries a greater
say in finance governance and delivery.62 Recent data from the World Resources
Institute shows that the majority of donor countries put their largest shares of
climate finance contributions through MDBs, and multilateral climate funds such as
the Green Climate Fund are by far the smallest channel used by donor countries.63
DFIs play an extremely important role in climate finance. They are crucial in
attracting private capital, as they are the preferred co-investor for institutional
investors that lack experience in a certain country. They can help de-risk a project
through guarantees and can help provide due diligence on a project. However, they
are not as risk adverse as governments, and in practice they often require close to
commercial returns; this depends on the remit of the DFI.
Figure 59. Major Multilateral Climate Funds
Source: Fund websites, Citi GPS
62 Anis Chowdhury and Jomo Kwame Sundaram, “The Climate Finance Conundrum,”
Development, Vol. 65, No. 1, February 15, 2022.
63 Julie Bos, Lorena Gonzalez, and Joe Thwaites, “Are Countries Providing Enough to
the $100 Billion Climate Finance Goal?” WRI, October 7, 2021.
© 2022 Citigroup
Private Sector Actors

The private sector consists of several different actors — including corporations,
institutional investors, commercial institutions, private equity and venture capital,
and philanthropic organizations.
Figure 60. Examples of Public Sector Actors
Corporates
Around $124 billion in climate finance came from corporations’ capital investments.
Corporations invest in several different ways, either through investing in their own
infrastructure assets or by seeking out joint ventures with other companies in target
countries. Corporations also have venture capital arms that directly invest in early
stage companies either in the same business or in an adjacent business. This
broadly depends on the strategy of the company.
Many publicly listed companies are integrating climate into their strategies and are
committing to become net zero over a certain period. This will involve transitioning
their business to one that is low-carbon, investing in new technologies and
infrastructure. Corporates are facing increasing pressure from investors and the
general public to act on climate change, and they also face growing regulatory
requirements. The Science-Based Targets initiative (SBTi) is helping many
companies set up targets that are aligned with climate science of limiting
temperature increase to 1.5oC or 2oC.
© 2022 Citigroup
Institutional Investors
Institutional investors include a variety of asset owners, asset managers, pension
funds, insurance, hedge funds, mutual funds and endowments. Collectively, they
are the largest group of investors. These entities typically pool assets from their
clients to invest in public securities, real estate funds, and other investment
products. They tend to look for low-risk investments as strict solvency requirements
and risk management regulation currently limit the risk these entities can take.
Institutional investors also have a fiduciary responsibility to their clients. They are
also looking for large ticket sizes and are less likely to invest directly into a project;
they prefer to invest in funds with a proven track record. The proportion of
investment into climate finance remains low estimated at approximately $3.2 billion
in 2019-20; however, this only includes “direct” project investment. Institutional
investors effectively finance corporations and financial institutions, so they are
“indirectly” responsible for almost all private investment.
Different Types of Institutional Investors
Broadly speaking, there are six types of institutional investors: endowment funds, hedge funds, pension funds, mutual funds,
insurance companies, and private equity (covered in the following section). Sometimes commercial financial institutions are also
covered under the term “institutional investors”, but we have included a separate section for this group. Below is a brief
description of each of these investors:
 Endowment Funds: These are funds that are generally established by universities, hospitals, charitable foundations, and/or
nonprofit organizations to manage their money, which typically come from donations. The income that is generated from the
investment is used to finance the beneficiaries’ activities.
 Hedge Funds: A hedge fund is a pooled investment fund that trades in relatively liquid assets. It can make use of complex
trading, portfolio construction, and risk management strategies in an attempt to improve performance. These types of funds
are generally restricted to other institutional investors, high-net-worth individuals, and accredited investors.
 Pension Funds: These are funds that are established using monetary contributions from pension plans. The capital is usually
invested in stable investments (e.g., well diversified funds, low-risk government bonds, and stable real assets) as the primary
purpose is to provide a steady passive income for pensioners upon retirement.
 Mutual Funds: A professionally-managed portfolio of stocks, bonds, and/or other income vehicles devoted to a specific
investment strategy or asset class. They are designed to mitigate the risk of capital losses for investors through diversification.
 Insurance Companies: Insurance companies collect premiums from their policyholders regularly from the insurance products
that they sell. Part of the premiums collected are typically deployed into long-term investments to generate returns and cover
claim payouts.
Mobilizing institutional investment is an enormous opportunity; however, there are

some constraints around asset allocation requirements, size of deals, and liquidity.
Allocation for emerging markets tends to be low. Over the past few years, however,
we have seen an eagerness for institutional investors to be part of the climate
transition. Investors are now integrating ESG across their portfolios, the Net-Zero
Asset Owner Alliance, a member-led initiative of institutional investors has
committed to transition their investment portfolios to net zero by 2050. Impact
investment is also growing. These investments are made with the intention to
generate positive, measurable social and environmental impact along a financial
return. They are made in both emerging and developed markets, and target a range
of returns (from below market to market rate) depending on the investors’ goals.
The Glasgow Financial Alliance for Net Zero (GFANZ), which includes commercial
financial institutions, is also committed to accelerate the decarbonization of the
economy.
© 2022 Citigroup
So, there is movement, but the problem is finding the appropriate vehicles to help
move investment into emerging economies at a larger scale and to find bankable
projects. Even though there is will, in the near term it is more likely that institutional
investors will continue to invest mostly in developed economies and into more
advanced emerging and frontier economies that are deemed to be less risky and
have the frameworks needed to attract this investment.
Private Equity and Venture Capital

Private equity is capital that is invested in a company or entity that is not publicly
listed or traded. It is a source of investment from high-net-worth individuals and
firms. These investors buy shares of private companies or take over public
companies and then delist them from public stock exchanges. Large institutional
investors are involved in private equity including large private equity firms. Venture
capital is different in the sense that funding is given to startups and other young
businesses that are seen as having the potential to generate high rates of growth
and above-average rates of return.
Commercial Financial Institutions

Commercial financial institutions have deployed approximately $122 billion in
climate finance on average in 2019-20. Commercial institutions are essential
entities that provide loans and other financial instruments to help raise the capital
needed for businesses. However, banks typically seek revenue-generating
companies with sufficient collateral to lend against. Some of these requirements
could be rather challenging for some businesses to meet, especially in developing
economies. Commercial institutions also play a key role in covering working capital
and trade finance for businesses.
International banks are a source of funding for large, bankable infrastructure

projects and for mature businesses. Challenges in emerging markets to access this
capital include lack of collateral and political risk insurance, and low sovereign credit
ratings. Many developing economies have low sovereign credit ratings with many,
especially in Africa, well below investment grade. A sovereign credit rating is an
important indicator that many commercial institutions and other investors use to
assess the credit worthiness of a country and to assess political risk. Also, a low
sovereign credit rating will ultimately increase the price of debt. Other issues include
the lack of financial planning and details relating to some infrastructure projects,
which most lending institutions will require.
© 2022 Citigroup
Philanthropy
Philanthropic organizations are nonprofit nongovernmental entities that utilize
donated assets and income to provide social useful services. One of the largest and
most well-known is the Bill & Melinda Gates Foundation. Philanthropy is
increasingly becoming important for climate action especially in developing and
emerging economies. These organizations are not looking for a return but are
looking to invest in projects that are good for society. Two elements are particularly
salient for climate finance:
1. Philanthropy can provide seed funding to support early-stage ventures that are
unsuitable for commercial investment in the short term, perhaps because they
have a long road to profitability or are yet to refine an operating model.
2. Philanthropy can support the expansion of existing projects into new

geographies, which often include emerging markets or new, more challenging
client bases. An example is BlackRock’s Climate Finance Partnership, which
brings together philanthropic capital with institutional investors to invest in
climate-related infrastructure in emerging markets (see the case study in
Chapter 4).64 Here, philanthropy provides first-loss capital to alter the risk-
return profile of opportunities and mobilize investors seeking market-rate
returns. In this case, bringing together these two pools of capital routes funding
towards projects that would otherwise have gone unfunded.
Finally, philanthropy can play a broader role than as a source of funds. The
nonprofit sector holds significant expertise, derived from its experience both in
grantmaking and on the ground in delivering programs. This expertise can be used
in the design and implementation of programs, especially those that target harder-
to-reach communities or those operating in lower-income countries, both of which
may be more challenging contexts for investors without specialist experience.
Further, philanthropy has significant convening power. As such, it can initiate and
facilitate partnerships between organizations, including NGOs, investors, and the
public sector — which together with philanthropy — all play a role in mitigating for
and adapting to climate change.
64 Marilyn Waite, “Blending Philanthropic, Public and Private Capital to Finance Climate
Infrastructure in Emerging Economies,” ImpactAlpha, January 23, 2020.
© 2022 Citigroup
Appendix 2
Financial Instruments
Figure 61. Financial Instruments That Can Be Used to Mobilize Climate Finance
Source: Citi GPS
Non-Concessional and Concessional Loans

In 2019-20 non-concessional debt (both at the project level and corporate)
accounted for 53% (averaging $337 billion per year) of total climate finance. This
type of instrument can include multilateral, bilateral, and commercial creditors as
well as the use of international bond markets. Issuing bonds in international capital
markets has been a source of income for both developed and creditworthy middle-
and low-income developing countries. There are also several green financial
instruments that have emerged in this space including green bonds, sustainable-
linked bonds/loans, and transition bonds, as described in Chapter 2.
© 2022 Citigroup
Low-cost, project-level debt made up only 12% ($47 billion annually in 2019-20) of
all climate finance debt, most of which came from DFIs. This type of debt
instrument, known as concessional loans, is usually characterized by longer
repayment rates and lower interest rates. Concessional loans, however, can also be
adjusted in a way so that they are integrated into the budget. This might make
sense for some countries, as it enables them to move from funding a particular
project toward one that funds a more pragmatic approach — for example, a budget
support loan from a DFI. This allows donor organizations to support the
domestically-driven broader climate goals of a recipient country. For this to happen,
countries need to have clear national climate change plans with an associated
portfolio of projects and transparent budget mechanisms for allocating this aid
towards these projects.65
Guarantees
Guarantee instruments are commitments in which a guarantor undertakes to fulfill
its obligations of a borrower to a lender in the event of non-performance or default
of its obligations by the borrower in exchange for a fee. Guarantees can be
important for risky investments, for example, projects that have an inadequate risk-
adjusted return. A sustainable loan guarantee program (SLGP) is a type of
guarantee with the main aim of making sustainable investments more attractive. For
example, under an SLGP, the government would provide the guarantee to the
banks that will cover the nominal value of a loan in case of default, with accrued
interest, provided that the loan meets certain sustainability criteria.
Climate Policy Initiative (CPI) does not include risk management instruments such
as guarantees and insurance in its climate finance calculations because actual
disbursements from them are based on uncertain future events. However, it does
recognize that they play an important role in leveraging private investments. The
OECD does consider guarantees in their climate finance figures, and of the
$14 billion of private climate finance mobilized in 2019, 18% ($2.5 billion) was in
guarantees, compared to 31% ($4.5 billion) of total private climate finance mobilized
in 2018.
Grants
Grants are usually given by governments or by multilateral or bilateral institutions.
These grants are usually used for a specific purpose, and the receiving entity does
not have to pay them back. In climate finance, they are usually given to cover non-
revenue generating activities such as for technical expertise and knowledge
management programs. However, the U.S. government in its Inflation Reduction Act
included several grants in its climate strategy — for example, a grant program for
supporting the production and transportation of sustainable aviation fuels estimated
at $244 million.
Grants only accounted for 6% ($36 billion annually) of total climate finance provided
in 2019-20; however, their use could be extremely important in the Energy
Transition, especially to provide technical expertise needed for new technologies.
65 Hilen Meirovich, Sofia Peters, and Ana R. Rios, Financial Instruments and
Mechanisms for Climate Change Programs in Latin America and the Caribbean: A Guide
for Ministries of Finance, Inter-American Development Bank, October 2013.
© 2022 Citigroup
Tax Credits
Tax breaks or tax incentives are a way for the government to reduce the tax burden of
companies and households. These can take different forms, such as tax exemptions,
tax reductions, or tax credits. Consumer tax credits can create incentives for
households to invest in items such as cleaner appliances and electric cars.
Equity
Equity investment is money that is paid into a company in exchange for a share of
equity. A company can buy shares in another company, such as a large corporation
purchasing equity in a startup company that is producing a new technology. Many
large multinational companies have venture capital arms that do this. Separately,
institutional investors can invest in shares of a publicly listed company on the remit
that the value of these shares would increase over time, and their clients would
make a premium. Private equity firms and venture capital firms also play an
important role by investing in private companies, the latter predominately in startup
companies. With the rise of ESG, there is more interest in investing in companies
that are either greener or in companies that provide solutions to climate change.
Equity investments made up the second-largest channel and accounted for 33%
($206 billion annually) of total climate finance in 2019-20, increasing from
$167 billion in 2017-18.
Carbon Taxes/Carbon Markets

Carbon pricing systems have become a cornerstone of Energy Transition policies in
many jurisdictions. Authorities continue to develop international, national, and
regional carbon emissions systems not just to limit greenhouse gas (GHG)
emissions and provide an economic incentive to switch to greener energy sources
and more sustainable business models, but also to raise fiscal revenues for income
redistribution.
As of late 2021, there were 64 carbon pricing systems in effect in the world —
covering a quarter of global emissions — with another 30 or more in development.
Of these, there are 30 carbon markets (cap-and-trade systems), and 34 carbon tax
regimes already, at various jurisdictional levels including whole countries, individual
states/provinces/territories, and regional groupings. Almost 50 countries have at
least one nationwide system, and 35 have sub-national jurisdictions (see Figure 62
below).
Looking at the G-20 countries, many already have carbon pricing systems in place,
notably: the European countries; China, Japan, South Korea, India, and Australia in
the Asia Pacific region; the U.S., Canada, and Mexico in North America; and South
Africa and Argentina.
© 2022 Citigroup
Figure 62. Current Carbon Management Policies
Source: Citi GPS, Global Carbon Markets, 2021
Carbon Taxes, Carbon Markets (Cap-and-Trade Systems), and Baseline-and-Credit Systems
Carbon taxes: Under a carbon tax regime, regulators set prices or (typically, rising) price paths that emitters must pay for each
metric ton of GHG emissions produced. A carbon tax ensures certainty in GHG emission prices, sparing companies from
fluctuating regulatory costs, when uncertainty can be a headwind to longer-term investments or decision-making.
Carbon markets: Cap-and-trade systems commonly referred to as emissions trading systems (ETSs), where the regulators set
an upper limit on carbon emissions and distribute carbon emissions permits either freely, based on specific industry
benchmarks, or they are monetized via auctions. These carbon allowances must be surrendered by emitters at a specific future
date. Both physical emitters and financial institutions can exchange and bank (i.e., hold for use in future compliance periods)
these allowances. On top of the “physical” market is a market for financial futures or derivatives that allows other market
participants to trade. The EU ETS, California’s Cap-and-Trade Program, South Korea’s ETS, the New Zealand ETS, and the
recent launch of China’s ETS are examples of cap-and-trade systems.
Baseline-and-credit systems: Under baseline-and-credit systems, there is no fixed limit on any specific type of GHG
emissions. Emitters that reduce their emissions, even on a voluntary basis, or compensate for them with sustainable projects
(including forestry), receive carbon credits. These can be monetized either by exchanging them for carbon allowances to use
within the regulation they are subjected to or by selling them to other emitters in deficit. This is why carbon credits are
sometimes also known as carbon offsets.
© 2022 Citigroup
The carbon credit market is heavily fragmented.
 There have been international crediting mechanisms, such as the Clean Development Mechanism (CDM) and Joint
Implementation (JI) developed under the Kyoto Protocol, which have granted certified emissions reductions (CERs) and
emissions reduction units (ERUs) to companies involved in the realization of sustainable projects, with CERs in particular for
projects in emerging markets. This system has now been replaced by Article 6.4, which calls for a new international carbon
market, supervised by a UN body for trading of emissions created anywhere (see the section on Article 6.4 in Chapter 5).
 There are regional and national crediting mechanisms, such as Australia’s Emissions Reduction Fund and California’s
Compliance Offset Program.
 Lastly, there is a plethora of independent crediting mechanisms not governed by any national regulation or international
treaties, but administered by private and independent third-party organizations, like the Gold Standard, the American Carbon
Registry (ACR) and Verra.
There are many mechanisms being used to price carbon in different countries —
direct carbon taxes, ETS systems, or even baseline-and-credit systems — but they
are all really disjointed. Carbon price levels and the share of emissions covered
through ETSs and direct carbon taxes vary widely across all global carbon pricing
systems. Only a few, covering just 4% of global emissions, have CO2 prices in the
$40-$80 per metric ton range — the level seen by many as the price needed to
reach a 2°C target.
However, if done well, carbon prices can raise fiscal revenues that can be used for
green projects, while also encouraging companies to reduce their emissions over
time. This revenue can then be used as grants/loans or any other financial
mechanism to provide finance for green projects. Voluntary markets work differently
as finance is given directly to projects based on verified carbon credits.
At COP26, there was finally agreement on Article 6, which sets out the rules for how
parties can engage in voluntary international cooperation to raise ambitions to
reduce emissions. It contains three separate mechanisms for “voluntary
cooperation” toward meeting each country’s goals. Two of these mechanisms are
market-based (Article 6.2 and Article 6.4), while the third is based on non-market
approaches (Article 6.8). Article 6.4 calls for a new international carbon market,
supervised by a UN body, for the trading of emissions reductions created anywhere
by the public or private sector. This new proposed market — the Sustainable
Development Mechanism (SDM) — would replace the CDM under the Paris
Agreement’s precursor, the Kyoto Protocol. The details of how this system would
operate in tangent with other mechanisms that are currently available — such as
carbon credits provided by other verifiers that are used for the voluntary market —
is not quite clear. What is definite is that Article 6 could mobilize a significant amount
of funding for projects in developing and emerging economies, and carbon would
ultimately become one of the most tradeable commodities over the next decade.
Whether Article 6 can reduce overall global emissions really depends on how it is
implemented and whether issues such as additionality, double counting,
permanence, among others, are solved.
© 2022 Citigroup
Blended Finance
Co-financing is becoming increasingly recognized as an important tool for climate
finance, which can be used to help scale up private climate financing. There are
now many advocates for blended finance, which is a structuring approach that
allows actors with different objectives to invest together while delivering on their
own objectives. It utilizes catalytic capital from public or philanthropic sources to
attract private sector investment to currently challenging markets and/or
technologies by combining concessional and commercial financing. We cover this in
more detail in Chapter 4.
Debt-for-Climate Swaps
Debt swaps involve the sale of foreign currency-denominated debt by a creditor
nation to an investor (it could be a nonprofit organization or a central bank) who
buys this debt at a price that enables a profit margin. This debt can then be
swapped with the debtor nation for shares either in a company or for a particular
commitment. Debt swaps for climate would involve forgiving a portion of a country’s
debt conditional on increasing climate mitigation spending (see Chapter 4 for further
details).
© 2022 Citigroup
Appendix 3: Detailed Analysis of

Public and Private Actors and
Financial Tools Available
In this report, we provide some simple diagrams that show the main actors and
financial instruments used to mobilize investment. The diagrams below provide a
more detailed analysis of the main actors and the tools that they could use to
mobilize capital.
Developed Countries
The public sector in developed countries has a number of tools that it can use to
mobilize climate finance including grants, tax credits, and market-based
instruments. Private investment is easier to mobilize as these countries have the
right frameworks to attract this investment. Regulation and policies are also
essential to scale up investment from the private sector including mandatory
disclosures and standards such as taxonomies. National development finance
institutions (DFIs) are mostly operational in these countries. There is a link from
governments to all the other public sector actors as initial capital to these
organizations is provided by governments.
Figure 63. Main Actors and Financial Instruments in Developed Countries

Public Finance Financial Instruments Private Finance
Governments Grants
Corporations
Commercial financial
Green Banks Tax Credits
institutions
Guarantees/ credit
Development Finance enhancements Institutional investors
Institutions
Market rate Debt/loans

Infrastructure funds
SOEs
Equity Private equity and

SWF venture capital funds
Source: Citi GPS
Mature Emerging Markets

The difference between mature emerging markets (EMs) and developed countries
is that there are a few more actors involved, including multilateral climate funds and
philanthropic organizations. The use of concessional finance is also important
especially in areas that lack good infrastructure. The private sector is already
operational in mature EMs but can be scaled up even more if governments and
public sector actors provide more clear investment policies and strategies. State-
owned enterprises (SOEs) play an even more important role in this group of countries.
© 2022 Citigroup
Figure 64. Main Actors and Financial Instruments in Mature Emerging Markets
Governments Grants
Corporations
Commercial financial
Green Banks Tax Credits
institutions
Guarantees/ credit
Institutions
Concessional Loans
Multilateral climate Infrastructure funds
funds
Market rate Debt/loans Private equity and

SOEs venture capital funds
Philanthropic/NGOs
Equity
SWF
Source: Citi GPS
Developing Countries
Developing countries can theoretically use all the financial instruments used in
developed and emerging markets; however, governments might not have the fiscal
capacity to provide grants or tax credits for many green projects. Some of these
countries also lack the enabling frameworks needed to attract private investment so
scaling up blended finance instruments are extremely important. Catalytic capital
can be provided by governments, DFIs, and philanthropic organizations to attract
investment from the private sector. Other tools that can be used are debt-for-climate
swaps, which could help highly indebted countries reduce their debt and mobilize
finance for climate action either through direct projects or as grants or concessional
finance for blended finance structures.
© 2022 Citigroup
Figure 65. Main Actors and Financial Instruments in Developing Countries

Governments Grants
Corporations
Tax Credits Commercial financial

Green Banks institutions
Guarantees/ credit
Institutions
Concessional Loans
Multilateral climate Infrastructure funds
funds
Market rate Debt/loans
SOEs Philanthropic/NGOs
Equity
SWF
Blended Finance
Debt Swaps Between debtor and creditor
Source: Citi GPS
© 2022 Citigroup
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Energy Transition: Vol 1 Energy Transition: Vol 2

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to Net Zero Momentum
November 2022 November 2022
China's Inward Tilt Philanthropy v2.0

The Pursuit of Economic Self- Reinventing Giving in
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October 2022 October 2022
Food and Climate Change Home of the Future 2

Sustainable Foods Systems PropTech – Towards a
for a Net Zero Future Frictionless Housing Market?
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Global Supply Chains Space

The Complexities Multiply The Dawn of a New Age
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Investing for Outcomes Metaverse and Money

Why Impact Is Relevant Decrypting the Future
Beyond Impact Investing March 2022
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Global Art Market Women Entrepreneurs

Disruptions Catalyzing Growth,
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The Importance of a The Complicated Road Back
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Philanthropy and the Global Education: Learning for Life

Economy Why L&D is the Next Frontier
Opportunities in a World of in Global Education
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Building for Net Zero Solving the Emissions Crisis
Before Time Runs Out
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Disruptive Innovations VIII Holistic Digital Policy

Ten More Things to Stop and Nation States Must Lead in
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COVID-19 At the Tipping Point
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NOW / NEXT
Key Insights regarding the future of Type here to complete this line
POLICY Unlocking private capital for climate finance is crucial to put the world on a path to
net zero by 2050. / Government’s all over the world have a huge role in developing
clear and concise strategies that can encourage private investment to flow in
countries which lack good enabling frameworks.
SHIFTING WEALTH Developed economies failed to reach the $100 billion annual commitment they
promised to emerging and developing economies to tackle climate change. / We
must equitably distribute the costs and benefits of climate action and ensure social
dialogue and stakeholder engagement takes place.
SUSTAINABILITY The economic background going into COP27 is not favorable with high inflation, a
strong U.S. dollar affecting debts of developing countries, geopolitical instability,
and war, potentially limiting climate action. / Climate action is urgent and identifying
what investment is needed and how we mobilize this investment efficiently this
decade is particularly crucial.
© 2022 Citigroup
Citi GPS: Global Perspectives & Solutions © 2022 Citigroup
www.citi.com/citigps

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Citi GPS - Climate Finance

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CLIMATE FINANCE

Citi GPS: Global Perspectives & Solutions

Mobilizing climate financing is a challenge as there is no one global solution. The

Financial instruments, such as blended finance, in conjunction with development

Collaboration — between developed and developing economies as well as the

estimates $125 trillion is required

years. Therefore, getting on a path

Africa Asia Pacific Central & South America Eurasia Europe

SUBSTANTIAL INVESTMENT SCALE IS NEEDED ACROSS ALL REGIONS

Comparing Current Climate Flows with Average Investment Needed

Key Actors and Financial Instruments by Stage of Development

PUBLIC FINANCIAL PRIVATE

Governments & Other Corporates

DEVELOPED DFIs Tax Credits Commercial Institutions

Enabling Framework: Green Banks Institutional Investors &

Governments & Other Grants Philanthropy/NGOs

DFIs Tax Credits Corporates

MATURE Multilateral Climate Guarantees

Enabling Framework: Institutional Investors &

• Net Zero Commitments

Governments & Other First Loss Capital Philanthropy/NGOs

DFIs Currency Hedging Commercial Institutions

Contents Guarantees ........................................ 72

Before we discuss our findings, it is important to contextualize what is happening in

Another discussion taking place in many developing nations centers on developed

to Fix It”, Nature, October 20, 2021.

Figure 1. Climate Finance Gap $1.7 Trillion per Year (2021-25)

“Financing Road Maps,” accessed November 2, 2022.

Source: Citi GPS

This report is divided into five chapters:

1. A review for understanding the climate finance landscape.

3. An analysis of the finance needed across different regions.

4. A description of public- and private-sector finance, including main actors and

5. An analysis of how to make it happen.

Chapter 1: Understanding the

Mitigation and Adaptation Finance

5 Intergovernmental Panel on Climate Change (IPCC), “Chapter 15: Investment and

Finance” in Climate Change 2022: Mitigation of Climate Change, 2022.

Climate Finance Flows

Current climate finance flows

The UNFCCC produces a Biennial Assessment and Overview of Climate Finance

BNEF, on the other hand, calculates energy transition investment figures. It

7 Definitions and methodologies differ.

Figure 3. Annual Climate Finance Flows Figure 4. Energy Transition Investment

Mitigation and adaptation

Figure 5. Climate Finance Flows Split by Mitigation and Adaptation

Source: CPI, Citi GPS

According to CPI, around three-quarters of climate finance ($479 billion) in 2019-20

Source: Citi GPS Source: Citi GPS

International climate financing

8 Organisation for Economic Co-operation and Development (OECD), Aggregate Trends

to Fix It.” Nature, October 20, 2021.

Figure 8. Climate Finance Provided and Mobilized by Developed Countries to Developing

Chapter 2: How Much of the Global

To get a sense of the global efforts in achieving climate finance, we need to

 Green Bonds, which use general proceeds for green activities.

 Social Bonds, which relate exclusively to social projects.

 Sustainable-Linked Bonds, which raise general purpose finance and involve

Figure 9. Sustainable Bond Issuance

Source: Climate Bonds Initiative, Citi GPS

Science-Based Targets Initiative

Chapter 3: An Analysis of Finance

Figure 16. Number of Costed Needs Expressed in NDCs

African States 1529 874 $2,459.56-$2,460.56