youTo understand climate change, you have to focus on crazy financial numbers. To move the global economy away from fossil fuels, governments, financiers and businesses need to invest some $4 trillion in clean energy each year from 2030, according to the International Energy Agency. That sounds like a lot, but it’s dwarfed by the cost of doing nothing. Insurance giant Swiss Re warned last year that climate change could cut off almost 15% of global economic output by 2050. In 2022, those numbers came to the fore as leaders sat struggling with the urgent need to find the green to go green.
Perhaps no single climate investment this year will go further than the $369 billion the United States is spending to catalyze renewable energy and reduce emissions via the Cut Inflation Act. After delaying legislation for the first 18 months of Joe Biden’s presidency, the Democratic senator from West Virginia Joe Manchin reached an agreement in July to bring to life the most important provisions of the law. Analysts say this will help cut U.S. emissions significantly and spur billions more in private investment.
Speaking of private investment, Yvon Chouinard, founder of retailer Patagonia, made waves in September when he announced he would donate the entire company, reportedly valued at around $3 billion, to save the planet. Future profits will be used to fight climate change, not to benefit shareholders.
Elsewhere, shareholder satisfaction has proven difficult to put on. Many investors are eager to see companies prioritize environmental, social and governance (ESG) issues, but some politicians, especially in Florida and Texas, are trying to block public funds from making ESG investments. Perhaps no one is under more pressure than the CEO of BlackRock larry finck, who advocated for sustainable investing. He wrote in his annual letter in January that his approach represents the latest iteration of capitalism and is “not woke”.
In the public sector too, leaders have largely agreed this year that the status quo must change. At COP27, the annual UN climate summit, governments reached an agreement to establish a fund to help pay for loss and damage from climate change that will disproportionately harm developing countries. While the question has seen many champions over the decades, Mia Motley, the Prime Minister of Barbados, has become a key voice for overhauling the global financial system to help poorer countries invest in climate programs without relying on costly debt. In September, she released the Bridgetown Agenda, a proposal to overhaul the International Monetary Fund and World Bank with climate change in mind. These ideas gained initial support at COP27, including from the United States, and are seen as an essential complement to the Loss and Damage Fund.
In Brazil, the election of Luiz Inacio Lula da Silva to replace climate change denier Jair Bolsonaro as president sparked an immediate wave of enthusiasm among climate advocates. Bolsonaro enabled farmers to raze the Amazon without worrying about severe climate costs. Lula has yet to take office but has already set to work developing programs to help wealthier countries pay for Brazil’s efforts to protect the rainforest.
All of these developments are revolutionary. But these are still small steps towards a necessary restructuring of global climate finance.
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