As the world gathers for COP29, dubbed the “climate finance COP,” experts are calling for clear policies and institutional support to accelerate bank lending toward renewable energy, according to a new briefing by the Institute for Energy Economics and Financial Analysis (IEEFA).
The briefing emphasizes the urgency of mobilizing substantial financial resources to meet the goal of tripling global renewable energy capacity by 2030.
The IEEFA report warns that achieving this ambitious target will require closing an annual investment gap of up to $400 billion from 2024 to 2030. While banks have directed nearly $1 trillion to fossil fuel projects as recently as 2022, they are positioned to shift capital toward renewable energy to help bridge this funding gap.
“With only six years remaining, the goal for renewable energy by 2030 seems ambitious. However, enhanced cooperation between developed and developing countries, coupled with supportive local policies, could make it achievable,” says Vibhuti Garg, IEEFA South Asia Director and co-author of the report. Garg also highlights the need for developed nations to provide additional climate finance to support renewable energy efforts in developing and least-developed countries.
“While bank credit flows to the fossil fuel sector is declining, it was still a whopping US$967 billion in 2022. On the flip side, low-carbon development projects, including renewable energy, received US$708 billion in the same year. By reorienting more capital to the renewable energy sector, banks can bridge the projected investment gap,” says the note’s co-author, Shafiqul Alam, Lead Analyst – Bangladesh Energy, IEEFA.
Increasing Renewable Investment Amid Financial Challenges
Investment in renewable energy has surged globally, from an estimated $329-$424 billion in 2019 to $570-$735 billion in 2023. However, reaching the 2030 targets will require between $1 trillion and $1.5 trillion annually, highlighting a substantial funding gap that banks could help address through targeted lending for renewable projects.
Recommendations for Policy and Financial Tools
To encourage bank participation, the IEEFA suggests creating risk-reducing tools such as partial credit guarantees, implemented by governments and supported by multilateral development banks (MDBs) and bilateral financial institutions. “By offering credit enhancement and risk mitigation instruments, banks will be more inclined to lend toward clean energy projects,” explains Labanya Prakash Jena, IEEFA Consultant in Sustainable Finance.
The briefing also recommends mandating disclosures on financed emissions, integrating climate change into banks’ lending policies, and using monetary policy to incentivize banks away from fossil fuel financing.
With the financial and environmental stakes high, COP29 attendees are expected to deliberate on policies that could channel more bank resources to renewable energy, ultimately aiding the transition to a low-carbon global economy.
