In a new report from the BlackRock Investment Institute (BII), the investment giant highlights one of the key barriers to reaching the goals of the global drive to limit the impact of climate change, namely the need to significantly ramp the mobilization of capital to emerging markets to finance the transition to net zero emissions.

According to BII, emerging markets, which now account for 34% of global carbon emissions (excluding China), will require at least $1 trillion per year in order to achieve net zero emissions by 2050. This represents 6 times current investment levels.

esg playbook

While the report notes that private capital to fund the transition is, in theory, plentiful, high levels of country risk – including political, legal, reputational and macroeconomic risk – acts as a significant barrier to large scale capital flows.

In order to overcome these obstacles and enable the necessary fund flows to finance the transition, the BII report recommends public sector participation, calling for developed markets governments to share in the risk burden, and to scale up budgetary allocations to $100 billion annually. The report says that public sector financing would be the most effective at the facility level – setting up green investment banks, for example – rather than on a project by project basis.

While acknowledging the large amount of public sector funding called for in the report, BII outlines the risk/reward benefits from the investment:

“This may be seen as a huge cost for DMs, but we believe it represents an essential investment. $100 billion per year – or $2 trillion cumulatively over the next 20 years – is only a fraction of the losses averted by a successful climate transition. We estimate a cumulative loss in global economic output of nearly 25% to 2040 – equivalent to more than $21 trillion of 2019 GDP.”

Paul Bodnar, Head of BlackRock Sustainable Investing, and report co-author, said:

“Without a successful green transition everywhere, climate risk is unmanageable anywhere.”

Along with the publication of the report, BlackRock Chairman and Chief Executive Officer Larry Fink authored an opinion piece in the New York Times, urging developed market governments to ramp up public support for public sector financing of emerging market transition investments, in order to address the global climate crisis.

Fink said:

“The climate disaster will not respect national borders. Without global action, every nation will bear enormous costs from a warming planet.”

Click here to view the BlackRock Investment Institute report.