Investing to cut greenhouse gases — where the money should go
· 10 min read
This article is part of the Sustainable Finance Guide, a new series by Globalfields in collaboration with illuminem. Together, we provide readers with clear, educational insights into where sustainable finance stands today and how it is evolving to support nature, regeneration, and long-term resilience.
Under the Paris Agreement, global CO₂ emissions must fall by roughly 45% by 2030 (relative to 2010 levels) to keep the 1.5°C goal within reach. Yet, the current energy generation and end-use technologies in place are only capable of delivering half of the emissions reductions needed [1].
The gap between ambition and reality is structural. Closing it demands a rapid, large-scale reallocation of capital towards activities that prevent, reduce or permanently remove greenhouse gas emissions.
This is where mitigation finance becomes decisive. Investments that avoid or sequester greenhouse gas (GHG) emissions are not optional add-ons to the climate transition, they are the financial backbone of stabilising atmospheric concentrations at thresholds that avoid dangerous anthropogenic interference with the climate system [2].
We must turn to identifying where capital delivers the fastest, most durable emissions cuts.
The challenge is that current flows remain far below what science demands. However, there are clear signals of optimism and momentum. The Climate Policy Initiative (CPI) reports that global climate finance reached an all-time high of USD 1.9 trillion in 2023, with early data suggesting flows exceeded 2 trillion in 2024. This represents an average annual growth rate of 26% between 2021 and 2023. If sustained, even the most conservative estimates of required climate investment - approximately USD 6 trillion - could be within reach by the late 2020s. Yet, momentum is not the same as sufficiency.
It is worth noting that mitigation finance, by a significant margin, makes up the majority of global climate finance flows. In 2023, it accounted for USD 1,780 billion, dwarfing adaptation finance at USD 65 billion (though likely to be underestimated due to persistent tracking challenges) and cross-cutting finance at USD 58 billion [3]. This imbalance reflects a core reality of sustainable finance: that mitigation finance is currently the most quantifiable, scalable and, thus, investable pillar of the climate response.
As Figure 1 shows, over 75% of total mitigation finance went to the energy and transport sectors in 2023, primarily driven by investment in solar PV, wind power, and EVs. Alongside buildings and infrastructure, these sectors are the most significant sectors for mitigation investment. Other sectors include the agriculture, forestry, other land-use, and fisheries (AFOLU), industry, waste and wastewater, information and communication technology, waste, and ‘other and cross-sectoral' sectors. These remain comparatively underfunded, despite their long-term mitigation potential [ibid].
Figure 1: Climate mitigation finance by sector [ibid]The energy sector has been a standout performer, with investments growing by an impressive 234% since 2018, fueled by supportive policies and a dramatic decline in technology costs. Solar PV, in particular, has seen an average 40% drop in module costs from 2018-2023, making it more accessible for small-scale deployment. Wind power is also booming, especially offshore, with strong backing from initiatives like the US Inflation Reduction Act. Looking ahead, energy storage will be critical since without it, the expansion of intermittent renewables will face hard physical and economic limits [ibid.].
The transport sector saw steady investment in 2023, reaching USD 539 billion - an astonishing 311% increase since 2018 [ibid.]. However, to meet global emissions goals, investment must scale up to USD 2.7 trillion annually by 2050. This is particularly challenging for low-and-middle-income countries, which account for 82% of the world’s population and the majority of future urban growth. Yet, large-scale electric bus projects across India, Senegal, Colombia, and beyond show that targeted capital can make a massive impact, driving systemic emissions reductions where they’re needed most [4].
Buildings and infrastructure, while growing more slowly, still hold enormous untapped potential. Investment increased by 40% between 2018 and 2023, with energy efficiency improvements accounting for the bulk of this. However, the opportunity for further emissions reductions is huge - new construction and retrofits could account for over 40% of global mitigation potential. Heat pump sales surged 30% between 2019 and 2022, particularly in Europe and China, but growth slowed in 2023 as financial incentives were reduced. By investing in energy-efficient, low-carbon buildings, we can not only reduce emissions but also generate long-term economic, health, and social benefits, ensuring that new urban development aligns with global climate targets and delivers lasting impact [5].
The fertiliser industry is one of the most carbon-intensive and ‘hard-to-abate' industrial sectors, with ammonia production alone responsible for significant global emissions. Project FP277, the funding proposal of which was developed with assistance from employees of Globalfields, addresses this challenge by developing a green fertiliser facility that will use renewable electricity to produce green hydrogen via electrolysis, replacing fossil fuels in the manufacture of calcium ammonium nitrate (CAN).
The USD 630 million project, supported by USD 50 million in concessional finance from the Green Climate Fund, is expected to avoid 1.8 million tonnes of CO₂ emissions. Beyond direct emissions reductions, the project demonstrates a viable decarbonisation pathway for fertiliser production, offering a catalytic model for replication across Latin America and other emerging markets, a key objective of blended and concessional mitigation finance instruments [6].
The broader contribution is that this project proves that mitigation finance can move beyond incremental improvements by providing a solid foundation to deliver systemic, sector-wise transformation. This demonstrates how capital allocation can catalyse low-carbon transitions at scale.
Evaluating mitigation investments requires both financial and climate metrics.
Traditional financial metrics (such as Internal Rate of Return (IRR) and Net Present Value (NPV) remain essential, but are increasingly supplemented by climate-specific indicators. The most direct climate metric is emissions reduction. Mitigation projects are assessed by the tonnes of CO₂ (or equivalent) they avoid or sequester. These indicators translate carbon ambition into quantifiable outcomes, enabling comparison across technologies, sectors and geographies.
At the portfolio or sector level, investors track carbon footprints. Many banks and asset managers use the Partnership for Carbon Accounting Financials (PCAF) GHG Protocol standards to quantify ‘financed emissions’ (scope 3 category 15) for their loan and investment portfolios. For financial institutions, these financed emissions are often the most significant part of their GHG emissions inventory. As a result, special consideration must be made regarding how these emissions are measured, with The Global GHG Accounting and Reporting Standard aiming to provide a standardised approach, ensuring that Focused Improvement (FI) methodologies are robust, transparent, and comparable over time and across asset classes [7].
Figure 2: An overview of GHG Protocol scopes and emissions across the value chain. Scope 3 category 15 emissions, i.e. ‘financed emissions’, are typically the largest part of FI’s GHG emissions inventories [7]
However, assessing mitigation alignment across financial portfolios introduces significant complexity. Aggregating results from diverse asset classes, such as corporate equity and debt, sovereign bonds, real estate, and infrastructure, requires careful weighting and risk of double counting.
Emerging portfolio-level approaches, including aggregated budget, weighted average, and portfolio-owned methods, must therefore be transparent about their underlying assumptions.
Together, these indicators provide a more accurate picture of whether financial institutions are directing capital flows in line with Paris-aligned mitigation objectives [8].
Without transparency, genuine climate action can become an illusion.
Metrics only matter is they are disclosed consistently, credibly and usefully.
Transparent reporting is essential to ensure that mitigation finance translates into real emissions reductions. As mentioned in 2.2, The Task Force on Climate-related Financial Disclosures (TCFD) established the foundational framework for reporting on governance, strategy, risk management, and metrics related to climate risks and opportunities. Its structure has been fully incorporated into the International Financial Reporting Standards (IFRS) S2 Climate-Related Disclosures standard, which establishes the global baseline for climate-related financial reporting. This marks a critical shift whereby climate disclosures are no longer peripheral sustainability narratives, but an integral part of financial reporting [9].
Capital market codes also reinforce reporting. For instance, the International Capital Markets Association (ICMA) Green Bond Principles recommend that issuers annually report the allocation of proceeds and the environmental impact of projects funded. This ‘use of proceeds’ reporting creates accountability: investors can trace how green bonds build renewables capacity or efficiency gains. Likewise, voluntary sustainability bonds, sustainability-linked loans, and corporate ESG reports increasingly include data on tonnes CO₂ avoided, MW installed, or analogous output measures [10].
Among sustainable finance pillars, mitigation is uniquely quantifiable.
Carbon dioxide and other GHG emissions are intrinsically measurable in metric tonnes, with global targets (such as Paris NDCs, net-zero by 2050) providing clear benchmarks. This gives mitigation finance an edge in the sustainability landscape. It is a direct, quantitative line of sight between capital deployed and climate outcome achieved.
By contrast, adaptation and nature finance often lack universal metrics or targets. As the OECD observes, “in contrast to climate change mitigation, there are no clear quantitative global policy goals and reference point(s) on adaptation and resilience”, making adaptation alignment largely qualitative [8]. In a financial system built to compare and rank, this lack of numerical data matters.
This measurability has profound practical implications. Lenders and investors can readily audit a mitigation project by comparing actual emissions saved against promised reductions. For example, a solar farm’s output (MWh) and avoided coal generation can be directly estimated. Entire portfolios can be summed to track progress against climate budgets. Companies can adopt science-based targets and report progress in their annual accounts.
Crucially, carbon ‘knows no borders’.
Reducing emissions in one country still counts toward global goals, creating a direct link between investment and climate outcome. This universality creates a powerful alignment mechanism whereby mitigation investments generate globally relevant benefits, regardless of where capital is deployed.
In summary, the ‘carbon lens’ makes the impacts of mitigation finance relatively transparent. This quantitative clarity boosts confidence in sustainable investments: stakeholders can see that every dollar yields a concrete reduction. It explains why many donors and regulators favour mitigation projects since their benefits are easier to verify.
Though mitigation is the best-measured pillar we currently have, it is not immune to limitations. Project quality varies, baselines can be contested, and emissions estimates are often modelled rather than directly observed. Measurement methodologies continue to evolve, and policy frameworks still shape what gets financed, and what may get left behind. Moreover, a narrow focus on carbon risks overlooks the broader Earth system processes on which climate stability ultimately depends, from ecosystems and water cycles to social and community resilience.
If mitigation tells us how fast we are cutting emissions, adaptation asks a different, no less urgent question of whether societies and economies are prepared for the impacts of climate change that are already on the way. The following article turns to adaptation, which is about living with climate change and the reshaping of systems to withstand the impacts that can no longer be avoided.
The views expressed are for informational purposes only and do not constitute financial, legal, or investment advice.
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