To address the triple planetary crisis of climate change, biodiversity loss and pollution, as well as water, the true cost of emissions and resource use in everyday economic decision making needs to be better reflected. Progress remains incremental and calls for systems-wide and coherent approaches to harnessing all policy levers to urgently drive finance and investment towards environmental goals. This includes embedding climate and nature-related risks across financial sector decision making processes, mobilising private sector investment into aligned projects and activities, reducing and redirecting harmful financial flows, and tracking progress towards these objectives. The OECD works on identifying and analysing strategies, policies, regulations and instruments, and supporting dialogue and capacity building to steer finance and investment to support the transition to a green, net-zero consistent, climate-resilient, and nature-positive economy.
Finance and investment for environmental goals
Meeting environmental goals will require aligning and significantly scaling up all sources of green finance – public, private, domestic and international – and phasing out financial flows that harm the environment. The OECD supports governments with targeted policy guidance, platforms for dialogue and knowledge-sharing, and support with steering environmental finance and investment, including in developing and emerging economies.
Key messages
The rapid scaling of climate aligned finance and investment is critical to accelerating global emissions reductions, scaling adaptation, and keeping the 1.5oC temperature goal within reach. The OECD is supporting governments implement Article 2.1(c) of the Paris Agreement, which calls for finance flows from all sources to be made “consistent with a pathway towards low greenhouse gas (GHG) emissions and climate-resilient development”. Through government-backed international standards, best practice guidance, and a whole-of-government approach to targeted policy advice, the OECD works with developed, emerging and developing economies in closing the unprecedented climate policy implementation gap with a focus on shifting the financial system to achieve climate goals.
Central to building trust, transparency and accountability, the OECD also tracks climate finance through annual analyses of developed countries’ progress towards the USD 100 billion annual climate finance goal for climate action in developing countries.
Finance for biodiversity – across all sources, public, private, domestic and international - needs to be scaled up and aligned with biodiversity objectives, including those under the UN Kunming-Montreal Global Biodiversity Framework. Target 19, for example, calls for finance flows to biodiversity to increase to USD 200 billion per year by 2030. In 2020, the OECD estimated global biodiversity finance to be USD 79-92 billion a year.
The OECD supports governments by providing evidence-based analysis on scaling up biodiversity finance across all sources. This includes biodiversity tagging and green budgeting, tracking economic instruments and the finance they mobilise, and scaling up positive incentives to encourage the private sector to internalise externalities. The OECD work also involves reforming incentives harmful to biodiversity, tracking biodiversity-related development finance, and helping central banks, financial supervisors and policy makers assess biodiversity- and broader nature-related financial risks. Ahead of the Global Biodiversity Stocktake in 2026, the OECD will provide an updated analysis on progress towards the USD 200 billion biodiversity finance target.
A historic scaling up of investment into the development and management of water resources and water services is critical to achieving all Sustainable Development Goals, delivering on the Paris Agreement and making the Human Right to Water and Sanitation a reality.
While investment in water security makes economic sense, this does not always translate into investment at scale. Actions across sectors are needed to strengthen the enabling environment for investment, make the best use of existing sources of finance and assets, optimise future investment needs and mobilise additional sources of funding and finance.
OECD work on finance and investment for water explores solutions to address the finance gap, make better use of existing financial resources, and advance financing water security on the global agenda.
SMEs are critical actors in the green transition given their significant cumulative environmental footprint and their provision of green solutions to the market. However, many smaller firms continue to lag behind their larger counterparts in adopting greener practices and business models due to a range of supply and demand-side factors, including limited access to finance, skills and other resources, as well as regulatory and policy uncertainty. As governments, public actors and other stakeholders seek to devise effective packages of financial and non-financial support to spur SME action, the OECD has been working on analysing and identifying innovative financial instruments and approaches across countries that can accelerate SME greening and their contribution to global progress toward sustainability.
Context
Mainstreaming transition considerations in financial markets and the real economy faces multiple challenges
Credible transition plans, which set out a company’s targets, commitments, and implementation actions, can help financial market participants assess the economic and environmental integrity of the business strategy of a corporate trying to raise finance to transform its business model, operations, assets and relationships towards net-zero and climate-resilient pathways, in line with the Paris Agreement. To date, only few companies are developing and publishing credible transition plans that allow an assessment of their alignment with the Paris Agreement.
