The COP28 climate summit is not really about the climate; it's mostly about money. Money to clean up the mess made by emitting countries and limit the damage, especially in countries that have made little contribution to climate change. Money to accelerate the energy transition and finance climate adaptation. The focus is on the private financial sector because public funds are frankly insufficient.

Although more private money is pouring in now and 'sustainable finance' has become a huge thing, things are just not getting off the ground. Alarm bells are ringing in reports about the 'financing gap'. We simply need much more money to go towards sustainability, from both public and private sources.

A study estimates that USD 6.2 trillion of climate finance is required annually between now and 2030, and USD 7.3 trillion by 2050, to deliver Net Zero – a total of almost USD 200 trillion).

Where are things faltering?You would suspect that we must close this financing gap to have more capital available for those needs. But that is not the case. This isn't about more money, but about money going to the right places.

First of all, governments and the financial sector continue to pump hefty amounts of money into fossil energy. According to the International Monetary Fund, global fossil fuel subsidies were USD 7 trillion in 2022 or 7.1% of global GDP. Explicit subsidies (undercharging for supply costs) have more than doubled since 2020 but are still only 18% of total subsidies, while nearly 60% is due to undercharging for global warming and local air pollution. It's high time to stop this.

From a distance, you can understand why the financial sector continues to finance fossil fuels: the demand from shareholders is to maximise profits within legal frameworks, and fossil fuels have been a good investment for the last 18 months. Given this, financials should stop coming up with all kinds of promises and save themselves the trip to Dubai.

A second problem is the misconception that there is too little money. Nonsense. I'd argue that there's an abundance of money. There is, however, a lack of private capital willing to make climate investments with modest return expectations. Some argue that climate finance will automatically become profitable through innovation, scaling up, and so on. Maybe, but not fast enough and not for everything.

This is down to the asymmetry of financing. You can make money from something that is free or priced too low, but once you factor in social costs, it becomes difficult - if not impossible - to make a profit. As long as the financial sector is not forced to invest, and the risk is borne by governments and taxpayers (i.e. us), everything will stay the same. Stopping financing is not a revenue model.

So it's not a question of not having enough money. We are subsidising and financing the wrong thing. Right now, the financial sector is mostly part of the problem and not enough of the solution.

This is a translation of Hans Stegeman's column in Het Financieele Dagblad, published8 December 2023.