In brief
- Last year, $1.8 trillion was invested in relation to the energy transition, up from $33 billion in 2004
- However, BlackRock says there’s still a major funding gap in what’s needed annually by the next decade
- Funds will require policy support and partnerships between governments and the private sector
BlackRock estimates that the world’s green energy transition will require $4 trillion annually by the mid-2030s, calling for more public-private partnerships, especially in Asia-Pacific.
The forecast comes from BlackRock’s latest “Investment Institute Transition Scenario,” which analyzes how the low-carbon transition is most likely to play out and its potential impact on portfolios.
The $4 trillion figure is double previous expectations of $2 trillion annually, and will require increases in both public and private sector capital, according to Michael Dennis, head of APAC Alternatives Strategy & Capital Markets at BlackRock.
APAC is really at the center of the energy investment opportunity, and we see this in multiple areas, both in developed markets and emerging markets
Michael Dennis, head of APAC Alternatives Strategy & Capital Markets at BlackRock, speaking at Singapore’s annual Ecosperity Week
Is the capital there?
Last year, $1.8 trillion was invested in energy transition projects, a significant increase from $33 billion in 2004, totaling around $19 trillion to date. Despite this growth, there remains an $18 trillion gap to reach necessary investment levels by 2030, covering a range of risk categories from core infrastructure to venture capital.
BlackRock’s survey of 200 institutional investors found that 56% plan to increase their transition-related allocations in the next 1-3 years, with 46% prioritizing this transition.
In terms of public policy, legislation like the Inflation Reduction Act, signed in August 2022 in the U.S., have been able to galvanize billions in public funds to be put toward greenhouse reduction projects.
Dennis emphasized the need for coordinated efforts among governments, companies, and communities, as well as policy changes such as energy market deregulation and favorable pricing.
“Beyond that, we need to see policy change around energy pricing and deregulation of energy markets,” said Dennis, adding that in emerging markets, around 60% of needed capital is expected to come from the private sector.
According to Dennis, the funds to meet this gap are out there.
Blended finance
BlackRock identifies blended finance as another key investment driver, especially in emerging markets, to mobilize additional funds. Blended finance is defined as the strategic use of development funds to mobilize additional finance toward sustainable development, according to the OECD.
“Blended finance is really critical, not only for the early stage of projects, but for making [green] assets investable within current portfolio structures,” said Dennis, adding it can help tap trillions in funds from broader capital markets.
Other factors that are needed to reach the world’s green financing goals include developing better talent across different areas of the ecosystem , according to BlackRock. Further, achieving green financing goals also requires the shifting of risk frameworks for green project investments
