In 2024, the word that seems set to define the discourse on climate change is “finance”. Critically, this does not just mean public finance, it means the mobilisation of global privately held wealth, too.

In 2015, 196 parties in attendance at COP21 signed the United Nations Paris Climate Agreement, committing to implement economic and social changes to limit the global average temperature increase to 1.5 °C above pre-industrial levels by 2030.

This agreement included, at its heart, Nationally determined contributions (NDCs) – through which each party country sets out its climate change mitigation goals and implementation strategy, including financing. As the UN notes, much progress depends on realising the commitment, made in 2015, of developed countries to mobilise $100bn a year in climate finance for developing countries.

The NDCs are intended to increase in scope and ambition with each update – which takes place every five years. With the next update due in 2025, the pressure is on during 2024 for the climate finance gap to be closed.

This is the challenge which was at the heart of the debate at COP28.

The Global Stocktake which was undertaken in 2023 set the scene for what the next NDC update in 2025 must achieve and, put simply, it revealed just how massive the shortfall is in terms of the funding required to finance climate adaptation and the clean energy transition – which is in the order of trillions of dollars.

The UN itself admitted in its closing statement on COP28 that the financial progress made this year falls short in a major way and that a new climate finance goal is urgently needed at COP29.

But just where the money is going to come from is a critical question. Realistically, and with the burden of national debt continuing to rise, governments and other public institutions can only do so much.

This reality was reinforced by Ajay Banga, president of the World Bank, who told reporters in early January 2024 that the gap between where funding is today and the trillions that are needed to finance an effective and just transition cannot be filled by the bank (or, indeed, other public entities). The private sector, he said will be needed.

But it is more than needed, it will be essential.

Indeed, as global public debt has shot up (acting as a potential brake on climate investment), privately held wealth has seen substantial increases.

Despite seeing its first contraction last year since the global financial crisis, international private wealth is projected to increase 38 percent over the next five years to more than $600 trn. At the same time, global public debt has tripled since the mid-1970s.

This growing body of privately held wealth can be the catalyst for transformative climate transition financing, particularly when paired with the growing interest we continue to see from families and individuals in investments according to Environmental, Social & Governance (ESG) principles and the substantial appetite for capital deployment strategies that blend impact, sustainability and responsible, resilient returns.

Despite a backlash against the concept of ESG from some quarters, we expect the interest in it from private wealth to remain strong, with global high net worth individuals (HNWIs) continuing to explore opportunities to deploy wealth responsibly for both impact and return.

Put even more bluntly, private capital and a willingness from investors to utilise their wealth to support climate change efforts is likely to be the only thing that will facilitate the possibility of getting close to the level of funding needed to achieve the world’s sustainability and decarbonisation goals.

In line with this, it seems certain that governments will at some point face a choice over the right blend of carrot and stick to encourage climate change-focused private investments.

Those investors who have not incorporated ESG into their approach already will, potentially, be dragged over the line by increasing legal and regulatory requirements in the future, or indeed may be presented with new opportunities through, say, ESG-targeted tax reliefs. We have already seen the impact of the Inflation Reduction Act and its expanded tax credits system in the US and it would not be inconceivable to see complementary incentives for private investors along the lines of, say, the UK’s Venture Capital, EIS and SEIS schemes.

Equally, governments and other public bodies will be mindful of the need to mitigate the risks which may hold back the deployment of private funds in the climate change mission, which range, according to the IMF, from concerns around fluctuating foreign exchange to too few investable projects.

The question, in 2024 and beyond, will be whether the growing desire of HNWIs to pursue responsible and sustainable investment strategies is enough of a driving force to hit the world’s climate finance goals, or if governments will mandate private capital investments in climate change as the 2050 global net zero date edges closer.

When policy makers and the private sector reconvene in Baku later this year for COP29 there will need to be a much clearer answer to this question.