Rising investment into the global clean economy is leading to a growing “impact gap” says Generation Investment Management – one which “urgently needs closing.”

According to Generation Investment Management’s latest Sustainability Trends Report, private and public investment in the clean economy is quickly surging towards $1 trillion. In the report, the firm cites data from Bloomberg New Energy Finance showing that in 2019, worldwide investments in clean energy and clean transport totalled $506 billion. The figure jumped by $89 billion in 2020, and again by $160 billion in 2021, to a total of $755 billion.

Among impact investment strategies, climate and energy transition funds have attracted significant capital. In June, Brookfield Asset Management raised $15 billion for its first vehicle dedicated to a net-zero carbon economy, and in April, TPG closed its Rise Climate Fund on $7.3 billion. Most recently, impact firm Mirova announced the close of its Energy Transition 5 fund on €1.6 billion.

Generation Investment Management is a pioneer of sustainable investing and last year launched Just Climate, a new investment business aimed at addressing the net-zero challenge.

While the rising investment in the net-zero transition is undoubtedly an encouraging sign, the firm says too much of that money is flowing into “a narrow set of investable solutions whose business models have been proven”.

As a result, areas like steel, cement, agriculture and others are still being starved of the capital needed to grow more sustainable practices.

On top of this, climate finance is being spent disproportionately on the world’s more advanced economies. With emissions in the developing world expected to far surpass declines in the rich countries, total global emissions will continue to rise if this gap goes unchecked.

“If these countries are to skip the high-emissions phase of development and jump directly to clean energy, they need to be putting up wind farms, solar panels and grid-sized batteries at a fast clip. Yet they are struggling to do so,” the report states.

Key reasons for the gap are the high interest rates for these projects in the developing world, which the report notes, “are sometimes seven times greater in poorer countries”, as well as the perception among investors that assets are more risky in countries with unstable governments and currencies.