As the frequency of extreme weather events grow due to increasing global temperatures, the climate funding gap remains a significant obstacle in the worldwide fight against climate change. Back in 2009, the UN Climate Change Conference pledged a target of $100 billion annually for developing countries’ climate financing. Regrettably, the funding currently stands between $21 billion and $83.3 billion, falling short of the needed $1 trillion annual allocation, according to financial services firm, Intent Capital Group’s Founder, Elizabeth Tan.
The majority of the funding is sourced from governments and entities in developed countries. This does raise eyebrows as some countries use climate financing as smokescreen to preserve their support for resource exploitation. Consequently, donor-dependent financing terms and rare alternatives leave developing countries stranded.
However, a beacon of hope emerges in the form of Web3, promising a solution to bridge the funding gap. It has the potential to democratize climate finance management, shifting control from governments and institutions to individuals, mainstreaming funding from retail investors who control a whopping $8.2 trillion in untapped investible wealth. Gathering evidence suggests that most could forfeit higher returns for significant environmental impacts, underlining their desire to join the climate change fight.
But the investor’s journey into the Web3 sphere is not seamless. Despite the exciting possibilities it offers, using technology to bring about feasible financial habitats for retail investors also raises challenges. This includes the tokenization of climate assets, diversifying high-value instruments like green bonds, and creating special-purpose Decentralized Autonomous Organizations (DAOs). Despite its low-cost and accessible value-transferring ability, using fiat-backed stablecoins, the shift towards Web3-powered climate investment still requires time and concerted effort to mainstream.
Coincidentally, the demand for carbon credits amplifies, potentially increasing a hundredfold by 2050, as predicted by McKinsey. However, upfront investment to kickstart and then scale non-tech climate projects, such as reforestation, seems to be the Achilles heel. In contrast, venture capital is becoming accustomed to high-risk long-term bets in the climate tech investment space.
Nevertheless, through platforms like Web3-fundraising, it could change the investment landscape for the better. By enabling retail investors to access investments while also offering institutions returns that line up with their expectations, financial incentives can rejuvenate the starting line for new climate projects.
Climate change and debt distress intertwine. The current debt model is an unsustainable cycle where debtor countries are continuously borrowing to service pre-existing debts and simultaneously tackle the impacts of climate change. On the brighter side, the wealth of climate assets in these developing nations may offer a sustainable alternative through Web3 funding solutions. This enables sustainable wealth transfer, where both parties reap benefits, thereby paving the path towards the ultimate goal of $1 trillion in annual climate financing.
Thus, it is of significant importance for all stakeholders – governments, investors, businesses, and individuals – to profoundly analyse how Web3 can mentor the reformation of climate funding. Failing to utilise the catalytic potential that Web3 offers could unintentionally propel us further into the climate crisis.
Source: Coindesk
