Sovereign wealth funds, holding almost $12 trillion in assets, are facing challenges in increasing their climate investments despite the urgency highlighted at COP28 talks. Notably, funds such as Norway and the United Arab Emirates (host of COP28) encounter obstacles due to mandates that prioritize predictable returns, making it difficult to find sustainable projects for investment. Despite growing concerns about the energy transition, sovereign wealth funds, primarily fueled by oil, have committed less than $10 billion to climate initiatives. The limited investment is attributed to caution during the pandemic, economic uncertainties, and the pursuit of higher returns.
Smaller funds in Nigeria and Bahrain are increasing investments in renewables and carbon offsetting. However, the overall cash allocation to renewable energy and sustainable investments by sovereign wealth funds has remained stagnant. Research shows that in 2022, sovereign wealth funds’ sustainable investments totaled $9.3 billion, below the 2018 peak of $9.6 billion. This contrasts with their substantial $11.6 trillion in assets under management and the estimated $5.8 trillion global sustainable finance market.
The world needs $125 trillion by 2050 to achieve net-zero emissions, with a developing world funding gap of $4 trillion annually. Sovereign wealth funds, with around 100 worldwide, are seen as potential contributors, but their mandates, focused on maximizing returns, limit their capacity to invest in renewables and sustainable projects. Efforts to address these challenges include the One Planet Sovereign Wealth Fund Network working on frameworks to boost green investments and initiatives connecting African sovereign wealth funds with sustainable investments. While some funds are adapting to integrate climate issues into their portfolios, a broader change in strategy is suggested to embrace sustainability in their mission and mandate.