Investing in Climate for Growth and Development

Executive Summary

Governments are at a pivotal point in addressing climate change. Over the past decade, climate action has gained momentum and unlocked economic opportunities. Clean energy now attracts twice the investment of fossil fuels, delivering affordable climate solutions, innovation, jobs, and growth. Many countries have successfully decoupled emissions from economic growth.

However, current efforts are not keeping pace with rising risks. The world remains on an upwards emissions trajectory, and climate action is losing momentum as countries face a range of competing geopolitical, financial and economic challenges that slow its pace and scale. Without further action climate risks will intensify, and rising disasters, economic instability and financial system vulnerabilities will threaten long-term growth and development.

Higher ambition and more effective implementation of climate action is needed to keep the Paris Agreement’s goals within reach and secure prosperity of current and future generations. In 2025, countries are due to put forward new climate plans – Nationally Determined Contributions (NDCs), setting out their efforts to reduce national emissions to 2035. This new cycle of NDCs provides a critical opportunity for the step-change needed to get the world on track to reach net zero and build resilience.

This OECD-UNDP analysis provides evidence that accelerating climate action through enhanced NDCs is not only feasible – it makes economic sense, driving growth, unlocking development dividends and sparing losses from climate disasters. NDC cycles offer an opportunity to align climate goals with development and investment strategies, strengthen partnerships, and mobilise both public and private finance to deliver ambition.

The economic case for accelerated climate action

Well-designed climate policies can deliver stronger economic growth than business-as-usual pathways.

• Accelerated climate action does not hinder economic growth, it provides economic gains. Under an Enhanced NDCs scenario aligned with the Paris Agreement, global GDP in 2040 would be 0.2% higher than under the Current Policies scenario.

• Investing in clean energy and energy efficiency increases productivity and innovation, balancing the economic impact of policy constraints on prices and consumption. Reinvesting carbon revenues can further boost GDP while ensuring a just transition and securing public support.  

• In the Enhanced NDCs scenario, global GDP is projected to grow by 60% by 2040 compared to 2022. All regions can benefit from robust economic growth in an Enhanced NDCs scenario, though at different paces.

• Policy uncertainty weakens investment and slows growth. Unclear policies risk delaying private investments and reducing GDP by 0.75% as early as 2030. Co-ordinated climate, fiscal and monetary policies are needed to achieve growth while limiting short-term inflationary effects and mobilise private sector investment.

The economic case for climate ambition gets even stronger in the long run, particularly when factoring in avoided climate damages.

• By reducing the risk of climate-induced events, an Enhanced NDC scenario could prevent significant economic losses and increase global GDP by up to 3% by 2050 and up to 13% by 2100.

• Actual benefits could be even greater, as uncertain current estimates do not fully account for the economic and social consequences of the increased likelihood of crossing tipping points, such as melting ice sheets or reversing circulation patterns in the ocean.

Climate action delivers far-reaching benefits beyond GDP growth.

• Aligning NDCs with national development priorities, can maximise their impact, advancing climate action while driving progress on health, energy security and access, and poverty reduction.

• Integrating climate and development-enhancing policies into NDCs could help one in five people in extreme poverty escape the poverty trap by 2050, lifting 175 million additional people out of extreme poverty while strengthening resilience and energy equity.

• Energy security considerations are at the heart of enhanced NDCs, as fossil fuel importers can decrease their reliance on highly volatile fossil fuel markets. Renewable energy offers affordable and resilient paths forward, provided that vulnerabilities around critical mineral supply chains and infrastructure resilience are addressed.

  Economy wide and all-gases policy action could lead to better economic and social outcomes.

• Economy-wide policy action could provide an additional 1% growth by 2040, thanks to a more efficient allocation of policy action across sectors (e.g. transport, industry, agriculture) and gases.

• Abating non-CO₂ GHGs, and particularly methane, can have strong health and environmental benefits in addition to contributing to climate change mitigation.

• Agriculture and forestry offer significant, cost-effective mitigation potential and co-benefits on biodiversity and ecosystem protection, food security and adaptation.

Putting people at the core of climate strategies is essential to secure a just and equitable transition and build public support.

• Climate change mitigation policies offer long-term benefits – especially for low-income groups, women, the elderly and rural populations. Yet – these same groups may face short-term challenges from rising costs or reduced incomes.

• To ensure a fair and equitable climate transition, support policies, for instance, well-designed compensation mechanisms are essential for mitigating financial burdens on low-income and disadvantaged households.

• Modelling results in OECD countries show that although overall labour market impacts will be slightly positive, sectoral and occupational shifts will be geographically concentrated and require place-based, targeted support.

Delivering on climate, growth and development goals with enhanced NDCs

The NDCs are an opportunity to capture the synergies between climate and growth. But to unlock their full potential, they must be ambitious, implementable and investable, broadening ownership, mobilising finance and generating benefits for the economy and people. In preparing and implementing their new NDCs, governments could focus on five priorities:

1. Build high-level political ownership. Engaging the centre of governments alongside key ministries and departments, can ensure the mandate, resources, and buy-in needed for effective implementation, and build accountability for NDC delivery across government. Ministries of Finance play a central role in embedding climate targets into national and sectoral planning, fiscal policies, and budgetary processes.

2. Align NDCs with national development priorities for maximum impact. NDCs should not be stand‑alone commitments. Integrating climate ambitions into national and subnational development strategies, economic planning, and sectoral policies can ensure policy coherence, and maximise the synergies between climate, economic and social progress.

3. Bring the private sector into NDC design and implementation to unlock investment opportunities. NDCs can provide clear and stable signals to inform investment decisions by the private sector over the next decade. Effective private sector engagement in NDC delivery requires robust project pipelines and the right enabling conditions to scale up investments, especially for large‑scale NDC-aligned projects. This requires targeted efforts across different fronts, for instance removing obstacles such as lengthy permitting procedures, foreign investment restrictions and restricted access to credit, as well as deploying de-risking mechanisms such as public guarantees, concessional finance and first-loss capital to attract private investment.

4. Strengthen international and national financial and development finance institutions. Governments should equip these institutions with the tools, incentives and expertise to finance NDC implementation. This includes building technical capacity, integrating climate risk into financial regulations, and expanding climate-aligned financial products like green bonds and sustainability‑linked loans. Multilateral Development Banks and international climate funds must also simplify access to climate finance to ensure capital reaches countries in need.

5. Put affected stakeholders at the centre of climate strategies. Early and inclusive stakeholder engagement is crucial to understanding and addressing distributional effects of the transition. These consultations can shape the design of effective, just and equitable transition plans as an integral part of NDC delivery. Inclusive stakeholder engagement processes also help to strengthen public support and social acceptance for accelerated climate action.