The 2018 report of the Intergovernmental Panel on Climate Change on limiting global warming to 1.5 °C highlights the importance of access to capital for reaching this target. As directly or indirectly government-owned and -controlled investment vehicles with a an intrinsically long-term perspective, sovereign wealth funds have an self-interest in preventing climate change and its long-term impacts on the world economy and their broader portfolios. Other investors may choose to look upon climate change as an externality as long as they are not forced to take it into account. By contrast, sovereign wealth funds are perhaps the investor class for whom it makes most sense to internalize the consequences of climate change, as their long-term investment horizon makes them directly vulnerable to its consequences. Nonetheless, the number of sovereign wealth funds that engage in such investments and the proportion of their capital that is directed towards green financing remains small. This chapter discusses the operational aspects that make sovereign wealth funds good candidates of public green financing and the limitations that they face in this process. The discussion concludes with useful policy and governance considerations.
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