For EMDEs and LDCs, the decarbonization of buildings presents unique challenges and opportunities, because these countries often face significant financial and technological barriers, as well as difficulties around the implementation of rules – such as lack of stringent building codes and energy performance standards – which complicate efforts to improve building efficiency. Public awareness campaigns and educational initiatives focused on the economic benefits of energy conservation at the household level can help shift consumer behaviour towards the adoption of energy-efficient appliances, renewable heating technologies and the use of smart technologies for energy use management. Addressing the unique needs of EMDEs also requires a focus on equitable solutions that consider the socio-economic realities of these regions. The support of MDBs and other international institutions is crucial for overcoming the initial cost barriers associated with energy-efficient technologies and renewable energy integration. For example, MDBs can provide long-term technical assistance to help local governments develop and implement robust building codes and standards, as well as assist in the design of financial instruments that attract private investment into the building sector. These can involve the funding of departments of technical experts working with and within relevant governmental departments and non-governmental entities. Industrial sector Decarbonizing the industrial sector requires between ~$320 and ~$540 billion annually through to 2050.68,69 Finance is essential for deploying cutting-edge technologies and optimizing industrial processes, especially in “hard-to-abate” industries – such as aluminium, aviation, cement and concrete, chemicals, shipping, steel and trucking – that require tailored approaches.70 These industries are significant contributors to global GHG emissions and implementing innovative solutions such as carbon capture, utilization and storage (CCUS), green hydrogen and enhanced energy efficiency measures are crucial to decarbonizing industrial processes.71 The World Resources Institute highlights critical strategies for these transitions, including reducing demand for high-emission materials such as steel and cement, electrifying industrial processes and minimizing methane emissions from the oil and gas sector.72 Meanwhile, the World Economic Forum’s First Movers Coalition is leading the way in setting targets and highlighting breakthrough technologies to decarbonize these sectors. In countries where financial systems are less developed and investment risks are perceived as being higher, blended finance is emerging as a crucial tool for mobilizing the necessary capital for industrial decarbonization.73 As a hybrid instrument that leverages public funds to attract private investment, blended finance typically works by offering de-risking mechanisms such as political risk insurance, guarantees from MDBs, concessional loans and strong regulatory frameworks that ensure stability and transparency.74 These measures are essential in mitigating risks associated with investing in nascent technologies and infrastructure required for a low-carbon transition. Additionally, creating an enabling environment through policy frameworks that include carbon pricing, energy efficiency standards and renewable energy mandates is important for guiding consumers and other economic agents towards sustainable practices.75 These policies not only incentivize the adoption of low-carbon technologies but also provide a predictable and supportive regulatory landscape that encourages long-term investment.76 Potential breakthrough technologies – such as CCUS and green hydrogen – can play a pivotal role in reducing emissions in hard-to-abate industries, despite being economically unfeasible and challenging to implement in other contexts. CCUS technology can capture up to 90% of CO2 emissions from industrial sources, while green hydrogen, produced using renewable energy, offers a viable alternative to fossil fuels in high-temperature industrial processes.77 The UK government is investing in CCUS to capture and sequestrate emissions from industrial processes such as hydrogen production and energy generation from natural gas and biomass. However, despite their potential, commercializing these technologies is difficult because of high upfront capital costs, technological immaturity and financing gaps.78 The UK government’s approach to CCUS is instructive: following an initial investment of $28.5 billion, the government expects to attract around $10.5 billion in additional investment from the private sector. The challenges are even more pronounced in EMDEs and LDCs, where infrastructure, capacity development and public funding are often lacking. Overcoming these hurdles requires a multi-faceted approach involving substantial financial investments, robust policy support, international cooperation and innovation in technology and business models.79,80 Agriculture, forestry and other land use The agriculture, forestry and other land use (AFOLU) sector is a significant contributor to global GHG emissions, accounting for around 22% of total global emissions.81 This sector is critical to both emissions reduction and carbon sequestration efforts. AFOLU has substantial potential for mitigating climate change, particularly through practices such as reforestation, afforestation and improved land management strategies that can enhance forests and soils’ capacity to absorb CO2 and act as critical carbon sinks. Decarbonizing the industrial sector requires between ~$320 and ~$540 billion annually from 2021 to 2050. Bridging the Gap: How to Finance the Net-Zero Transition 11

Bridging the Gap How to Finance the Net Zero Transition 2025