A green future will remain out of reach if the world doesn’t help developing countries close a $2 trillion gap in investment towards an energy transition, the UN Conference on Trade and Development (UNCTAD) warned on Wednesday.
According to a new UNCTAD report, developing countries actually face a staggering $4 trillion gap in sustainable development investments.
UNCTAD Secretary-General Rebeca Grynspan said that a “significant increase” in material support for renewable energy in developing countries is “crucial” for the world to reach its climate goals by 2030.
Poorer countries left behind
While investment in renewables has nearly tripled since the adoption of the Paris Agreement almost eight years ago, poorer nations have been largely left out.
Ms. Grynspan said that more than 30 developing countries have not registered a single international investment in utility-size renewable energy generation since the landmark climate change treaty was adopted in 2015.
According to UNCTAD, the amount of foreign direct investment in clean energy attracted by developing countries in 2022 stood at $544 billion – well below needs.
Slowdown in SDG financing
Some good news from the report is that energy companies among the top 100 multinationals have been increasingly turning towards renewables and divesting fossil fuel assets at a rate of about $15 billion per year.
However, the report also shows an overall slower pace of investment in renewable energy in 2022, “as international project finance deals declined”.
In developing countries, the largest gaps in Sustainable Development Goal (SDGs)-related investments were in energy, water and transport infrastructure, UNCTAD said.
Challenges to foreign direct investment
“Developing countries face an investment gap of $2.2 trillion annually for the energy transition. This is more or less half of the funding gap for the #SDGs.”@RGrynspan briefed the press in Geneva on the latest @UNCTAD report #WIR2023⬇️
Full report: https://t.co/OStxy6eC6T pic.twitter.com/j8ghJQgt96
— United Nations Geneva (@UNGeneva) July 5, 2023
Foreign direct investment (FDI) is also on the decline, according to UNCTAD, as global flows fell by 22 per cent in 2022, to $1.3 trillion. In Least Developed Countries, the vast majority of which are in Africa, FDI inflows dropped by as much as 16 per cent.
UNCTAD’s report says that the slowdown was driven by “overlapping crises”: the war in Ukraine, high food and energy prices and debt pressures.
With these factors still in play during 2023, the agency said that it expects “downward pressure on global FDI” to continue this year.
New ‘compact’ for investment
The report calls for a series of policies and financing mechanisms to be put in place to help developing countries attract the necessary investments.
UNCTAD stressed the importance of debt relief for developing economies, to provide them with the fiscal space needed for clean energy spending and to help lower country risk ratings, a prerequisite for attracting private investment.
The agency also recommended reducing the cost of capital for clean energy investment through partnerships between international investors, the public sector and multilateral financial institutions – a measure that can reduce the spread on borrowing costs for energy investment projects in developing countries by up to 40 per cent.
‘The only show in town’
Ms. Grynspan insisted that investment played a “huge part” in achieving the SDGs.
She said they were simply “too big to fail”, calling them “the only game in town” which requires collective action and global solidarity.