Developing countries face an investment gap of $2.2 trillion annually for the energy transition, out of a $4 trillion annual funding gap for the Sustainable Development Goals, according to United Nations Conference on Trade and Development (Unctad).
Total funding needs for the energy transition in developing countries are much larger and include investment in power grids, transmission lines, storage, and energy efficiency, Unctad said and called for urgent support to developing countries to enable them to attract significantly more investment for their transition to clean energy.
The UN agency said developing countries need renewable energy investments of about $1.7 trillion annually but attracted foreign direct investment in clean energy worth only $544 billion in 2022.
“A significant increase in investment in sustainable energy systems in developing countries is crucial for the world to reach climate goals by 2030,” Unctad Secretary-General Rebeca Grynspan said.
The report proposes priority actions ranging from financing mechanisms to investment policies to enable developing countries to attract investments to build sustainable energy systems.
The report says the investment gap across all sectors of the Sustainable Development Goals (SDGs) has increased to more than $4 trillion per year from $2.5 trillion in 2015.
The largest gaps are in energy, water and transport infrastructure. The increase is the result of both underinvestment and additional needs.
On financing, the report calls for the de-risking of energy transition investment in developing countries through loans, guarantees, insurance instruments, and equity participation of both the public sector – through public-private partnerships and blended finance – and multilateral development banks.
Also, partnerships between international investors, the public sector, and multilateral financial institutions can significantly reduce the cost of capital for clean energy investment in developing countries.
Unctad also emphasises the need for debt relief to offer developing countries fiscal space to make the investments necessary for the clean energy transition and to help them attract international private investment by lowering country risk ratings.
The report shows that the growth of investment in renewable energy slowed down in 2022, as international project finance deals declined.
Although total international investment in renewables has nearly tripled since 2015, in developing countries the growth rate has exceeded GDP growth only marginally.
The report also finds that energy companies among the top 100 multinationals are divesting fossil fuel assets at a rate of about $15 billion per year.
But a key concern is that private (non-listed) buyers, who include mostly private equity funds, often have lower or no emission-reduction goals and weaker climate reporting standards. This calls for a new model of climate-aligned dealmaking, the report says.
The growing SDG investment gap in developing countries contrasts with positive sustainability trends in global capital markets. The value of the sustainable finance market reached $5.8 trillion in 2022.
Source : Zawya
