Investors have trillions to fight climate change. Developing nations get little of it

by | Nov 9, 2022 | Top Stories

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At this year’s U.N. climate conference, a major focus is boosting investment in developing countries. Experts say renewable energy projects like this wind farm in South Africa can be attractive to private investors.

Rodger Bosch/AFP via Getty Images

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Rodger Bosch/AFP via Getty Images

One of the thorniest issues at the United Nations’ annual climate negotiations in Egypt is how to get money to low-income countries to help them cope with climate change. Governments of industrialized countries, whose emissions have largely driven global warming, have pledged help. But public funds alone can’t cover the trillions of dollars developing countries need to deal with rising temperatures. Many private investors see big opportunities to propel — and profit from — the fight against climate change. Yet little of their money is going to poorer nations, which already bear the brunt of extreme weather despite contributing little of the pollution that fuels climate change. “I think there the story is not good. And that’s because most of the big funds — pension funds, asset managers, new tech funds — they invest in advanced economies,” says Bella Tonkonogy, a director at the Climate Policy Initiative, a nonprofit that works with governments and businesses to promote economic growth while addressing climate change. “There’s a lot that needs to be done to make it viable for that kind of big money now being raised to be invested in emerging economies.”

A big barrier to private investment is the perception that risks in developing countries are greater than in industrialized nations. To better manage cross-border challenges like climate change, government leaders say it’s time to overhaul institutions like the World Bank and the International Monetary Fund, which use money from the public sector to attract private investment to emerging economies. But world leaders say it’s also in the private sector’s interest to play a bigger role in helping poorer nations deal with climate change. “I’m not here to tell the private sector to give up caring about profits,” Philip Davis, prime minister of the Bahamas, said at the U.N. climate conference. “I’m here to say that in a world of profound instability, your profits are very much in danger.” World leaders are trying to build a ‘highway’ for climate finance into developing countries Investors in private markets and on public stock exchanges plowed $165 billion into climate technology companies in 2021, according to BloombergNEF, roughly equivalent to the gross domestic product of Algeria. While it’s difficult to track and compare sources of climate funding, that’s vastly more money than developing countries have been getting from private investors. Of the $83.3 billion in climate financing that went to developing nations in 2020, just $13.1 billion was from private sources, according to the latest data from the Organization for Economic Co-operation and Development.
Experts say the bulk of that private funding is being used for things like energy and transport projects that are aimed at reducing emissions in developing countries. That’s because they tend to create more direct revenues for investors than adaptation projects like building flood defenses, which are designed to help countries cope with warming that’s already happening.

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The Bahamas’ Prime Minister Philip Davis warned that climate change threatens corporate profits.

Ahmad Gharabli /AFP via Getty Images

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Ahmad Gharabli /AFP via Getty Images

“The key opportunity area right now for private finance is very much renewable energy,” says Amar Bhattacharya, who is part of an independent group of experts that was convened ahead of COP27 to advise conference leaders on how to increase climate financing. “But there isn’t a kind of ready-made highway, as yet, for the flow of large pri …

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