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- Dialing up climate finance to emerging markets
Emerging market and developing economies (EMDE) are central to achieving the necessary greenhouse gas emission reductions required to meet the Paris Agreement targets. These countries – China and India foremost among them – have been responsible for more than 95% of the increase in greenhouse gas emissions (GHGs) over the past decade[1] and they will also be the source of 98% of world population growth by the end of this decade.[2]
Our Chart of the Week summarizes a recent DWS research report[3] which highlights the significant work that lies ahead when it comes to EMDE attracting climate finance. For example, per capita clean energy investment in EMDE excluding China is less than a tenth of what it is in advanced economies.[4] Also, the 10 highest CO2 emitting countries in EMDE, accounting for two-thirds of total emissions in this group, received just a quarter of total mitigation financing in such countries between 2016 and 2020.[5] As a result, their attempts to mitigate and adapt to climate change have not been progressing as quickly or effectively as they should.
In many emerging markets, clean energy investment per capita has been lagging
* Estimated as of June 2022
Sources: International Energy Agency (IEA) June 2022, World Energy Investment 2022, DWS Investment GmbH as of 5/23/23
However, the election of Ajay Banga as the new World Bank President offers a fresh chance to put climate change at the center of the organization’s lending strategy for middle- and low-income countries.[6] For example, using the balance sheets of multilateral development banks in providing first loss provisions might help to crowd-in private sector capital. In addition, many emerging markets are faced with the need for debt relief, at the same time as trying to address climate change. One solution could be linking renewable energy projects with concessional loans or grants to those countries who need them most.
According to IEA, annual investments in energy infrastructure of EMDE (excluding China) alone would have to amount to at least US$1 trillion by 2030, in order to mitigate the effects of climate change and reduce greenhouse gas emissions.[7]
To sum up, reforms at the World Bank have the potential to put the issue of climate finance to emerging markets at the top of the agenda. That would better align organization’s lending strategy with the growing net zero commitments among developing countries. It could also help boost private sector climate financing which has become a key metric for measuring climate progress.
