Key Issues

Cost of Capital Challenges

In the last ten years, climate vulnerability has cost V20 countries an additional US$62 billion in interest payments alone, including US$40 billion in additional interest payments on government debt, according to the Climate Change and the Cost of Capital in Developing Countries report of the UN Environment Programme. Future interest payments due to climate vulnerability are projected to increase to US$168 billion over the next decade. These payments are separate from economic losses directly suffered from climate change, which compound the issue by reducing countries’ ability to invest in climate change mitigation and adaptation measures.

New Investment Needs

Financial capacity constraints including high cost of capital from international capital which negatively affects the project economics of investments with high upfront costs.

Financial Protection Gap

There is a 98% prevailing financial protection access gap for climate and disaster risks and in particular, for micro, small and medium-sized enterprises (MSMEs) which account for 29% of GDP and employ 78% of workforce in vulnerable economies.

Just Transition

There is a lack of integration between the transition to climate resilient, low-carbon economies and ensuring that no workers are left through adequate and responsive wage-replacement support and worker re-skilling and employment programs.

Public Finances and Fiscal Practices

There are widespread distortionary subsidies and taxation practices that support economic activity counteractive to climate prosperity. There is also a lack of tracking of public climate-related expenditure to fully monitor and highlight the extent of growing public spending needs in response to physical climate and transition risk.

Lack of Recognition of Renewable Energy Wealth and Energy Efficiency for Economic Gains

By progressively shifting reliance away from costly, price-volatile imported fossil fuels, economies benefit from reducing external inflationary pressures, improving the balance of trade, and resilience to global and regional price shocks, and other supply/demand shocks. Despite these gains, according to the IMF, 5 trillion US dollars each year are spent globally on fossil fuel subsidies, which is more than 20 times the level of support to renewable energy. Notwithstanding renewable energy’s ability to end off-grid energy poverty and the improvement of energy affordability, over 350 million people still lack access to energy in climate vulnerable economies.