Addressing Global Climate Finance Challenge: A Call to Action

By Faridat Salifu

Emerging-market and developing economies (EMDEs) face a daunting challenge in securing the necessary funds to combat climate change and achieve sustainable development goals.

According to the Independent High-Level Expert Group on Climate Finance, developing countries will require an estimated $2.4 trillion annually for climate-related investments, with $1 trillion sourced externally.

And to meet United Nations Sustainable Development Goals (SDGs), an additional $3.5 trillion in investments annually by 2030 will be necessary.

However, raising trillions of dollars in external finance presents significant obstacles, particularly amidst a growing global debt crisis.

Recent data analysis by the Boston University Global Development Policy Center reveals that over half of EMDEs, which is about 62 countries are already at high risk of debt distress.

An additional 33 countries, the report noted, face severe constraints in accessing capital markets due to economic challenges exacerbated by the COVID-19 pandemic, advanced-economy interest-rate hikes, and credit ratings below investment-grade.

With this, majority of EMDEs are in critical need of financing to address climate change and development objectives.

Of the 95 countries facing debt distress or high borrowing costs, 83 require increased investments in climate-change mitigation or adaptation, while 73 have significant potential for expanding national protected areas, the report further stated.

A key issue lies in the fact that investments in climate resilience and conservation often do not yield immediate economic growth but instead offer long-term benefits.

Thus these investments can enhance a nation’s ability to withstand extreme weather events and reduce the likelihood of future crises, including debt crises.

To break the cycle of environmental and economic challenges and foster sustainable growth, nations must act decisively. This necessitates lowering barriers to new finance through targeted debt relief and innovative financing mechanisms.

This can be achieved through the establishment of an ambitious debt-relief initiative, ensuring the active participation of all creditors.

Additionally, major creditors must explore avenues to reduce the cost of capital for climate-focused investments, such as Sustainable Future Bonds, which offer longer repayment terms and lower interest rates.

Multilateral development banks (MDBs) also have a crucial role in facilitating easier access to capital for EMDEs. Measures such as raising concessional lending thresholds, capital increases, and risk-sharing initiatives with governments and the private sector can enhance financial accessibility.

Addressing the urgent challenge of climate finance requires concerted action and political will. The combination of targeted debt relief, credit enhancements, and MDB reform offers a viable path forward.

Failure to act swiftly will result in dire consequences.