The 8th World Investment Forum taking place in Abu Dhabi 16-20 October brings together governments, global institutions, investors, stock exchanges, investment promotion agencies and sovereign wealth funds to discuss the challenges of financing global sustainable development and the energy transition.
The United Nations Conference on Trade and Development (UNCTAD) issued a compelling call at the 8th World Investment Forum, urging increased efforts to channel net-zero finance towards developing economies. The call emphasizes the crucial need for capital in these countries, where significant opportunities for growth lie.
UNCTAD Secretary-General Rebeca Grynspan said the energy transition, a critical element in addressing climate change, requires substantial investment. “The investment needs are much higher in developing than in developed economies, relative to their existing asset bases,” she said.
To limit global warming to 1.5° Celsius above pre-industrial levels, the world needs investment equivalent to one and a half times today's global GDP by 2050.
Foreign direct investment critical to energy transition
Foreign direct investment (FDI) will be key to this transition, especially in the renewable energy sector. International project finance constitutes 55% of total project finance values, rising to over 75% in the least developed countries (LDCs). However, the high cost of capital, particularly in countries facing debt distress, poses a significant hurdle.
Africa, burdened by interest rates four to eight times higher than developed countries, struggles to attract the necessary investment. Despite receiving only 3.5% of global FDI, and even less in renewable energy investment, 31 developing countries, including 11 LDCs, haven’t registered a single utility-scale power-plant-sized international investment project in the energy transition sector since the Paris Agreement in 2015.
Small island developing states are particularly affected, attracting only 0.6% of global FDI in 2022, concentrated in a handful of countries. Structural impediments, including logistical challenges, modest market size, elevated risk ratings, and vulnerability to natural disasters, contribute to this disparity.
International investors have a vital role
UNCTAD underscores the role of international investors in providing more affordable finance to reduce the cost of capital for projects. On average, bringing in international investors lowers the spread on debt finance by 8% in developing countries. Collaboration with multilateral development banks and government stakes in public-private partnerships can further decrease the spread by 40%.
UNCTAD emphasizes the need for collaboration among parliamentarians, policymakers and business leaders for a nuanced and collaborative approach to address the challenges of the sweeping global economic transformation that a transition to a net-zero economy will require.
The International Organization of Securities Commissions, International Finance Corporation (World Bank Group), International Financial Reporting Standards and the UN Supported Principles for Sustainable Investment highlighted that clear frameworks and transparent sustainability reporting are prerequisites for sustainable finance and investment.
UNCTAD is committed to supporting investors and financial markets to embed sustainability in their investments, improve disclosure and transparency, and commit to sustainable investment, especially in developing economies.
COP28: Global dialogue on investment
Key players, including the UN Framework Convention on Climate Change and the International Renewable Energy Agency participated in the COP28 Global Dialogue and Investment event, highlighting the insufficient current level of investment in climate finance.
Experts from investment promotion agencies, investment funds and sustainable investment experts contributed to the broader climate finance and investment track of the World Investment Forum, generating insights and policy ideas for discussions at COP28.