In writing the report's Preface, António Guterres, Secretary-General of the United Nations, explains that the report "has an important role in the biggest battle of our lifetime: keeping temperature increases below the agreed limit of 1.5°C. By monitoring global, regional and national investment trends and developments, this report supports policymakers by showing where investment is on track, and where more is needed. The report's recommendations are an important guide to boosting climate finance and investment in developing countries – one of the most important factors in combating the climate crisis."
The report presents three key messages:
Global FDI retreats, but new project announcements show bright spots
The report also notes that "Industry trends showed increasing project numbers in infrastructure and industries that face supply chain restructuring pressures, including the electronics, automotive and machinery industries. Three of the five largest investment projects were announced in semiconductors, in response to global chip shortages. Investment in digital economy sectors slowed after the boom in 2020 and 2021."
In addition, "Investment project numbers in energy remained stable, allaying, for now, fears of a reversal of the downward trend in fossil fuel investment due to the energy crisis. Oil majors are gradually selling fossil fuel assets to private equity firms and smaller operators with lower disclosure requirements, which calls for new dealmaking models to ensure responsible asset management."
The SDG investment gap widens despite the growth of sustainable finance
Moreover, "A review of investment needs at the midpoint of the 2030 Agenda for Sustainable Development shows that the investment gap across all SDG sectors has increased from $2.5 trillion in 2015 to more than $4 trillion per year today. The largest gaps are in energy, water and transport infrastructure. The increase is the result of both underinvestment and additional needs."
The report also explains that "The growing SDG investment gap in developing countries contrasts with positive sustainability trends in global capital markets. The value of the sustainable finance market reached $5.8 trillion in 2022. Sustainable funds had positive net inflows while traditional funds experienced net outflows. Sustainable bond issuance also continues; it has grown five-fold over the past five years. Key priorities for the market are increasing exposure to developing countries and addressing greenwashing concerns."
Developing countries need vastly more support to attract energy investment
The report also importantly says "Most developing countries have set targets for the energy transition in nationally determined contributions. Only about one third of them have translated those targets into investment requirements, and few have developed the asset specifications that are needed to design targeted promotion mechanisms and to market bankable projects. As a result, many developing countries use generic fiscal and financial incentive mechanisms that are less effective for the promotion of energy transition investment."
Lastly on the topic of developing countries needing more support to attract energy investments, I strongly support UNCTAD's assertion that "De-risking support to lower the cost of capital for energy transition investment in developing countries must be vastly expanded. More technical assistance should be available for investment planning and project preparation. International investment agreements need accelerated reform to expand policy space for climate action and to strengthen investment promotion and facilitation provisions." Through this report, the Swiss-based agency of the United Nations, which promotes inclusive and sustainable development through trade, investment, finance, and technology, puts forward a Global Action Compac for Investment in Sustainable Energy for All with recommendations for national and international investment policies, global and regional partnerships, financing mechanisms and capital market involvement.
Writing the Forward, Rebeca Grynspan, Secretary-General of UNCTAD, insightfully notes that "Armed with the data and insights this report offers, it is imperative that stakeholders approach investment with a strategic mindset. The complexities and disparities highlighted demand astute decision-making, as the road ahead is fraught with challenges. Together we must navigate this landscape with resolve and intelligence, shaping a more sustainable and equitable world for generations to come."
What are your recommendations for developing countries can attract investment to bolster their clean energy sector?
Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.