‘Climate FDI stands at the forefront of the battle against climate change’ Ismail Ersahin, Executive Director, CEO, World Association of Investment Promotion Agencies (WAIPA)
Foreign direct investment (FDI) aligned with climate goals is key to supporting developing countries in their climate adaptation and mitigation efforts.
But climate FDI flows remain below their potential so the World Economic Forum has developed a guidebook to help facilitate such investments.
Here we ask thought leaders in the field why climate FDI is so important and how it can be invaluable in tackling the impact of global warming.
It is well known that large volumes of climate finance are urgently needed. At last year’s United Nations climate gathering – COP27 – governments recognized that investments of $4-6 trillion are needed per year for a global transformation to a low-carbon economy.
Developing countries, meanwhile, require about $5.8-5.9 trillion to implement their pre-2030 climate commitments. Many now also face growing climate impacts and must raise adaptation funds.
Foreign direct investment (FDI) has a role to play in meeting these needs – we call this “climate FDI” or in other words, investment that is aligned with and supportive of climate goals.
However, climate FDI flows currently remain below their potential in many developing economies. That can be for a range of reasons, either linked to investor concerns unrelated to climate, or sector-specific where projects are capital intensive or offer long-time horizons for a return on investment, among other reasons. Furthermore, FDI does not necessarily bring climate or other benefits, which is why specific policies and measures may be needed.