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WEF: Foreign Direct Investment Must Align With Climate Goals. Here’s Everything You Need To Know

First there was globalization. Then came talk of deglobalization. Are we now heading for greenbalization?


“The future of trade is green,” says World Trade Organization (WTO) Director-General: Ngozi Okonjo-Iweala. “Trade can support national and international efforts to keep the ambition of limiting global warming to 1.5°C alive.”

Foreign direct investment must align with climate goals

Developing countries need almost $6 trillion to implement their pre-2030 climate commitments. Foreign direct investment (FDI) has a role to play in meeting these needs – we call this “climate FDI”, meaning investment that is aligned with and supportive of climate goals.


However, climate FDI flows are below their potential in many developing economies. That can be for a range of reasons, potentially 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.


The World Economic Forum’s Guidebook on Facilitating Climate FDI suggests four categories of measures that can help change this.


Supply chains: The social dimension needs more attention

Efforts towards socially sustainable supply chains are not only a moral imperative, but also indispensable for ecological, legal and economic reasons.


While the global electrification of the automobile industry will support the environmental side of sustainability, it will also massively multiply the demand for raw materials, increasing dependency on mining industries with poor human rights records and other environmental issues.


Ensuring social sustainability in these areas not only supports human rights, but also tends to lead to more diversified and more resilient supply chains. Deeper evaluation and transparency when it comes to supply chains also allows companies to make decisions based on a more in-depth factual analysis. However, supply chain due diligence requirements need to be carefully implemented, to avoid these becoming a paperwork exercise with little impact.


What does the green subsidy race mean for trade and the climate?

Green subsidy schemes, such as those rolled out by the US and EU, encourage private-sector climate action, but they also risk leaving developing and emerging economies behind. They could also lead to trade tensions that hurt green technology supply chains.

Local production requirements for batteries and electric cars have been criticized as trade-restrictive practices that violate agreements underpinning the multilateral free-trade system.

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