Developing countries face $4 trillion funding gap in SDGs

Geneva: Developing countries face an investment gap of $2 trillion annually for the energy transition, out of a $4 trillion annual funding gap for the Sustainable Development Goals.

As per the UNCTAD’s World Investment Report 2023, the developing countries need renewable energy investments of about $1.7 trillion annually but attracted foreign direct investment in clean energy worth only $544 billion in 2022.

In view of the funding gap, UNCTAD) called for urgent support to developing countries to enable them to attract significantly more investment for their transition to clean energy.

UNCTAD Secretary-General Rebeca Grynspan said: “A significant increase in investment in sustainable energy systems in developing countries is crucial for the world to reach climate goals by 2030.”

While investment in renewables has nearly tripled since the adoption of the Paris Agreement almost eight years ago, poorer nations have been largely left out.

“Total funding needs for the energy transition in developing countries are much larger and include investment in power grids, transmission lines, storage and energy efficiency,” the report said.

On financing, the report called for the de-risking of energy transition investment in developing countries through loans, guarantees, insurance instruments and equity participation of both the public sector – through public-private partnerships.

The report showed that the growth of investment in renewable energy slowed down in 2022, as international project finance deals declined.

“Although total international investment in renewables has nearly tripled since 2015, in developing countries the growth rate has exceeded GDP growth only marginally” it said.

The report also finds that energy companies among the top 100 multinationals are divesting fossil fuel assets at a rate of about $15 billion per year.

The report says the investment gap across all sectors of the Sustainable Development Goals (SDGs) has increased to more than $4 trillion per year from $2.5 trillion in 2015.

“The largest gaps are in energy, water and transport infrastructure. The increase is the result of both underinvestment and additional needs” it warned.

On the foreign direct investment (FDI) it said te FDI declined by 12% in 2022, to $1.3 trillion, after a strong rebound in 2021 following the steep drop induced by COVID-19 in 2020.

“The slowdown was driven by overlapping crises: the war in Ukraine, high food and energy prices and debt pressures,” it said.

The fall in FDI flows was mostly caused by financial transactions of multinational enterprises in developed economies, where FDI fell by 37% to $378 billion.

FDI flows to developed economies declined and developing countries accounted for two thirds of global FDI in 2022, with Latin America and the Caribbean experiencing a significant increase.

FDI inflows in least developed countries fell by 16%, while the FDI inflows in developing countries in Asia were flat at $662 billion but still accounted for more than half of global FDI.

“Flows to Latin America and the Caribbean increased by 51%, reaching $208 billion, the highest level ever recorded,” the report said.