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Closing the Great Development and Climate Financing Divide: Why Private Capital is Crucial
The financing gap for achieving the Sustainable Development Goals (SDGs) in emerging and developing countries has ballooned to $4.2 trillion, up from $2.5 trillion in 2017 ¹. This staggering shortfall is exacerbated by growing needs, the COVID-19 pandemic, and geopolitical fragmentation. To bridge this gap, global leaders emphasize the importance of private sector involvement, in addition to public funds.
Challenges in Attracting Capital
Developing economies face higher costs for renewable energy and sustainable projects due to macroeconomic risks and a high-risk environment. The current high interest rate environment, increasing debt levels, and rising sovereign spreads exert significant pressure on issuers in developing countries ¹. This results in a higher cost of capital for investors and project developers, making renewable energy projects up to three times more expensive than in developed countries.
The Sustainable Development Business Case
Despite these challenges, the 2030 agenda presents significant opportunities for private sector involvement. Adopting zero-emissions technologies could attract new business and generate sustainable economic growth. Investing in adaptation, resilience, and nature solutions could also drive innovation and create high-quality jobs ¹.
Mobilizing Private Capital
To attract private financiers and investors, global leaders agree on three key areas:
- Collaboration Across the Investment Value Chain
Combine various capital providers to create customized capital stacks and de-risking mechanisms
- Prioritizing Opportunities: Strategically deploy public funds to catalyze commercial capital participation and address domestic resource mobilization requirements .
- Enabling Environments: Create economies with a strong vision and clear strategy for achieving the SDGs, such as Egypt's Nexus of Water, Food and Energy programme
By addressing these areas, emerging and developing countries can unlock the capital needed for sustainable development projects and bridge the great development and climate financing divide.
A Call to Action
As the world grapples with the era of "permacrisis," it's imperative to mobilize private capital to support the 2030 agenda. The World Economic Forum's Sustainable Development Impact Meetings and the "Playbook of Solutions" offer valuable guidance on unlocking commercial capital for clean energy in emerging markets ¹. Will global leaders rise to the challenge and close the financing gap?
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