FMI: "Most investments to combat climate change must come from the private sector"

Most of the $2 trillion in annual investment to combat climate change in developing countries needed by 2030 will have to come from the private sector, says an International Monetary Fund (IMF) report, which warns that governments risk high debts if they try to reach climate goals with public funds, reports Reuters.

Climate finance will be one of the dominant topics at the annual meetings of the IMF and the World Bank (WB) taking place next week in Morocco, and two chapters of the upcoming Global Financial Stability and Fiscal Monitoring Report (GFSR) refer to the need to to prepare the necessary measures for private investors to assume the burden.

Already, the finances of governments in developing countries and emerging economies are affected by the effects of the pandemic, the war in Ukraine, drought and natural disasters, notes Agerpres.

Of the $5 trillion annual global investment required by 2030 to meet net zero emissions goals, $2 trillion will need to be made by developing countries and emerging economies.

The IMF report estimates that the private sector will have to provide 80% of these investments. Excluding China, this share reaches 90%, taking into account Beijing's extensive state resources.

Relying on public spending to finance decarbonisation investments would lead to massive debt, possibly as much as 45%-50% of GDP for many high-emitting emerging economies, the IMF warns.

"We predict that the increase in public investment will, however, be limited, and therefore the private sector will have to make a major contribution to achieve the massive investments to combat climate change in developing countries and emerging economies," the report states. .

While investment funds dedicated to environment, people and governance (ESG) are growing, funds dedicated to climate impact, including phasing out sources with high emissions, are high. Regulatory authorities need to tighten ESG regulations to better align them with climate goals, says the IMF.

The institution also recommends that countries take measures to improve their investments to combat climate change by strengthening macroeconomic fundamentals and expanding domestic capital markets, in order to improve credit ratings.