World Bank Report Reveals Alarming Climate Investment Gap in Emerging Markets and Developing Economies
The recently published World Bank report reveals a disturbing trend: climate-related investments in emerging markets and developing economies (EMDE) account for less than 5% of banks' portfolios, with over one in four banks not financing climate-related projects at all.
This situation is particularly concerning since banks dominate the financial sector in these regions, unlike in advanced economies. As climate change has significant implications for the economic prospects of EMDE, it is essential that banks increase their role in climate financing.
The report also highlights the underfinancing of climate adaptation, with only 16% of financing dedicated to this area, and a staggering 98% of it coming from public funds or aid. To address these gaps, it is recommended to develop capital markets and insurance in developing countries and improve financial accessibility.
Furthermore, the report notes that 30% of financial sectors in EMDE are exposed to significant risks due to inadequate political and institutional frameworks. Public debt also represents a major vulnerability for some economies, with bank exposure increasing by over 35% between 2012 and 2023.
To improve the situation, the World Bank recommends increasing banks' reserves, strengthening financial safety nets, and establishing robust crisis management and bank resolution mechanisms.
