FDI in climate mitigation to decline in 2022: UNCTAD

The global investment downturn may see cross-border investment in climate change mitigation and adaptation decline in 2022, says a new report published by the UN Conference on Trade and Development (UNCTAD).

Citing a bleak outlook for global foreign direct investment (FDI) in 2022, the report released in the lead-up to the UN climate change conference COP27 shows the number of new investment projects falling across most industries, notably those tackling climate change.

Between January and September 2022, climate mitigation and adaptation sectors had, respectively, 7% and 12% fewer new projects announced, in stark contrast to the previous year’s strong acceleration. Mitigation projects accounted for 94% of international climate investments, whereas adaptation ones continued to lag far behind, the report said.

Most mitigation investments are in renewable energy and, to a lesser extent, in various energy efficiency projects, it added.

The developed economies accounted for two thirds of international project finance deals and greenfield investments in renewables. While Europe alone accounted for more than half of renewables’ projects, with more than 700 in the first three quarters of 2022, North America and developing Asia (which includes India) attracted about 200 projects each, the report said. Latin America and the Caribbean and Africa had about 150 and 100, respectively.

“The shift from fossil-fuel to green investments to support the energy transition risks a setback, due to the loss of momentum in renewables and high oil and gas prices,” the report says.

According to UNCTAD analysis, the downward trend in investment is also affecting extractive industries and fossil-fuel-based energy generation, where project numbers dipped by about 16% in the first three quarters of 2022. However, high profits of multinationals in these sectors, combined with the current energy crisis, could lead to a renewed push for investments in fossil-fuel based energy, whose production exacerbates climate change, the report warns. An early indication of that is the value of cross-border mergers and acquisitions in the extractive industry, which rose six fold between January and September 2022, it said.

An UNCTAD report published on 20 October had shown that FDI flows in the second quarter of 2022 reached an estimated $357 billion, a 31% decrease from the first three months and 7% less than the quarterly average of 2021.

“The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates and fears of a coming recession,” the report said.