UNCTAD forecasts fall in cross-border investment in climate change mitigation

Ahead of the crucial United Nations climate change conference COP27 next month, the UN Conference on Trade and Development (UNCTAD) has forecast a decline in cross-border investment in climate change mitigation and adaptation in 2022 amid a global investment downturn.

Citing a bleak outlook for global foreign direct investment (FDI) in 2022, UNCTAD said the number of new investment projects across most industries have declined, 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,” UNCTAD said in a report.

Among mitigation measures, low carbon transport witnessed the steepest decline of 25% while in adaptation actions, water management contracted 19%.

As per the report, mitigation projects accounted for 94% of international climate investments, whereas adaptation ones continued to lag far behind. Most mitigation investments are in renewable energy and, to a lesser extent, in various energy efficiency projects.

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 attracted about 200 projects each

“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,” UNCTAD said.

For now, 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, it added.

However, it warned that 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.

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.