What have loans got to do with climate finance?

Countries in the Global North provide most of their climate finance to countries in the Global South in the form of loans. OECD figures show that in 2021, US$49.6 billion (68%) of public climate finance from countries in the Global North was loaned. Conversely, grants amounted to just US$20.2 billion (28%) in value. These figures follow a long-term trend, whereby loans amounted to more than 70% of public climate finance between 2016 and 2021.

In the context of increasing interest rates, these loans make the cost of tackling climate change even more substantial. A report commissioned by UN Environment found that a country’s vulnerability to climate risks increases the cost of debt repayments: adding US$62 billion of additional interest payments (public and private sector) between 2007 and 2016.

This additional ‘levy’ on their climate vulnerability by both public and private creditors, together with the prevalence of climate finance loans, reduces the Global South’s ability to implement robust climate measures that enhance their resilience to climate change and economic shocks. This is particularly concerning given that the current global climate finance goal of US$100 billion has never been met.

Read the full article by Eurodad's Iolanda Fresnillo and Leia Achampong on Global Dev.