International Capital Markets as a Means of Financing Climate Action: Smooth Sailing or Stormy Waters?

While capital markets hold great potential for mobilising the vast sums required for climate mitigation and adaptation, their volatility presents significant risks to emerging and developing economies (EMDEs). This study examines the role that international capital markets can play in financing climate action in EMDEs as well as the risks associated with this and how these are further compounded by climate change. The study also proposes an action plan consisting of four complementary policy areas to improve and secure EMDEs’ sustainable access to international capital markets at sustainable interest rates. These are: (i) adopting measures to lower the cost of capital and mitigate risk for issuers and creditors; (ii) using multilateral facilities as intermediaries to raise cheap(er) capital for EMDEs; (iii) establishing an international sovereign debt restructuring mechanism to quickly resolve debt sustainability problems; and (iv) strengthening domestic financial resource mobilisation to reduce dependency on foreign capital.