London – A new study from Imperial College Business School found that climate risks are increasing the cost of capital for developing countries. Developing countries face debt payments of up to $168 billion over the next ten years as a result of their vulnerability to man-made climate change.
The British researchers found that for every ten dollars these countries pay in interest payments, an additional dollar is due to climate vulnerability. “Climate change is not only imposing economic and social costs on developing countries, but it is also amplifying existing risks,” Dr Charles Donovan, Director of the Centre for Climate Finance and Investment at Imperial College Business School, said.
The British study which was commissioned by UN Environment shows that over the past decade, a sample of developing countries have endured $40 billion in additional interest payments on government debt alone. The researchers estimate that these additional interest costs are set to rise to between $146bn and $168bn over the next decade and could exacerbate the economic challenges already faced by poor countries around the world.
“The good news is that investments in climate adaptation can not only reduce social, ecological and economic harm, but can buffer against fiscal impairments,” Dr Charles Donovan said. “But to be effective, these investments need to be made now.”
Investments in effective climate mitigation and adaptation projects could include planting trees and building dikes for coastal protection in countries such as Bangladesh, Barbados, Cambodia, Fiji, Haiti, Honduras, Sri Lanka and Vietnam.
The research identified several market and policy initiatives that could play a role in reducing the burden. The scientists found that to be effective from a financial perspective, climate adaptation initiatives must accomplish at least one of three imperatives: reduce the total economic costs of the impact of climate change, improve the speed of economic recovery and/or cost-effectively transfer climate-related financial risks.