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Climate-related risks can have an impact on the cost of capital paid by vulnerable developing countries

Vulnerability to climate change does have a cost and it is starting to show.

Monday 07 December 2020, Lucy Nickoll

While awareness of climate-risks among investors is growing rapidly, there is little evidence that investors have, to date, avoided geographies with perceived but unknown climate risks. This is good news for now, although awareness is not the same as active management.

FCDO commissioned the study Understanding the Role of Climate Risk Transparency on Capital Pricing for Developing Countries to assess if (and how) climate risks were impacting investor behaviour and cost of capital for developing countries.

In particular, FCDO was interested in understanding whether existing disclosures practices or greater knowledge of climate-related risks influence investor behaviour, and if so what policy makers could do to ensure that climate risks did not have an impact on the cost of capital for developing countries.

Given the potential challenges that may arise for developing countries from changes in the cost of capital from climate change, the findings of this study are in support of policy recommendations included in the Policy Brief entitled Understanding the Role of Climate Risk Transparency on Capital Pricing for Developing Countries, and are focused specifically to achieve two specific outcomes that require support by donors and developed country partners and that complement other ongoing international efforts.

Read the full findings below:

Full report

Policy Brief

Annexes of the Findings Report and Key Messages from this research are available upon request. For any request please contact info@climate-fa.com.

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