This report examines the impact of different weighted average cost of capital (WACC) assumptions on decarbonisation pathways for developing economies, highlighting the disproportionate effect of high capital costs between regions. For instance, incorporating regionally-specific WACC values could result in 35% lower green electricity production in Africa than when such factors are ignored. The report also notes policy interventions that could reduce WACC values for both low-carbon and high-carbon technologies. By 2050, this could enable Africa to achieve net-zero emissions roughly 10 years earlier than otherwise.

The report identifies significant barriers in accessing low-cost finance, particularly in developing economies, where finance is critical for the green energy transition. Additionally, there is a lack of empirical evidence on the cost of capital for low-carbon assets, which further hinders access.

The study discusses how enabling environments, including macroeconomic conditions, business confidence, policy uncertainties, and regulatory frameworks, define investment conditions. Developing economies’ underdeveloped capital markets are particularly detrimental for low-carbon projects given their capital-intensive nature compared to traditional fossil fuel assets.

The report suggests that applying Environmental, Social and Governance (ESG) criteria in investment decisions can create links between international private capital markets and developing economies. Furthermore, with more practice approaches, ESG criteria could favour economic activity compatible with net-zero pathways, encouraging low-carbon industries over their carbon-intensive counterparts. Additionally, more support from institutional actors like local governments and international development banks can grow local green bond markets to target low-carbon investment in developing economies, especially if previously marginalized regions are involved. Moreover, public finance and foreign direct investment could also benefit low-carbon projects in developing economies to enhance the local financial markets.

ESG-related issues discussed in this report include public governance, human rights, transparency, and ethical standards that present obstacles to low-carbon investment in developing economies. The report argues that these issues must be addressed in current sustainability practices’ future evolution to facilitate the desired capital allocation.