The need for Climate Finance in island economies

According to the Economic Vulnerability Index, islands are the most economically vulnerable of all groups of developing countries, especially when it comes to climate change.

In the Caribbean alone, the damage caused by climate-related hazards is estimated at US$12.6 billion per year.

Being at the frontline of climate change impacts, islands need capital to carry out the necessary climate change mitigation and adaptation investments, such as in resilient infrastructure. While available estimates vary, these investments could represent more than $100 billion every year in the Caribbean, equaling one-third of the region’s annual economic output.

Climate finance has evolved rapidly, and an increased reliance on international partnerships, multilateral development banks, and other mechanisms could help address the unique challenges islands face against climate change. New innovative financing instruments are emerging, such as impact finance or blended finance tools, green, social, or sustainability-linked loans or debt instruments, or carbon offsetting mechanisms, all aiming to mobilize the vast amounts of private sector capital currently in search of “sustainable investments”.

Small island economies now find themselves at a pivotal point when investors’ interests and policymakers’ commitments to climate finance align.