Targeted co-financing could enable a just transition in emerging markets and developing economies, where vulnerable communities are most at risk from the shift away from fossil fuels, according to the Institute for Energy Economics and Financial Analysis (IEEFA), a research group focused on sustainable energy and financial analysis.
According to the report, just transition strategies must be aligned with national decarbonisation goals, net-zero targets and nationally determined contributions, while also responding to local development priorities. Achieving a fair transition requires both large-scale infrastructure investment and specific financial support for communities, small businesses and workers, it added.
“Combining climate action with social equity can facilitate the energy transition in emerging markets and developing economies without disrupting sectors that rely solely on fossil fuels,” commented co-author Shantanu Srivastava, IEEFA’s research lead, sustainable finance and climate risk. “A just transition aims to manage this change fairly by protecting affected workers and communities, creating opportunities for economic growth and ensuring the benefits of the transition are shared widely,” Srivastava added.
While large companies in the fossil fuel sector may adapt due to greater access to capital, the report warned that local communities dependent on these operations face the greatest disruption. To address this, the researchers recommended a “co-investment” approach—linking capital for renewable energy and climate infrastructure with concessional or grant-based funding for socially oriented activities.
“Just transition activities encompass a mix of hard energy transition assets, such as renewable energy, climate smart agriculture, and climate-resilient infrastructure, and ‘softer’ just transition aspects like responsible coal asset closures, stakeholder capacity building, labour reskilling, support for micro, small and medium enterprises and community resilience,” said co-author Soni Tiwari, energy finance analyst at IEEFA.
Case studies from India, South Africa, the Philippines and Ethiopia underscore the effectiveness of early-stage planning, blended finance and institutional coordination. The Philippines’ Accelerating Coal Transition investment plan, for instance, secured grant commitments early on to fund just transition elements, which later helped attract further capital for fossil fuel asset closures. South Africa’s Just Energy Transition Investment Plan also shows how strong governance and funding platforms can link investors with impactful projects, the researchers highlighted.
In India, targeted programmes for MSMEs and initiatives like Zero-Budget Natural Farming show how coordinated, small-scale investments in skills and resilience can create scalable, low-carbon business models. In Ethiopia, UN Green Climate Fund support for a rural water programme shows the value of grants and local empowerment in fragile contexts.
“With fiscal pressures mounting and fossil fuel revenues expected to decline, emerging markets and developing economies governments should look beyond their own budgets to a diverse set of capital providers, including multilateral development agencies, private investors, development banks and philanthropies,” Tiwari said.
“The financing challenge is not only about scale, but also about targeting suitable forms of capital for the right activities based on their risk-return profiles and developmental impact,” Srivastava added.
