Climate-vulnerable countries spend nearly 25 times more on debt than on climate action

Debt is blocking climate action. Breaking the debt trap is one of the most powerful and achievable solutions within reach.

New report ActionAid’s new flagship report, Debt fuels the Climate Crisis: How the Finance Flows finds that the most climate-vulnerable countries are spending nearly 25 times more on debt repayments than on climate action, while debt servicing absorbs 65% of their combined government revenue.
The Global South is paying approximately 225 times more in debt repayments than it receives in grant-based climate finance. This equals US$8.8 trillion in repayments in 2026 compared with the latest figure of US$39 billion in climate grants in 2024.
93.5% of the most climate-vulnerable countries are in, or at significant risk of, debt distress.
Debt cancellation in climate-vulnerable countries could fund their basic, unconditional national climate plans six times over. Or cover current climate, health, education and social-protection spending combined, twice over.

Debt fuels the Climate Crisis

ActionAid’s new flagship report, Debt fuels the Climate Crisis: How the Finance Flows, reveals the scale at which sovereign debt is draining resources from countries on the front lines of the climate crisis. This is leaving communities dangerously exposed to worsening floods, droughts, heat and hunger.

The report analyses public revenues, debt repayments, national budgets and climate plans across the 65 most climate-vulnerable countries. It concludes that debt and climate are locked in a vicious cycle, but one that can be broken through debt cancellation, grant-based climate finance, and a fairer international debt system.

Karol Balfe, CEO of ActionAid Ireland, said: “Debt is a triple whammy for the climate. It drives fossil fuel and industrial agriculture expansion, blocks vital climate action, and leaves communities dangerously exposed when disasters strike.”

“This is a toxic relationship. Countries borrow to rebuild, austerity weakens their resilience, and repayment pressures push more extraction, fuelling the next disaster. We need a break-up. Cancel unjust and unsustainable debt, stop making countries borrow to survive climate impacts, and deliver climate finance as grants rather than loans. This vicious cycle can and must be broken.”

“For too long, the debt and climate crises have been treated separately. This research exposes how tightly they are connected and quantifies the devastating cost involved. Yet this is a crisis we can fix. Action on debt can unlock countries’ own resources on a scale that few other climate measures can match. This could protect lives now while creating space for a safer and fairer future.”

Impossible Choices

“Behind these figures are impossible choices between servicing debt and investing in agroecology, public services and climate resilience. Women and girls who bear the brunt of climate impacts are then disproportionately affected by cuts in public services even as they lead solutions for a more resilient future.”

“Ireland must use its role as President of the EU Council to persuade European countries to push for debt cancellation for climate vulnerable countries. Action on debt could be one of the highest impact and achievable climate solutions available.”

Climate loans rather than grants

Two-thirds of what rich countries label climate finance arrives as loans rather than grants. Much of it at high commercial interest rates. This creates an illusion of support while pushing recipient countries further into debt.

Teresa Anderson, Global Lead on Climate Justice at ActionAid International and one of the report’s authors, says: “This report identifies a vicious cycle. Climate disasters force countries to take new loans to recover. But debt repayments and austerity then squeeze investment in response, resilience, essential public services and a just transition. To earn the foreign currency demanded by lenders, governments also face pressure to expand fossil fuel extraction and industrial agriculture, driving more emissions, ecological damage and climate disasters – and still more debt. “

Debt drains resources away from solutions

The report also provides examples of how debt drains resources away from climate solutions. In Senegal, debt servicing in 2026 is more than 600 times the country’s budgeted spending on climate action. This exceeds 96% of government revenue. It shows that high debt levels are delaying investment in agroecology, a people-led solution that can strengthen food security, livelihoods and climate resilience.

Khaita Sylla, Country Director of ActionAid Senegal, says, “In Senegal, the red flags could not be clearer. Debt repayments consume more than 96% of government revenue. For every US$1 allocated to climate action, the country is spending US$605 on debt servicing .”

How governments can act

On the report, ActionAid and its allies are calling for governments and international institutions to:

Cancel unpayable or unjust debt for countries spending more than 10% of their revenues on external debt repayments.
Agree a universal rule to suspend debt payments for any country hit by a climate disaster, applying to all creditors, not only those who volunteer.
Create a UN Framework Convention on Sovereign Debt that gives indebted countries an equal voice and establishes a fair multilateral debt-resolution mechanism.
Legislate in London and New York to require private creditors to take part meaningfully in debt restructuring. Around 90% of sovereign bond contracts are governed by UK law.
Regulate existing Credit Rating Agencies to remove conflicts of interest and bias. Establish regional and public credit rating agencies or a multilateral credit rating agency.
Ensure that climate finance comes in the form of grants. Not loans or any other debt-creating financial instruments. And that finance is sufficient to meet the scale of the climate crisis.
Reform debt-sustainability assessments. To ensure that that climate responses, public services and human rights are central to decisions about what countries can afford to repay.
Conduct public debt and climate audits in countries facing debt crises to examine how domestic and external debt deepen climate impacts, poverty and exclusion – particularly for women and girls – and identify actions to break the cycle.

Read the full report here.

Protestors at COP 28 in Dubai. Photo: Konrad Skotnicki.

Belfast Climate Change March, 2019. Photo: Trócaire.

The Profit Driving the Crisis

Despite their overwhelming contribution to global emissions, fossil fuel companies continue to attract significant financial backing—driven by their enduring profitability. This is starkly illustrated by the case of ExxonMobil, the top fossil fuel investment held by asset managers based in Ireland. In 2023, ExxonMobil reported €33.63 billion ($36 billion) in profit. That is almost twice the GDP of Botswana (€18.1 billion) and nearly three times Namibia’s GDP (€11.5 billion).

Ireland plays a hugely disproportionate role in facilitating investments into fossil fuel companies like ExxonMobil. In 2023, the investments made into fossil fuel companies by investment managers based in Ireland generated an estimated 72.5 million tons of CO2e. This is more than the CO2e emissions for the entire country of Ireland—and more than ten times that generated by Sierra Leone.

The Global Human Impact

The climate crisis is here, now, and it is causing disproportionate harm in the Global South. In Bangladesh, rising sea levels and increasingly severe cyclones are displacing coastal communities, with projections indicating that 17% of the entire country could be underwater by 2050. The legally binding Paris Agreement on climate change explicitly acknowledges the importance of tackling private finance. Its three overarching goals are: keeping below 1.5C of warming; increasing adaptation and making finance flows consistent with low emissions and resilience.

This gives a clear mandate for action: both tax reform and corporate regulation are needed to tackle financial flows, and both nationally in Ireland and at EU level, ‘polluter pays’ taxes are lacking and regulation of the financial sector remains weak and fragmented. While EU regulation exists, it is designed more to nudge investors toward more sustainable investment practices by increasing transparency and reporting levels than to enforce strict standards. And it is moving in the wrong direction: the recently passed EU Corporate Sustainability Due Diligence Directive excluded investments; and now the EU Commission’s Omnibus legislative proposal threatens to undo the limited gains made on climate plans, as well as blocking future attempts for stronger action at national level.

The Risk of Inaction

Fossil fuel investment is too profitable to remain weakly regulated. If Ireland continues with its current strategy of encouraging FDI at all costs, and relying on weak EU regulation, we are headed for catastrophe. The Inter-governmental Panel on Climate Change has repeatedly warned that every fraction of a degree beyond 1.5°C brings irreversible consequences: collapsed ice sheets, vanishing coral reefs, and extreme weather events that will make vast regions of the planet uninhabitable. And yet, companies are developing oil and gas fields that could push global warming beyond 2°C.

Our research found that 91% of the investments made into fossil fuel companies by investment managers based in Ireland were to companies that have plans for fossil fuel expansion like these. Ireland cannot afford inaction on this issue.

About This Research

The figures in this report regarding investment from Ireland are based on new research commissioned by ActionAid Ireland and Trócaire. In the paper, we uncover the scale of fossil fuel investment through Ireland, who the investors are, and in which fossil fuel companies they are investing. We analyse the current regulatory framework and explain why it is inadequate—and moving in the wrong direction. And we make specific recommendations for change, which are summarised below.

Summary of Recommendations

Regulate the private financial sector
Ireland must end its outsized role as an enabler of destructive fossil fuel investment. Ireland should introduce a strong gender-responsive national human rights and environmental due diligence framework which includes the regulation of investors with respect to human rights and the environment and climate. The transposition of the EU Corporate Sustainability Due Diligence Directive could achieve this if downstream activities are included and the Omnibus proposal is rejected. Ireland should prohibit investments in fossil fuel expansion and require investors to implement climate transition plans consistent with a 1.5°C climate limit.

Endorse the Fossil Fuel Non-Proliferation Treaty
Ireland should endorse developing a Fossil Fuel Non-Proliferation Treaty to curb fossil fuel expansion and commit to a fair and funded phase out of fossil fuels.

Support tax justice
Ireland should support bold and fair new global tax rules through the UN Framework Convention on Tax, should adopt all OECD BEPS measures, and should conduct an updated and comprehensive spillover analysis of its tax policy. Ireland should take coordinated action globally, at the EU level and domestically to introduce a range of new taxes to mobilise finance needed for climate justice, based on ‘polluter pays’ and social equity principles such as wealth taxes for the highest earners, climate damages tax on investors, fossil fuel production taxes and levies on aviation and shipping.

Finance a just transition
Ireland must also meet its fair share climate finance obligations under Article 9.1 of the Paris Agreement, and pay our ecological debt to the Global South. Ireland should support conditionality-free debt cancellation for countries on the front lines of the climate crisis, commit to a new UN Framework Convention on Sovereign Debt, moving debt negotiations from the IMF to the UN, and to a debt workout mechanism that is fully representative and fair.