The summit for a new global financial pact

Climate finance is an orphaned child that every developed country is concerned about, but no one is ready to adopt it. The commitment of giving $100 billion annually until 2025 to developing countries has not been delivered accordingly. Apparently, there is insufficient money, and what is available is either too expensive or not channeled correctly. To address this disorder, more than 300 high-level participants, heads of state and governments, international organisations, civil society representatives and the private sector attended the Global Financial Pact Summit in Paris from June 22-23.

Global warming is one of the most pressing development issues of the present century, manifested in frequent heat waves, hurricanes, cyclones, incessant monsoon rains, wildfires and drought, leading to thousands of deaths and forcing millions to migrate to safer places. Displacement and financial damages leave deep scars on the minds and hearts of the survivors, especially women and children.

According to the World Meteorological Organization, weather-related disasters have increased globally over the past 50 years. The Swiss Re report published in 2021 mentions that the world may lose around 10% of total economic value by mid-century. Last year Pakistan experienced the worst phase of climate change. According to the World Bank, “Estimated needs for rehabilitation and reconstruction in a resilient way are at least $16.3 billion.” As per National Centers for Environmental Information, the US in 2022 experienced 18 separate weather and climate disasters costing $165.1 billion.

The world has agreed to limit global warming to 1.5 degrees Celsius by limiting fossil fuel use, building a future on the sustainable development agenda while treating climate mitigation and adaptation strategies as holy grails. Developed countries are blamed for increasing global warming. Therefore, the Paris Agreement 2015 made them responsible for financially assisting low-income countries in overcoming damages caused by climate-related disasters. According to a group of experts working independently in the ambit of the UN, developing countries must spend $1 trillion annually between 2022 and 2030 to respond to the climate and biodiversity crisis. Oxfam estimates that $27 trillion will have to be mobilised to “fight poverty, inequality and climate change in developing countries” between now and 2030. The World Bank takes this estimate even higher to $4 trillion a year between now and 2030 to build infrastructure that meets the needs of developing countries.

Though climate change has treated the rich and poor alike, low-income and developing countries are badly affected. It is because of their economic condition, manifested in weak infrastructure and limited access to technology, that they can hardly afford to address the loss and damage caused by the eccentric weather. On top of it, the money given to them from the developed economies and the Multilateral Development Banks (MDB) is in the form of debt that further shrinks their fiscal capacity to respond to developmental challenges emanating from climate-induced crises.

According to Oxfam International’s Climate Change Policy Lead, Nafkote Dabi, “Despite their extreme vulnerability to climate impacts, the world’s poorest countries, particularly the least developed countries and small island developing states, are simply not receiving enough support. Instead, they are being driven deeper into debt.” Oxfam’s Climate Finance Shadow Report 2023 mentions that of the $66.3 billion provided in public climate finance in 2019-2020, only $17.1 billion (26%) was provided as grants, whereas finance provided as non-concessional loans and other instruments amounted to $20.7 billion (31%) and $28.1 billion (42%) respectively. According to Oxfam’s Climate Finance Shadow Report 2023, the MDBs had been the significant provider of non-concessional finance. Around 80% of non-concessional finance in 2019-2020 was provided via MDBs.

UN Secretary-General António Guterres, in his address at the Summit, questioned the performance of the International Financial Institution, which according to him, has outlived its usefulness. The Prime Minister of Barbados, Mia Mottley, has been strongly advocating against the lending practices of MDBs. Her Bridgetown Initiative aims to overcome climate colonialism and proposes it is treated like the Marshall Plan to provide affordable capital for climate mitigation projects in poor countries. The initiative aims to seed a $500 billion Global Climate Mitigation Trust. President Emmanuel Macron of France supported Mottley’s suggestion at the COP 27, leading to the GFS in Paris. The World Bank has agreed, at the Summit, to begin suspending debt payments for countries hit by climate disasters. However, these “climate resilient debt clauses” apply only to new loans.

Emmanuel Macron, the French president, appealed to identify countries that do not tax financial transactions and have no tax on plane tickets. The issue is expected to be addressed in the International Maritime Organization meeting scheduled in July to discuss the shipping tax system. If this breakthrough is achieved, it will bring $5 billion a year into the climate finance kitty.

The IMF shall mobilise $100 billion, under the Resilience and Sustainability Trust, to poor countries. It will be funded from the new special drawing rights (SDR) allocations. France, Japan and the UK have pledged to allocate a part of their SDR, amounting to about $80 billion. A further $21 billion could come from the US. The SDR cash is separate from the $100 billion a year.

Elaborating further on the climate crisis, IMF’s Managing Director Kristalina Georgieva said their analysis showed no chance to meet the 1.5 degrees Celsius target by 2030 without a carbon price. According to Georgieva, carbon pricing only covers 25% of global emissions. “There is only 75% more to go, but when there is a will there is a way.”

The Summit ended with an agreement that the money required to finance climate change runs in trillions, not billions. An urgent need is to revamp the investment strategies for the climate crisis. It was also agreed that most of these funds would come from the private sector set in motion by public money.

Youth campaigners Greta Thunberg and Vanessa Nakate criticised the Summit’s inability to focus on the mother of all problems — the usage of fossil fuel, which they said the rich countries are still using abundantly. Thunberg said: “If your house is on fire, the first thing you do is to stop pouring oil and gas on to the fire. If you keep adding fossil fuels and fund more oil and gas, you are only fueling the flames.”

Published in The Express Tribune, June 29^th, 2023.

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