Consensus around the need to reform multilateral development banks (MDBs), massively scale up the amount of private finance going towards climate adaptation and mitigation in poorer countries, and making climate change the business of all banks were all key issues under debate as the Summit for a New Global Financial Pact drew to a close in Paris.
After two days of talks, leaders from the worlds of finance and government had expressed support for significant changes to the global financing system in line with the Bridgetown Agenda led by Mia Mottley, the prime minister of Barbados, and proposals put forward by the Vulnerable Twenty group of finance ministers urging much greater alignment between investment, climate and development needs and goals.
There was also widespread support for debt suspension clauses for countries suffering from the impacts of climate change-induced extreme weather events. The World Bank said it would join the Inter-American Development Bank in piloting them in its lending, France will include them in its bilateral and development agency lending, and the US committed to include such clauses in its lending by the end of 2023.
Ms Mottley said the moment was “greater or equal to the jubilee moment”, when leaders of rich countries agreed, in 2005, to cancel a significant amount of developing countries’ debt.
Various countries also agreed to follow the example of Japan and re-channel their Special Drawing Rights (SDRs) to poorer countries. Japan said last month it would re-channel 40% of its SDRs. France has increased its commitment to 40%, Belgium to 15% and Switzerland to re-channel 6.7%.
Major surgery needed
COP28 president Sultan Ahmed Al Jaber of the UAE described these pledges as “band aids, painkillers to a problem that requires major surgery”. He insisted that much more money, trillions of dollars, must be leveraged from the private sector or climate change adaptation and mitigation in the Global South through “surgical intervention”.
He suggested further progress would be made on the issue at COP28, for which the UAE was preparing with “humility and a deep sense of responsibility”. The country understands “how urgent this matter is”, he said. “A mindset centred around inclusivity will be our guiding principle.”
Key figures from the world of banking insisted they were fully committed to a reform of the international financial institutions in Paris.
If we, including central bankers, don’t act, we will be toasted, roasted and grilled
Christine Lagarde, president of the European Central Bank, was clothed in a green jacket, to which she several times drew attention, to hammer home her point about the relevance of climate change for central banks. “Climate change can have a massive bearing on price stability and financial stability,” she told the summit.
The window for action on climate change was “rapidly closing”, she said. “If we, including central bankers, don’t act, we will be toasted, roasted and grilled.”
The need to ensure much greater investment in developing and middle-income countries was vital, given that “the impacts of climate change are poorly distributed”, said Ms Lagarde. “In the past three decades, 90% of those who perished because of climate change disasters were in developing countries where 70% of climate events took place.”
“It is imperative to address climate change and address it collectively,” she added. “We have made climate change a priority at the ECB because central banks issue money, climate change affects inflation and inflation is the beast that all central bakers want to tame and discipline.”
Ms Lagarde ended her intervention by quoting UK broadcaster and natural historian Sir David Attenborough, who told COP26 in Glasgow in 2021: “If working apart we are a force powerful enough to destabilise our planet, surely working together we are powerful enough to save it.”
No quick fix
As the conference opened, US Treasury Secretary Janet Yellen had expressed the support of the Biden administration for change to the global financial system, highlighting that reform of all the MBDs “could unlock $200bn”, but made it clear that “change won’t come overnight”. She recommended a “staged approach” where initial reforms would be added to “on a rolling basis”. The first priority was to get “these banks to function better individually and as a system and better utilise capital they have”, she said. “We are not ruling out, at some later stage, a capital increase.”
[The first priority is to get] these banks to function better individually and as a system
Ajay Banga, the new head of the World Bank, insisted that his commitment to climate action was sincere, saying he wanted to be able to “look my grandchild in the eye and say I was not an armchair critic, I tried to make a difference”.
The bank’s mission needs to move “beyond poverty” and to be focused on “eliminating poverty on a liveable planet”, said Mr Banga, insisting: “We don’t have the luxury of picking and choosing crises.”
“Time and scale are of the essence if 2030 and 2050 are to be two measurable goals,” he continued. Mr Banga warned against agreeing too many initiatives and “spreading the peanut butter too thinly”.
Laurence Tubiana, CEO of the European Climate Foundation and an architect of the Paris Climate Agreement, summarised the feeling of many non-governmental organisations at the end of the talks, that some progress had been made, but a “plan of action” was needed to turn words into actions on the ground, and pledges into money and projects.
Mr Banga nicely summed up the size of the climate and development challenge, comparing it to “drinking from a firehose”. “There are days when I feel like I am drowning, and other days I feel like the luckiest guy alive,” he said.
