While everyone is focused on fossil-fuel language at COP27, the biggest win yet may be 200 countries calling for a reform of global financial architecture.
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(Bloomberg) — For the first time, a draft political decision published at the COP climate talks calls on multilateral development banks (MDBs) and international financial institutions (IFIs) to be reformed and align their spending with climate goals. That’s a big win, said Laurence Tubiana, chief executive officer of the European Climate Foundation.
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“The moment is right,” she said. “Climate impacts are beginning to be understood as a macroeconomic risk.”
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These reforms have been talked about for years. However, there are two major developments forcing a change finally. Developing countries are under stress — from rising inflation, growing debt burdens and their currencies declining in value against the dollar. At the same time, developed countries are failing to meet their climate-finance contributions to developing countries.
Mia Mottley, prime minister of Barbados, and Janet Yellen, US’s treasury secretary, have been at the forefront of calling on overhauling the international financial system to support least-developed countries and small-island states that are dealing with climate impacts and growing debt burdens.
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Tubiana thinks that reforming MDBs and IFIs, such as the World Bank and the International Monetary Fund, could go a long way in solving both problems. She wants the Multilateral Investment Guarantee Agency, a member of the World Bank Group, to provide more support to derisk investments in developing countries through insurance against political risk and currency fluctuations.
These calls for reform did not make it into the final decision of the Glasgow Climate Pact at COP26 last year. The draft text of COP27 is set to change as the negotiations draw to a close, which means there’s still a chance that calls for reform may not make it in the final version.
Tubiana’s ideas were echoed by Mahmoud Mohieldin, United Nation’s high-level climate champion, who wants to expand the International Development Association’s mandate. The IDA, another World Bank Group member, provides cheap loans and grants to the world’s poorest countries. Mohieldin believes expanding its mandate to include middle-income countries could speed up financial flows toward the energy transition and adapting to a warmer planet.
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The theme for the COP27 meeting has become “show me the money” as developing countries are calling on developed nations to live up to their promises on $100 billion annually for reducing emissions and adaptation. However, given the scale of climate impacts, the demands are growing for “loss and damage” payments, which would help countries affected by extreme weather events recover and rebuild.
The final hours of the COP27 negotiation will be about developing a loss-and-damage fund. However, it’s unlikely that details of how much money and how it would be transferred to those in need will be nailed down. Reforming MDBs and IFIs to align their spending with climate goals could make the process a lot easier.
“We are going to need to examine the global financial architecture because of the scale of the finance that’s needed for countries to transition,” said Barbara Creecy, South Africa’s environment minister. “We need to look at the multilateral development banks. They are very risk averse.’”
—With assistance from Antony Sguazzin, John Ainger and Jennifer A Dlouhy.
