Photograph: Claudia Morales/Reuters
Loud cheers from Sharm el-Sheikh greeted Sunday’s announcement of a new initiative – the Global Loss and Damage Fund – to right historical wrongs by compensating climate-hit developing countries. This breakthrough brought to mind another, the £100bn a year agreed at the 2009 Copenhagen climate summit to help poor countries mitigate the effects of the climate crisis.
That money never fully materialized. If our 13 years of experience of the £100bn fund that never existed is anything to go by, lauded praise will soon turn into accusations of treason. Next year’s COP28 president will have to answer for yet another fund without lenders. Far from narrowing the climate action credibility gap, the loss and damage fund is likely to fill nothing if money fails to flow from the rich to the poor.
The last decade has been a history of promises made and not kept. Before Covid, the cost of financing the Sustainable Development Goals (SDGs) was $2.5 trillion a year. Now, post-Covid, and with the price of fighting floods, firestorms and droughts – and the debt burden of low-income countries – soaring, it is $4 trillion a year. With an official development assistance (ODA) budget of just $179 billion a year and $130 billion offered mainly in multilateral loans, the SDGs represent another unanimous but unfunded commitment from the international community. To make matters worse, the UK development aid budget has been reduced from 0.7% of our national income to 0.5% for the years to come, and already our overall contribution to achieving all our targets in Climate and Development fell from £16bn pledged to just £11.5bn.
Related: An agreement on losses and damages, but a blow to 1.5°C: what will be the legacy of COP27?
But there is a way forward if we are to achieve our goals. By 2030, about $2 trillion a year will be needed to help developing countries reduce their greenhouse gas emissions. This could be paid for, if necessary, by increasing global taxes such as air levies introduced by France and the UK. As the groundbreaking Bridgetown Declaration, inspired by Barbados Prime Minister Mia Mottley recommends, $100 billion in Special Drawing Rights (IMF-issued international money) should be immediately reallocated from rich to poor countries, with half intended to finance green agriculture. projects. President Macron’s June summit on climate finance is expected to cancel the unpayable debt of low-income countries in exchange for those countries’ climate action. For those who can pay, debt repayments should be varied in the event of climate disasters.
Public funds will never be enough, as Bridgetown recognizes, so it’s crucial that every pound, dollar and euro of aid is used to generate other sources of support. Mobilizing private finance was the focus of a landmark 2015 report from the IMF and development banks. Governments, he proposed, should put in place the right incentives to encourage private finance to invest in the climate crisis and in development. Indeed, the financing needs of the SDGs could be met if we mobilized just 1% each year of the $400 billion in financial assets held by banks, institutional investors and fund managers.
Yet despite billions of pledges, good intentions, and a flood of press releases touting socially responsible environment, social and government projects, too little private investment is still at stake, leading to greenwashing allegations. Pioneered by Ronald Cohen, impact investing, in which business expenses are measured not only in terms of risk and reward but also of socially beneficial outcomes, has the potential to finance clean energy, renewable energy, mitigation and adaptation. But this will almost certainly require legislation for impact accounting, so that alongside profits and losses, companies detail in monetary terms the real-time social and environmental benefits of their activities.
But all this will take time and climate finance is urgently needed. It should be started immediately by transforming the World Bank into a global public goods bank. The International Development Association is the bank’s arm dedicated to lower income countries. By borrowing on the strength of repaid loans, it can unlock more than $100 billion in additional capital. Merging this with the bank’s structure that helps middle-income countries could then quadruple the bank’s capital base.
Even more funds could be generated through the innovative use of guarantees offered to regional development banks by richer countries, and the Asian Development Bank is already planning to finance climate projects by obtaining guarantees from European governments. If distributed across all multilateral banks, an initial $10 billion in grants, some raised by global philanthropists, paired with $60 billion in guarantees, could be used to raise a total of $270 billion to support the transition to net zero and, overall, our regional and international institutions could soon be investing not just billions but a trillion dollars a year.
And the funds could be secured on a lasting basis if the world’s richest countries agreed to share the burden equally, based on their ability to pay. While this is a proven model, used in 1966 in an effort to eliminate smallpox, today only $7 billion in United Nations funding (for peacekeeping) and only $1 billion in healthcare funding (to pay for 25% of the current World Health Organization budget) are currently raised through a burden-sharing formula. Everything else goes through a begging bowl.
A world facing an existential challenge should not rely on charity. An action plan for COP28 requiring donors to contribute to climate finance based on their ability to pay and, in case of losses and damages, based on historical responsibility for greenhouse gas emissions, should be the starting point for the next round of climate action. finance. Adequately funding our global goals for the first time would be something to really cheer about. We have the means and the know-how. What we need now is political will.