“Reform of the International Financial Architecture to Unlock Climate Finance“
Ladies and Gentlemen,
As leaders in the public and private sector across the world prepare for COP28, there is really only one question that matters.
That question is: Are we serious?
Are we serious about preventing the most catastrophic climate outcomes?
Are we serious about the commitments made in the Paris Agreement?
Are we going to retreat from our climate ambitions? Or are we finally going to scale up climate solutions?
The scale of the threat requires not just incremental changes but transformative ones across sectors and countries – and leaving anyone out, or leaving anyone behind, is not only wrong, but self-defeating. We humans have drawn up the borders of our nations. But the carbon emissions that pollute our atmosphere, and the rising seas and extreme weather, take no notice of these lines. Our fates are intertwined. We share one home, and so we share one future.
Thus, the importance and the urgency of the work we do cannot be overstated.
We must urgently increase access to climate financing, and knock down the barriers which limit many nations’ abilities to prepare their economies and their people for this new climate era.
We know that incremental progress is no longer enough. Taking small steps when big steps are needed would be a mistake too costly to bear.
Fortunately, there is a growing push to deliver reforms from the Bridgetown Initiative and the Accra-Marrakech Agenda, as well as new commitments made at the 2022 climate summit in Egypt. We will soon join the calls for change with a declaration of our own.
These declarations are critical to unlocking reforms in International Financial Institutions, and they will play a significant role in rallying the international community to take decisive action.
Transforming Multilateral Development Banks Can Unlock Financing
We are urging multilateral development banks (MDBs) around the world to significantly increase the quality and quantity of their climate finance efforts. It’s time for MDBs to make the necessary modifications so that they are “fit for purpose”.
MDBs are already significant financiers of climate mitigation and adaptation efforts in vulnerable developing countries.
But they could do much more by aggressively implementing the recommendations of the G20 Capital Adequacy Frameworks review, enabling concessional investments in adaptation and loss and damage in a broader range of vulnerable countries, and ensuring that the financing available is aligned with the Paris Agreement’s 1.5°C goal.
These three reforms could unleash more and better climate finance from the MDBs.
There is also a need for change at the most fundamental levels, beginning at the World Bank.
By ensuring that its financing strategy goes beyond the “do no harm principle” to one that also maximizes the climate benefit from every dollar it invests, the World Bank Group could unleash additional transformational climate action in developing countries.
Too many climate-vulnerable countries do not have access to the resources they need to become more climate-resilient because of antiquated standards excluding them from concessional financing. We are forced to depend on more expensive financing that severely limits the pace at which we can adapt.
This is unfair and — ultimately – harmful to everyone, as failures to reduce emissions and build resilience in the developing world will be felt the world over.
As a start, we propose that ALL climate-vulnerable countries be given access to temporary World Bank Group concessional financing for “external shocks,” such as extreme weather events.
Special Drawing Rights Are Another Key Tool
Special Drawing Rights are another key tool. As an international reserve asset, SDRs can provide much-needed financial liquidity for countries facing climate-driven economic challenges.
While many wealthy countries do not need their SDRs, and they would go unused without further action, allocations of SDRs help developing countries provide low-cost finance to meet urgent needs, including those caused by climate-fueled disasters.
In the latest issuance of SDRs, over 99 developing countries used their SDR allocation, and several developed countries committed to re-channeling their unused SDR allocation to two IMF trust funds – the Poverty Reduction and Growth Trust and the Resilience and Sustainability Trust. These funds will use the reallocated SDRs to provide low-cost financing to the low-income countries that need it.
We now need more high-income and developed nations to support our efforts to encourage the re-channeling of SDRs and the issuance of new SDRs to fund a climate-resilient future for all nations.
Addressing the Debt Crisis in Developing Nations
As we move forward with climate finance solutions, we must address the role that debt plays in preventing readiness and resilience.
Many developing countries are struggling with unsustainable sovereign debt — and outsized debts are growing, because extreme weather is extremely expensive.
Repair and recovery eat up scarce resources – and even while cleaning up after one disaster, eyes must be kept on the horizon for the next one. Yet nations servicing significant debt obligations simply do not have the fiscal space to invest in preparedness and resilience. In the meantime, this lack of readiness, along with climate vulnerabilities, are priced into the cost of capital – so that these same investments in resilience remain impossible, out of reach. Thus many countries find themselves locked into the most vicious of cycles.
As a result, when the next disaster arrives, it is more costly – in every way – because we are not only talking about money here, but about lives lost and lives impacted – than was necessary.
Developed nations can help by supporting debt restructuring initiatives for more sustainable terms for repayment, developing scalable solutions for debt for climate and debt for nature swaps, and including natural disaster clauses in all debt instruments.
The stark reality is this: without serious action, many nations will be unable to make the necessary investments in climate resilience.
As world leaders focus on reforming the international financial system, we must unite our voices so that these reforms are designed to address the challenges we face in the Latin American and Caribbean region.
Adopting the declaration today is a critical step toward meeting regional needs.
Colleagues, let’s not delay in taking up this cause to protect our economies and our people.