COP27: hope for climate finance springs from the Egyptian desert

Something big is happening in the desert in Egypt as countries come together for COP27, the UN climate change summit.

Despite a frustrating sclerosis in the negotiating rooms, the way forward for increasing climate finance to help low-income countries adapt to climate change and transition to clean energy is becoming clearer.

I have spent much of my career working on international finance at the World Bank and the UN and now I advise public development and private funds and teach finance-focused climate diplomacy. Climate finance has been one of the thorniest issues in global climate negotiations for decades, but I see four promising signs of progress at COP27.

Achieve net zero – without greenwashing

First, the goal – to bring the world to net zero greenhouse gas emissions by 2050 to stop global warming – is clearer.

The last climate conference, COP26 in Glasgow, Scotland, nearly collapsed due to frustration that international finance was not flowing to developing countries and that corporations and financial institutions were making money. greenwashing – making claims they couldn’t substantiate. A year later, something is moving.

In 2021, the financial sector arrived at COP26 in force for the first time. Private banks, insurers and institutional investors representing US$130 trillion (S$178.4 trillion) said they would align their investments with the goal of keeping global warming to 1.5C – a net zero commitment.

This would increase funding for green growth and clean energy transitions, and reduce investment in fossil fuels. It was an apparent breakthrough. But many observers cried foul and accused financial institutions of greenwashing.

In the year since, a UN commission has drawn a red line around greenwashing, delineating what a company or institution must do to make a credible statement about its net zero goals. Its checklist isn’t mandatory, but it sets the bar high based on science and will help hold companies and investors accountable.

Reforming international financial institutions

Second, the functioning of international financial institutions like the International Monetary Fund (IMF) and the World Bank is receiving much-needed attention.

Over the past 12 months, frustration has grown with the international financial system, particularly with the leadership of the World Bank Group. Low-income countries have long complained about having to borrow to finance resilience to climate impacts they did not cause, and they have called on development banks to take more risk and mobilize more investment private sector for much-needed projects, including the expansion of renewable energy.

This frustration culminated in pressure for World Bank President David Malpass to resign. Mr Malpass, appointed by the Trump administration in 2019, has held on for now but is under pressure from the US, Europe and others to present a new roadmap for the response from the World Bank to climate change this year.

Barbados Prime Minister Mia Mottley, a leading voice for reform, and others have called for the $1 trillion already in the international financial system to be redirected to climate resilience projects to to help vulnerable countries to protect themselves from future disasters associated with climatic events.

At COP27, French President Emmanuel Macron backed Ms Mottley’s call for a shake-up in the way international finance works, and together they agreed to create a group to propose changes at the next meeting of IMF governors. and the World Bank in the spring of 2023.

Meanwhile, regional development banks are reinventing themselves to better meet the needs of their countries. The Inter-American Development Bank, focused on Latin America and the Caribbean, is considering changing its business model to take on more risk and attract more private sector investment.

The Asian Development Bank has launched an entirely new operating model designed to deliver better climate outcomes and mobilize private finance more effectively.

Michael J. Birnbaum