In order to understand the extent of gap between what is needed in terms of climate finance, and what is currently being offered overall, the ‘Third report of the independent high-level expert group [IHLEG] on climate finance’ pointed out ‘External finance from all sources, international public and private along with others, will need to cover $1 trillion per year of the total investment need by 2030 and around $1.3 trillion by 2035. We argue that cross-border private finance can meet about half of these needs given the changing nature of investment opportunities. This would imply a 15- to 18-fold increase on current levels. … financing from MDBs needs to triple by 2030. Bilateral climate finance from advanced economies, which currently amounts to $43 billion per year, needs to double or more, given the central role that it plays in building trust and financing the most difficult needs.’
This means there is a huge gap between what is being provided, and what needs to be made available, especially for highly climate change vulnerable countries. Moreover, the multilateral spirit needs to improve a lot, given its less than satisfactory record, whereby while developed countries committed to take annual provision of climate finance to the level of $20 billion by 2020, that level was reached two years later.
To give another example, in the most recent Conference of the Parties (COP), which was COP29, and was held in Baku Azerbaijan in November 2024, against the requirement of developing countries to be provided $1.3 trillion, developed countries made a rather paltry level commitment, whereby only $250 billion to be provided annually, and that the amount would be raised to only $300 billion by 2035. It is not to say that effort is being de of any significance to arrange climate finance by developed countries, but given the fast-unfolding nature of climate change crisis, and the way the frequency and intensity of climate change related catastrophes– floods in Pakistan in 2022, or recent wildfires in Los Angeles, for instance– the extent of commitments fall a lot shared then what is needed.
To quote the ‘Bridgetown Initiative’ endeavour related document– a very worthwhile endeavour being led by the Prime Minister and Finance Minister of Barbados, Mia Amor Mottley to create innovative ways to provide climate finance– and titled ‘Bridgetown Initiative on the reform of the international development and climate finance architecture’ it was pointed out with regard to the efforts being made to raise the level of climate finance as ‘The International Monetary Fund (IMF) has created the Resilience and Sustainability Trust (RST). The G20 has committed to re-channeling more than $100 billion in Special Drawing Rights (SDRs). A Loss and Damage Fund was launched at COP28 with an initial $700 million in commitments. Multilateral Development Banks (MDBs) are increasingly supporting debt swaps. The Inter-American Development Bank (IADB), World Bank and other official sector lenders are including natural disaster clauses across a range of new and existing loan agreements.
The Asian Development Bank has unlocked $100 billion of additional lending through reforms to its Capital Adequacy Framework. The African Development Bank (AfDB) is increasing lending by raising hybrid capital from private investors. The World Bank has committed to tripling its guarantee capacity through the Multilateral Investment Guarantee Agency (MIGA), and other guarantee providers are scaling local currency offerings. Currency hedging solutions and early-stage project pipeline facilities are being announced, with support from pooled philanthropic funds. Finance Ministers under Brazil’s G20 Presidency have committed to exploring ways to tax the super-rich.’
For instance, provision of climate finance related assistance by IMF through the ‘Resilience and Sustainability Facility’ (RSF)– which is being financed through RST– comes as loans, for all the three groups of countries– groups A, B, and C. Instead, assistance should have been provided as grant, and no surcharge– which is a ‘junk fee’ charged as fines on late interest payments on loans– should have been charged. This is because countries that are being provided the RSF are developing countries, many of which are challenged with little fiscal space, and high debt distress.
Having said that, as indicated earlier the amounts being committed by developed countries, or provided as loans by multilateral institutions fall a lot short than what is needed in terms of climate finance, especially in such a supportive way as is required, given a number of developing countries are highly climate change vulnerable countries – where most of those countries have minimal carbon footprint; for instance, Pakistan’s carbon footprint is less than one percent, but is among the top-ten most climate change vulnerable countries– but have little fiscal space, and are highly debt distressed.
For instance, provision of climate finance related assistance by IMF through the ‘Resilience and Sustainability Facility’ (RSF)– which is being financed through RST– comes as loans, for all the three groups of countries– groups A, B, and C. Instead, assistance should have been provided as grant, and no surcharge– which is a ‘junk fee’ charged as fines on late interest payments on loans– should have been charged. This is because countries that are being provided the RSF are developing countries, many of which are challenged with little fiscal space, and high debt distress.
In addition to the suggestions being given above with regard to improving the utility and viability of RSF for developing countries, among many other suggestions provided globally, the same ‘Bridgetown Initiative’ related document recommended ‘We call upon the IMF to boost country capacity to invest in resilience, including by re-channeling SDRs through MDBs. We call upon the IMF and its shareholders to agree on a new issuance of at least $650bn in SDRs to expand the balance sheets of MDBs to support SDGs and climate action. We call upon the IMF to reduce the cost of lending including by making it easier to access the Resilience and Sustainability Facility (RSF) on a stand-alone basis and extending the Extended Fund Facility repayment period to match the RSF.’
