Foreign debt cripples countries vulnerable to extreme weather events, hindering climate change resilience. Reforming financial systems could help them combat climate change.
Heads of state and high-ranking government officials from industrialized and developing countries are meeting in Paris for two days this week to discuss financing for climate protection.
Limiting global temperature rise and preparing humanity for the inevitable dangerous consequences of climate change is going to take cash and lots of it. But countries and businesses are investing too little in climate protection globally.
French President Emannuel Macron announced the “Summit for a New Global Financing Pact” at last year’s COP27 climate summit in Egypt. The goal is to find a “new consensus” on decarbonizing the economy, fighting the climate crisis and protecting nature.
European Commission President Ursula von der Leyen, German Chancellor Olaf Scholz and Mia Mottley, Prime Minister of Barbados and a key voice for developing countries in international climate negotiations, will attend the conference.
Developing countries need more money
“Climate change is accelerating and is accelerating the needs of finance for a lot of developing countries,” said Lola Vallejo, director of the Institute for Sustainable Development and International Relations (IDDRI), a non-profit research center in Paris.
Some 43 out of 59 developing countries hit hardest by climate change are at high risk of sliding into a financial crisis as a result of the climate emergency, according to the International Monetary Fund (IMF).
But global lending institutions like the IMF and World Bank are not prepared for a world in the climate crisis, said Vallejo, adding they were set up in the wake of World War II when “half of the countries that we have today didn’t exist.”
Debt relief to allow for climate adaptation in poorer countries?
Weak economies and enormous debt severely limit the ability of developing countries to invest in adapting to extreme weather linked to rising global temperatures, as well in reconstruction after climate disasters.
Many low-income countries now need more money to pay back loans than they would for sustainable development and climate change adaptation programs, said Vallejo.
“If they could stop servicing their debt, they would have enough actually to invest in those plans that they established,” added Vajello.
Debt relief and the suspension of interest payments will be one of the main points of discussion at the summit, as well as easier access for low-income countries to emergency IMF funds. Developed countries are entitled to more money from the IMF because they hold a larger share of the institution, but they often don’t call it up, said Vajello.
Barbados Prime Minister Mia Mottley united many developing countries last year under the “Bridgetown Initiative.” One of the initiative’s demands is making unused cash from the fund available to low-income countries hit hard by the climate crisis.
The summit could be a “historic opportunity” in a fragmented global financial system struggling with a loss of trust, said Friederike Röder, vice president of global advocacy at Global Citizen, an NGO focused on ending poverty.
“The question is whether this opportunity will translate into some kind of progress or will be a missed opportunity,” Röder told DW.
The poorest countries most at risk want more support
The main point of contention in the global talks boils down to one issue. Developing countries hit hardest by climate change want more financial support for adaptation from industrialized nations, which are responsible for most historical planet-warming greenhouse gas emissions.
Rich nations have long resisted those calls, but after some tough wrangling at the COP27 in Egypt, they agreed to set up a fund to cover climate loss and damage for particularly hard-hit countries.
The Bridgetown Initiative wants $100 billion a year for the fund. But lots of details remain unclear, such as who will pay and how much, as well as the criteria for allocating money.
Industrialized countries have so far failed to “mobilize” $100 billion annually from public and private sources for climate protection in developing nations by 2020 — a promise made 14 years ago. In May, however, Germany’s foreign minister Annalena Baerbock said they could be on track to finally hit that target.
Still, it’s clear that the promised sum is not nearly enough. The IMF estimates that trillions of dollars a year will be needed for climate protection and adaptation to a hotter planet by mid-century. African countries alone will require at least $3 trillion by 2030. Currently, the world is investing around $600 billion annually.
More businesses must invest in developing countries
Leaders will also discuss how to encourage private-sector investment at the summit.
“We know that the public purse of rich countries is not going to be enough to tackle the problem,” said Vallejo.
Private sustainable investments in developing countries recently rose to $250 billion per year, according to the IMF. But that figure will need to at least double annually by 2030.
Major hurdles stand in the way. Investing in developing countries can cost around seven times more than in industrialized countries because of political risks, currency fluctuations and a lack of expertise, Vallejo told DW. Around 90% of investment in renewable energy still flows to industrialized countries and China.
