Comment: A more effective framework led by the UN could involve a binding financial target, a role for emerging economies and consolidation of funds
Moazzam Malik is managing director at the World Resources Institute and honorary professor at the UCL Policy Lab.
At COP29 in Baku in November, the world will come together to agree a new target for climate finance. The stakes are huge given record temperatures and heatwaves, floods and droughts wreaking havoc globally.
Tackling climate change and its consequences – and supporting wider human development – needs urgent investment. But the international financial system is struggling to respond. Is it time now to agree a new framework for international climate and development finance? Can the G20 under Brazil’s leadership, and international leaders meeting at the United Nations in New York in September, prepare the ground for COP29?
Almost 54 years ago, in 1970, the world came together at the UN to set a target for rich countries to support poorer countries. They promised 0.7% of national income as “official development assistance” (ODA) to improve economic outcomes and reduce poverty. At the Copenhagen climate negotiations in 2009, world leaders again came together and promised to mobilise an annual $100bn to finance climate action by 2020. They said this would be “new and additional” to development finance.
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Since then, with the exception of a few Europeans, rich nations have failed to meet the 0.7% target. In 2022, ODA peaked at $211bn, or 0.37% of combined OECD national income. Almost 15% of this was used to finance refugee-related costs in OECD countries themselves. The climate commitment was met in 2022, two years late. Without ODA levels rising, the 33% of ODA classified as climate-related cannot reasonably be claimed as “additional”.
In practice, maintaining this distinction between climate and development finance has proved difficult. For example, is planting trees in an urban landscape a climate investment because it absorbs emissions, a health investment because it reduces street-level temperatures, or a biodiversity investment as it creates habitats for wildlife?
The challenge of navigating these distinctions means it is difficult to track commitments or secure meaningful accountability against promises made. And it leaves many countries juggling a false trade-off between investments for the planet and for their people.
Trillions needed
It is absolutely clear, however, that financing for poorer countries needs to increase dramatically. Despite progress over recent decades, development needs remain significant, with major setbacks through the pandemic. The G20 High Level Expert Group on Climate Finance estimates that by 2030 $5.4 trillion a year will be needed for development, climate and nature. Of this, $1 trillion a year will be required in external financing for developing countries for climate and nature alone, of which roughly half will need to come from international public finance.
International public finance – including new and additional aid finance from rich countries – is needed to provide concessional resources for the poorest and most indebted countries. It is needed to anchor capital increases for international financial institutions that can leverage this at least ten-fold, in part by borrowing from private capital markets. These institutions, together with other development finance institutions and strong policy environments, are key to bringing in private lenders and investors, whether by reducing risk or helping develop investment pipelines.
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As well as additional finance, poorer countries need money that better responds to their needs. In recent years, the relentless cycle of summits has spawned dozens of initiatives. The landscape is fragmented, with over 80 funds or instruments in the climate space alone. It has become increasingly difficult for poor countries to navigate this. There is an urgent need for a moratorium on new funds and to agree principles and coordination mechanisms for all external finance – building on the aid effectiveness principles agreed in the 2000s.
Binding 0.7% commitment?
Taking these elements together, is it time now to drop th
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