Delivering on Promises — and Delivering on Hope

To meet our climate goals, we must build a more sustainable financial system.

This is a decisive year for global action to tackle the climate crisis. In the shadow of the sobering IPCC assessment of the future we currently face, global leaders have an opportunity to “build a more sustainable financial system” that enables a livable future for all, to quote B Team leader Hiro Mizuno. Tackling inflation, the debt crisis, and supply chains are part of what G7 Leaders in Hiroshima will address — but climate finance is also a crucial pillar to economic security.

Recent steps are promising. The EU and G7 have made important commitments to phasing out unabated fossil fuels, in line with scientific pathways for 1.5°C, and setting new ambitions on renewables. These steps build on last year’s demonstration of leadership and solidarity, when the G20 and countries at COP27 restated their commitment to keep global warming within the 1.5°C limit, amidst the energy-security crisis caused by Russia’s war in Ukraine and the global pandemic. Last year, countries also agreed on “a Paris Agreement for nature” in the Global Biodiversity Framework (GBF), adopted at the “other” COP (COP15) in Montreal. The GBF recognizes that we can’t solve the climate crisis without protecting and restoring the environment.?

To truly seize this momentum and decisively address a challenge of this magnitude, it is time for global leaders to reshape the financial system and mobilize private finance. As Mizuno says:

“It is crucial that we create the opportunities and incentives for scalable investment into 1.5°C-aligned development — away from fossil fuels and toward clean energy.”

We know that without a major scaling up of climate finance, we simply cannot meet our climate goals. Yet, we have consistently failed to deliver on these financial commitments, including perhaps most famously the 2009 still-unfulfilled commitment by developed nations at Copenhagen’s COP15 to pay $100 billion in annual climate financing to developing nations.?

This year, policymakers, civil society, and the private sector are starting to converge around how, together, they can reshape the financial system itself — including key multilateral institutions — to unlock the finance and investment needed for climate and sustainable development. What would feature in such a financial system? Here are some ideas:

• Greater and more equitable flows of climate finance toward developing countries
• Limited sovereign debt — especially in emerging markets
• Capital infusion for climate and nature also focused on just transition, including protection of those most affected by the transition
• Alignment of public and private financial flows around climate and nature goals

Last week, the G7 Finance Ministers and Central Bank Governors shared their commitment to enhance collaborative efforts to increase climate finance. They called on the multilateral development banks to expedite work on business-model review and recognized that transition plans can and should be used by both the public and private sectors. These are welcome developments, in particular around mobilizing private finance.?

Public-sector funding alone will never be sufficient for the turnaround of the economy we need to stop global warming and end biodiversity loss. For that, we need private capital, as well as the right policies and incentives to mobilize it. For example, the G7 has affirmed its commitment to phase out fossil-fuel subsidies by 2025 or sooner. And at COP26, nearly 200 countries adopted the Glasgow Climate Pact committing to speed up the end of fossil fuel subsidies. Subsidies are part of the incentives frameworks governments create for private-sector action. As next steps, global leaders, such as the G7 and G20, need to both ensure that reform is carried out in ways that protect those most affected by the transition (including consumers), and continue to welcome the work of the International Sustainability Standards Board (ISSB). It will be crucial for countries to commit to adopting the ISSB standards as the global baseline for a high-quality, comparable sustainability standard, and thus harness the power of capital markets to drive the green transition.

The G7 Leaders Summit in Hiroshima, Japan, this weekend and the Summit for a New Global Financial Pact , to be hosted by French President Macron and Prime Minister of Barbados Mia Mottley next month, are crucial moments on the road to COP28 and a new system of climate finance and mobilizing private finance.?

The stakes could not be higher, for at the heart of this systems change are people. To quote UN Climate Change Executive Secretary Simon Stiell:

“Let’s not forget that climate finance is ultimately about people, not just numbers on a balance sheet. It’s about protecting our planet, our communities, and our future generations from the devastating impacts of climate change. And it’s about building a more equitable and inclusive economy that benefits everyone, not just the privileged few.”