We can meet our climate finance goals

The World Bank and other MDBs have a unique role in allocating finance, particularly in developing countries. They are able to reach financial markets in developing countries that the private sector might not be able to reach because of high financial risks. Their high credit ratings ensures they are well-positioned in the international financial system, which in turn enables them to provide concessional funding to developing countries.

In 2022, the G20 commissioned an independent review of the MDB’s capital adequacy framework. The panel found that the MDBs could unlock hundreds of billions of dollars in lending to help lower-income countries recover from the impacts of the multiple crisis. The panel provided a set of recommendations in its report on steps that MDBs can take to unlock new lending.

Since the report came out, the MDBs have already undertaken measures that could help unlock $357 billion over the next decade. But there’s potential to release hundreds of billions more through some additional measures to help developing countries achieve their climate targets.

The World Bank and other MDBs need to adopt the recommendations of the Capital Adequacy Framework review to unlock trillions of dollars of low-cost finance for developing countries.

MDBs must triple their lending to finance resilience by fully utilising their existing resources, including by taking on more risk, including callable capital in the balance sheets, promoting financial innovation, improving credit rating agency assessments, increasing access to data and analysis.

The 2021 Special Drawing Rights allocation of $650 billion – IMF’s emergency funding to countries in crisis – was the largest allocation in history. Despite being unevenly distributed, it provided non-debt-creating crisis relief to many emerging markets and low-income economies.

In recent years, developing country leaders have put forward a demand for a new allocation of special drawing rights of $650 billion. This has the potential to generate additional financing. This new allocation will create an enabling environment for countries to drive climate action.

A new issuance of special drawing rights is a fair, rapid way to boost reserves and create fiscal space for climate-vulnerable nations to invest in resilience.

Recycling existing special drawing rights through MDBs to use as hybrid capital could help leverage up to $80 billion in additional financing, a portion of which can be used on resilience projects in developing countries.

Various proposals to find new and innovative models to increase climate and development finance have been presented to the world leaders by experts over the past few years. Some of these proposals – such as taxing the wealth of billionaires which can help generate an additional $250 billion each year⁴ – are now backed by the G20 countries.

Other taxes and levies, including a carbon levy on fossil fuel producers (expected to generate $720 billion by 2030)⁵, shipping levy (expected to generate $80 billion a year)⁶, air passenger levy (estimated to generate $121 billion a year)⁷, financial transaction tax (which will bring in between $169 and $281 billion)⁸ and other financing instruments are being explored by a group of countries, led by France, Kenya and Barbados.

Together, these levies could generate hundreds of billions of dollars to put towards overall public finance. Estimates indicate that taxing windfall profits for fossil fuel companies and financial companies can help generate an additional $382 billion to boost climate finance.⁹

New and innovative sources of financing through a fair system of global taxation can provide dedicated, affordable, and accessible finance for climate-positive investments at scale.

The private sector holds the majority of the world’s wealth, yet it has invested comparatively little in climate finance.

The private sector has an important role to play in funding a green transition, while governments and public institutions have a pivotal role in creating the right conditions to mobilise private finance.

Current estimates indicate that a five-fold increase in private sector mobilisation can help generate $500 to $600 billion for climate action.¹⁰

Increasing private finance mobilisation and unblocking the flow of private savings can help finance the green transformation in developing countries.

Global subsidies for fossil fuels reached a record $7 trillion in 2022, according to IMF data. This includes $1.3 trillion in direct government subsidies for fossil fuels.¹¹

Redirecting funds currently allocated to fossil fuel subsidies can both free up funds for climate finance and slow down emissions.

Governments and institutions need to urgently scale back fossil fuel subsidies which are causing environmental harm and taking much-needed financing away from just transition projects.

These are just some of the ways in which stronger political will can help unlock the necessary funding to support climate action.

Rich country governments must also play a role in mobilising finance to scale which will help developing countries adapt to the effects of the climate crisis.

By making more and better investments, we can stall the climate crisis, while creating a wealth of jobs and opportunities. By spending $1 today, we can save between $4 and $7 in the future.

Redistributing wealth to finance a secure future for all will benefit both people and the planet. Every country gains from this.

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