Image Credit: WAM

Something important happened in Paris last week that got limited media attention. The President of France, Emmanuel Macron, hosted a two-day summit for a “New Global Financial Pact” with the aim of achieving four major objectives — ideally by 2030, which are: Restoring fiscal space to countries facing short-term difficulties, especially the most indebted countries, promoting private sector development in low-income countries, encouraging investment in “green” infrastructure for the energy transition in emerging and developing countries and mobilising innovative financing for countries vulnerable to climate change. Macron had called for holding this summit last year at the end of COP27 in Egypt.

Back then the parties involved saw that there is a need to work together to face the repercussions of multiple crises that are linked together. These are climate, energy, health and economic crises and the financing needed to address them.

At the end of the summit, which was attended by 40 leaders and representatives, in addition to international institutions and NGOs, participants agreed on the need to reform the world’s financial system. The rich countries pledged to honour a commitment to support a $100 billion fund annually, as special drawing rights (SDR), under climate finance that will help poorer countries, especially those struggling with external debt. They also promised $200 billion of additional lending capacity over the coming ten years. While this was a major leap forward, critics said that more was needed and that help should come in the form of grants and not loans and temporary debt relief.

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The outcome of the Paris summit will become a central issue for the World Bank, the International Monetary Fund (IMF) ahead of the COP28 climate summit later this year in Dubai. Macron called the summit a “watershed moment” adding that it had built a new consensus for the planet and adopted a shared view on how to reform the international financial architecture and governance.

Climate change has become the most urgent global crisis and its negative effects are felt by the poorer countries more than any other. These same countries, for lack of financial capabilities, are unable to do their share in adopting and shifting to green solutions while limiting their dependence on fossil fuel. Unless all countries move together towards the same objective it would be almost impossible to stop global warming and meet the parameters set by the 2015 Paris Climate Summit agreement that was signed by 195 countries.

All countries must be on board

But how would reforming the global financial system take place? The two leading institutions, the World Bank and the IMF, were created after the 1944 Bretton Woods agreement. Both are located in the US and are led by the US and the G7. The rest of the world has little say on how such a reform can proceed. But for climate change to be addressed globally, all countries must be on board.

Common sense suggests that wealthier nations must step in and support fossil fuel-dependent developing countries. This is the only way to accelerate the transition towards adopting clean energy sources and mitigate socioeconomic consequences.

“Let’s hope the recent agreement will help make the COP28 taking place in Dubai later this year a success after the meagre results of COP27 in Egypt last year,” Isabelle Albert, climate resilience venture capitalist at Paris-based Wind Capital, was quoted by Reuters. “At COP27, nations failed to commit to the measures necessary to limit global warming to 1.5 degrees Celsius until 2030,” she added.

While the devastating effects of climate change can no longer be denied, moving forward, especially with the humongous task of redefining the global financial architecture so that poorer countries can join the fight, will prove to be an especially difficult challenge. Few believe that the targets set to limit global warming can be met and that managing this global crisis has been mediocre at best.

At the end of the summit, more than 12 world leaders, including the President of the UAE, issued an open letter entitled “A green transition that leaves no one behind” in which they pledged that they are urgently working to deliver more for people and the planet by fighting poverty and inequalities.

“An estimated 120 million people have been pushed into extreme poverty in the last three years and we are still far from achieving our United Nations sustainable development goals (SDGs) by 2030. We should thus place people at the center of our strategy to increase human welfare everywhere on the globe,” the letter said.

President His Highness Sheikh Mohamed bin Zayed Al Nahyan and His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President, Prime Minister and Ruler of Dubai Image Credit: @HHShkMohd/Twitter

The leaders said that climate change will generate larger and more frequent disasters, and disproportionately affect the poorest. “Technology, skills, sustainability, and public and private investment will be at the core of our partnerships, to promote voluntary technology transfer, a free flow of scientific and technological talents, and contribute to an inclusive, open, fair and non-discriminatory economy,” the leaders added.

“We will continue to press for progress, leveraging other important events, starting with Cop28 in the United Arab Emirates this year. In all of our upcoming international works and negotiations, we will seek to advance concrete actions that deliver on the promise of the SDGs, for our prosperity, people, and planet,” the letter concluded.

Osama Al Sharif is a journalist and political commentator based in Amman.