Around 50 heads of state, along with representatives from international institutions and civil society, will attend a summit hosted by French President Emmanuel Macron on Thursday and Friday in Paris. Their objective is to develop a new global financial system so the most vulnerable countries will be better equipped to combat both poverty and climate change.
The world’s wealthiest nations are demonstrating a “surge of solidarity” with those most vulnerable to climate change, said Cécile Duflot, president of the NGO Oxfam. Some 50 heads of state and government, representatives from international financial institutions, members of the private sector, climate experts and members of civil society will be attending the summit in Paris hosted by French President Emmanuel Macron on June 22 and 23. The objective of this ambitious conference is to “build a new contract between [the global] North and South”, according to the Élysée Palace.
Macron announced his intention to host this summit at the end of COP27 back in November, 2022. Environmentalists were not satisfied with how the climate negotiations had concluded. But in the final hours, a historic agreement was reached providing for the establishment of a fund to compensate for the effects of climate change suffered by developing countries. The initial aim of this week’s Summit for a New Global Financial Pact was to establish concrete measures to finance this fund. “From now on, the battle against poverty, the decarbonisation of our economy and the fight for biodiversity will be very closely linked,” Macron said at the time.
In the months since, the stakes have only heightened for countries in the Global South due to the combined fallout from the Covid-19 pandemic, the war in Ukraine, the climate crisis and galloping inflation. In the Palais Brongniart at Place de la Bourse, once the seat of the Paris stock exchange in the 2nd arrondissement (district), the hundreds of attendees will attempt to lay the foundations for an overhaul of the entire global financial system by adapting the post-war Bretton Woods institutions – the International Monetary Fund (IMF) and the World Bank – to today’s challenges.
On Wednesday, 13 political leaders – including Macron, US President Joe Biden, German Chancellor Olaf Scholz, British Prime Minister Rishi Sunak and Brazilian President Luiz Inacio Lula da Silva – wrote that they are “urgently working to fight poverty and inequalities” in a contribution to French daily newspaper Le Monde.
“Climate change will generate larger and more frequent disasters, and disproportionately affect the poorest, most vulnerable populations around the world,” they wrote. “These challenges cross borders and pose existential risks to societies and economies.”
“We want our system to deliver more for the planet.”
Colossal financial needs
The financial needs of the Global South are colossal. A group of independent experts, specialising in climate finance and working under the auspices of the United Nations, estimated last year that the world needs to allocate $1 trillion a year between now and 2030 for developing countries besides China to respond to the climate and biodiversity crisis.
Oxfam estimates that $27 trillion will have to be mobilised to “fight poverty, inequality and climate change in developing countries” between now and 2030, i.e., around $3.9 trillion a year. The World Bank put this estimate even higher, outlining in its 2021 climate action plan that $4 trillion a year will be needed between now and 2030 to build infrastructure that meets the needs of developing countries.
Governments present at the summit for a new global financial pact this week will not be making financial pledges but are instead expected to discuss the most effective means of financing. The first items on the agenda are those based on already established commitments.
“Developed countries have already pledged to allocate 0.7% of their wealth to developing countries and to contribute $100 billion to the climate. But for the moment, these funds have only been partially distributed, if at all,” said Désiré Assogbavi, the director for French-speaking Africa at ONE, a global anti-poverty NGO, at a press conference on Tuesday.
G7 countries in 2021 considered reallocating $100 billion in Special Drawing Rights (SDRs), an IMF reserve currency that is proportional to a country’s capital, to developing countries.
“This measure has been blocked in the eurozone, but this could easily be resolved by a political decision,” said Assogbavi, calling for the blockage to be lifted “by the end of the year”.
“On the last day of the summit, we hope that very clear mechanisms will be announced so that each of these commitments can be implemented.”
Taxes on major polluters and financial transactions
At the same time, new sources of funding will need to be explored. Within civil society, several associations and NGOs are already putting forward a number of ideas. First, they are calling for taxes to be introduced on the biggest polluters, in particular fossil fuel companies, due to “their historic responsibility for climate chaos”. In early June, 12 associations signed a petition asking Macron to tax the fossil fuel industry. They had gathered more than 31,000 signatures as of June 21. “This tax would enable us to raise up to $300 trillion,” said Fanny Petitbon, head of advocacy for the NGO CARE France.
“Why not also introduce a tax on financial transactions, which would raise $440 billion?” asked Petitbon. The principle of this tax is simple: given the scale of the transactions carried out on the financial markets, applying even a very low tax rate would help raise significant tax revenue without having any impact on how the markets work.
Ahead of the Paris summit, only a consensus on taxing maritime transport seems to be emerging, which could generate between $60 and $80 billion a year, according to the World Bank. “The subject could come to fruition in July when the International Maritime Organisation meets,” said Petitbon. “But the question of how the money will be used has yet to be decided. While some advocate that it should go to developing countries, others are calling for it to be used to decarbonise the maritime sector.”
Debt relief
In addition to the major issue of financing, the other dossier on the table is the debt owed by developing countries. “Debt servicing for developing countries is at its highest level since the end of the 1990s, and 93% of the countries most vulnerable to climate-related disasters are over-indebted, or not far from it,” said Lison Rehbinder, development finance advocacy officer at the CCFD-Terre Solidaire NGO.
“Today, countries in crisis are forced to repay their debts to creditor states, financial institutions and private banks, and this prevents them from investing in public services or fighting against climate change,” she said.
For the moment, the plan under discussion is to introduce clauses in loan contracts that would allow repayments to be suspended in the event of a climate disaster, according to Rehbinder. Adopted by G20 countries during the Covid-19 pandemic, this measure would become automatic. “But we need to go further and think about large-scale debt cancellation,” she said. “That’s the only way for countries to get their heads above water.”
Harjeet Singh, head of global policy strategy at Climate Action Network International, agreed. “The richest countries continue to mostly provide the countries of the South with loans – in 2020, grants accounted for just 26% of committed climate funding,” he said. “The fight against climate change must quickly move away from this profit-driven logic.”
The associations argue that it will only be possible to implement all these measures if the major multilateral development banks, primarily the World Bank, adopt bolder lending policies.
Political will
France acknowledges, however, that Paris will not be able to make any concrete decisions at this summit. According to the Élysée Palace, the meeting’s main purpose is to draw up a guide that will be used at the next G20 summit in India in September, the annual meetings of the IMF and World Bank in October, and COP28 in Dubai in early December.
“This event will put many important issues at the centre of international discussions,” said Duflot. “Unfortunately, it is still too unambitious, though we can no longer wait to implement far-reaching solutions.”
“It’s not the money that’s lacking, but the political will. The heads of government must now shoulder their responsibilities,” said Petitbon. “Because beyond funding, it’s all about rebuilding trust between the countries of the North and South.”
This article has been translated from the original in French.
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