The Paris Summit agenda to deliver on a new global financing pact

Remarks made by Nicholas Stern and Amar Bhattacharya at the Summit for a New Global Financial Pact in Paris on 22 June 2023. The Summit was opened by French President, Emmanuel Macron.

Professor Lord Nicholas Stern:

Thank you so much, M. le President, for this crucial global initiative and for the invitation to the three of us, a global trio, to offer a strategic and quantitative framework for this critically important event. Our remarks draw on work on sustainable development finance requested by the COP 26 and 27, and now the COP28, Presidencies. Unfortunately, Vera Songwe is not able to be with us, but these remarks reflect our close collaboration.

Finance is for a purpose. The global agenda today is to overcome and become more resilient to the crises that we are facing, to restore momentum to the Sustainable Development Goals and poverty reduction, and to act with the urgency needed on climate and nature. This requires investment on a major scale – an extra 2-3 percentage points of GDP globally, 4 to 5 points in emerging markets and developing countries, but with significant variation across countries. This ramp-up is essential not only for tackling climate change but also to put us on a new path for global development, much more attractive than the dirty, destructive models of the past – one that is more sustainable, inclusive and resilient. 

Hence our work is deductive. If we want to deliver on this vital global agenda, this is what we have to do. Systemic change on this scale is not easy. But the most dangerous and unrealistic approach is to fail to rise to this challenge. Delay is deeply dangerous.

Here are the basic numbers:

• Overall development spending to reach the SDGs will need to more than double from pre-pandemic levels to around $5.3 trillion per year by 2030 for emerging markets and developing countries other than China.
• Spending on climate-related development goals, part of this $5.3 trillion, will need to increase four-fold from pre-pandemic levels to $2.4 trillion by 2030.
• Of this $2.4 trillion, we believe that around $1.4 trillion can come internally from stepped up efforts on domestic resource mobilisation.
• Thus, around $1 trillion a year will be needed in external climate finance by 2030 – around $250-$300 billion from multilateral development banks and other development finance institutions, a more than tripling from existing levels; around $500 to $600 billion from private finance, a five-fold increase from present levels; and around $150-200 billion from concessional and debt-free finance, through stepped-up donor commitment and tapping new and innovative sources of finance.

This quantitative framework is set out in a note that has been posted by this Summit’s organisers on the Summit website. These numbers are clearly substantial, but they are simply what is necessary for the Paris Agreement and the SDGs. And crucially they give us recovery, growth, development and poverty reduction which are strong and enduring. There is no horse race between climate action and poverty reduction.

Amar Bhattacharya:

Thank you, Nick.

A crucial first step, indeed a symbol of trust, is to meet the long-standing commitment by developed countries to provide $100 billion a year for climate action in developing countries. 

At the Petersberg Dialogue in May, donors committed to deliver the $100 billion in 2023, and G7 Leaders reaffirmed this intent in the Hiroshima Declaration in June.

With concerted efforts on these commitments, and given the sustained progress on the delivery of climate finance by multilateral development banks, including by the International Development Association (IDA), which provides crucial support for low-income countries, and improved private mobilisation efforts, there is a good likelihood that the $100 billion commitment can be met in 2023.

Immediate priorities on climate finance include the IDA cliff-edge, the replenishment of the Green Climate Fund, and enhanced support for the Poverty Reduction and Growth Trust and the Resilience and Sustainability Trust of the International Monetary Fund through the reallocation of Special Drawing Rights by advanced economies and other willing contributors.

Beyond these immediate priorities, as Nick has stressed, the scale of the investments needed over the next five years and beyond will require a much more ambitious debt and financing strategy.

We must align all finance with sustainability and climate goals. And we must utilise the complementary strengths of different pools of finance, private, multilateral development banks, and concessional, to share risk and reduce the cost of capital. 

We see six priorities to deliver on a new global financing pact based on all of the work for this Summit.

First, the overall framework for realising investment and its finance will require country-led platforms for purposive, concerted and cooperative action, supported by regional and global platforms. The Just Energy Transition Partnerships are key examples. 

Second, tackle the immediate debt difficulties of poor and climate-vulnerable countries and break the vicious cycle of climate and debt vulnerability, as Prime Minister Mottley has stressed.

Third, greatly enhance support for developing countries in their efforts to strengthen domestic resource mobilisation, public and private, and tackle illicit capital flows. Elimination of harmful subsidies and ramping up carbon taxation must be key priorities.

Fourth, unleash the potential of the multilateral development banks and the larger development finance system. They can support countries in creating the necessary conditions for scaling up investment, mobilise low-cost internal financing from their own resources, and, crucially, catalyse private finance through the management, reduction and sharing of risk. Given the scale of the necessary increase, the multilateral development banks will need additional capital resources even as they pursue more effective use of their existing capital.

Fifth, create a new highway for private finance that can and must make the largest contribution to the scaling up of finance. This requires the private sector, governments and multilateral development banks to come together to co-create investment opportunities, tackle impediments, including policy and regulatory obstacles, and bring down the cost of capital, by blending finance and managing and sharing risk. This calls for a much stronger role for guarantees and consideration of new mechanisms especially for foreign exchange risk.

Finally, greatly expand the scale of concessional and debt-free finance through renewed donor commitment and tapping new sources of concessional and debt-free finance, including through enhanced use of Special Drawing Rights, voluntary and compliance carbon markets, private philanthropy, and pursuing options to tax fossil fuel use globally, including in the maritime and aviation sectors. 

As Nick said, none of these steps will be easy, but they are essential. And with the commitment and leadership that President Macron has shown and garnered for this Summit, all this is possible.