The Global Financial Pact on Climate Change

The Global Financial Pact on Climate Change

News: Recently, a summit for a ‘Global Financial Pact on Climate Change’ was held in Paris.

What is the Global Financial Pact on Climate Change?
• It is a new initiative that was launched at a summit in Paris with the participation of more than 40 world leaders and international organizations.
• The pact aims to mobilize more financial resources and reform the global financial architecture to support the transition to a low-carbon and resilient economy, especially for the most vulnerable countries and communities.
• The pact is based on 4 pillars - Boosting crisis financing for low-income countries, Reforming the Multilateral development banks, mobilizing private finance for green and inclusive growth and strengthening global governance and co-operation.

What were the key observations made at the summit?
• Most delegates attending the summit arrived at a consensus that multilateral institutions should find ways to unlock new climate investments.
• Debt arrangements should include disaster clauses. For instance, the disaster clause may include a twoyear pause on repayments after an extreme weather event.
• Announcement of a new 2.5 billion Euro Just Energy Transition Partnerships (JETP) deal for Senegal, aimed at increasing the renewable share in the energy mix.
• Proposal for a Global Expert Review on Debt, Nature, and Climate to assess the impact of debt on lowand medium-income countries’ capacity.
• Momentum on polluter taxes accelerated, promoting the implementation of pollution taxes as a means to discourage environmentally harmful practices.
• French President Emmanuel Macron expressed a possibility that rich nations will meet their pledge for a $100 billion annual fund for climate change initiatives in the Global South, by the end of this year. This fund was originally meant to be received by the developing countries by 2020.

Challenges in Climate Financing:
• The current commitment of $100 billion represents a fraction of the amount required by the Global South to develop resilience against climate change.
• A report presented at COP27 last year estimated that, excluding China, developing and emerging economies will require $2 trillion annually by 2030 to support energy transition, adaptation, sustainable agriculture, and address global warming-related loss and damage.
• However, The IMF and World Bank have acted upon the issue of climate financing. For example, The IMF announced Special Drawing Rights (SDR) of $ 100 billion to Global South and The World Bank also said it will pause loan repayments for countries struggling with climate disasters.