COP27 builds momentum for climate efforts by multilateral development banks
Many of ADB’s developing member countries (DMCs), have long faced significant challenges to financing infrastructure and programmes for the public good. On top of this, climate-linked hazards such as flooding and cyclones pose a growing threat to lives and livelihoods that most developing countries do not have significant resources to counter.
This was on the minds of negotiators at COP27 in Sharm el Sheikh, Egypt, as they challenged multilateral development banks (MDBs) to scale up funding, align their operations and mobilise partners to support the climate resilience of their member countries.
The conference of parties “calls on the shareholders of multilateral development banks and international financial institutions to reform multilateral development bank practices and priorities, align and scale up funding, ensure simplified access and mobilize climate finance from various sources,” the negotiators wrote. They encouraged MDBs to “develop a new vision and commensurate operational model, channels and instruments” to address climate change, while accounting for countries’ debt burdens.
The backdrop to this year’s negotiations is a growing recognition that the target of limiting global warming to 1.5°C is increasingly out of reach, with significant impacts for lives and livelihoods, especially in developing countries. There is also serious concern about the lack of available resources to support developing countries to achieve their mitigation and adaptation targets – in large part because wealthier countries have not delivered on promises to provide $100 billion per year in climate finance by 2020.
In the second of two paragraphs on MDBs, COP27 negotiators “call on multilateral development banks to contribute to significantly increasing climate ambition using the breadth of their policy and financial instruments for greater results, including on private capital mobilization.” Negotiators also encourage MDBs “to ensure higher financial efficiency” and to “maximize use” of existing public, philanthropic and private capital “to drive innovation and accelerate impact.”
Negotiators also highlighted that developing countries are estimated to need around $5.9 trillion in the period to 2030 in order to implement their nationally determined contributions (their plans to reduce emissions and adapt to climate impacts).
MDBs are aware of the increasingly important role they play in supporting these efforts. At COP27, MDBs, including ADB, unveiled a pledge to address sustainable development, climate change and nature loss “in an integrated manner”, based on evidence-based diagnostics, policy development, clearly defined investment plans, and mobilization of local and concessional financing sources as well as private and blended finance.
The content of this pledge is reflected in ADB’s commitment to provide $100 billion in climate change financing for 2019-2030, of which $34 billion is earmarked for adaptation. In a 2017 report, ADB estimated that developing Asian countries will require $22.5 trillion from 2016-2030 in infrastructure investment to maintain growth momentum and tackle poverty; the report estimates climate change will require an additional $3.5 trillion to be invested in infrastructure.
The MDBs’ pledge also aligns with the ‘Bridgetown Initiative’ spearheaded by Barbados Prime Minister Mia Mottley, which urges the International Monetary Fund to support vulnerable countries by providing emergency liquidity, expanding multilateral lending to governments, and activating private sector support for climate mitigation and post-disaster reconstruction. Elements of the proposal are gaining momentum globally, including in remarks at COP27 from French president Emmanuel Macron.
Other leaders, including UK Prime Minister Rishi Sunak, spoke about the need for financial support to help developing countries decarbonise, adapt to climate change, and respond to climate-related disasters. A ‘loss and damage’ fund created in the last hours of COP27 is regarded as a promising step for channelling funding from developed countries to help developing countries confront mounting climate disasters.
However, observers warn that difficult decisions regarding the loss and damage fund – such as who pays into it and who benefits – have largely been deferred, and that the COP27 negotiations made little progress toward reducing the greenhouse gas emissions that are causing the climate crisis.