World leaders are descending on Dubai for this year’s United Nations Climate Change Conference, or COP28. Even as participants and observers gear up for what could be a contentious round of climate talks, two things are clear. First, the world’s poorest are already suffering from the effects of climate change—and without concerted action, that suffering will grow worse as the planet heats up further. Second, the world is so divided about hot wars over geopolitics, and between industrial and developing economies, such action is harder to achieve.
At COP28, finding a path forward will require confronting relatively simple math: The world needs about $3.8 trillion annually, a third of it invested in emerging and developing economies, to prevent climate and human catastrophe. Only about 16 percent of this amount is being met today. Such enormous needs demand an enormous response. Though the ideas for that sort of action have become clearer over the last two years, it has been hard to gather or sustain sufficient will for action. But at COP28, the world has another opportunity to finally come together behind a set of ideas that can dramatically scale investment in development and climate action.
Today’s crises—climate-related disasters, the economic hangover from the COVID-19 pandemic, and the conflicts in Ukraine, Gaza, South Sudan, and elsewhere—are driving a great divergence between the wealthy and less wealthy parts of the world. Rich countries have the financial flexibility to endure shocks even as they invest in their future. For example, the United States alone has begun to invest $3 trillion in a green transformation. Similarly, the European Union and China have ambitious programs as well.
Yet, despite borrowing in great numbers during the pandemic, developing countries could not mount an economic response anywhere near comparable to their wealthier counterparts—let alone invest sufficiently in greening their economies. As a result of this and rising global interest rates, 60 percent of emerging economies are in or nearing debt distress. (Kenya, for example, is spending nearly 60 percent of its tax revenue on debt repayments, squeezing spending on other essential services and forcing the government to delay paying salaries earlier this year.)
Wealthier nations have stepped up for themselves—but not enough for others. China recently committed $100 billion to expand its Belt and Road Initiative, but its drawbacks are well known. Other global efforts, though well intentioned, have fallen short of what is needed. Development support to Africa actually declined in 2022. And the list of unrealized climate commitments includes those made in Copenhagen and Paris, the Glasgow Financial Alliance for Net Zero, and others. The loss and damage fund announced at last year’s U.N. climate conference in Sharm el-Sheik, Egypt, may yet be added to that list, though there has already been some progress in Dubai.
Even when help appears imminent, it is slow moving. For example, in June, Zambia was the first nation to qualify for debt relief through the G-20’s Common Framework—a platform designed to aid the recovery of overstretched countries—but the process has been lengthy and arduous, with delays and setbacks. The result is not just insufficient climate action but insufficient investment in human development. Even a recent U.N. review made clear that progress on the Sustainable Development Goals, which leaders agreed to in 2015, is “weak,” “stalled,” or reversing.
However, several global leaders, experts, activists, and philanthropists have come together behind a big bet on a set of ideas—including the Bridgetown Initiative, the Vulnerable 20 Group (V-20) Accra-Marrakech Agenda, and the African Leaders Nairobi Declaration on Climate Change and Call to Action—that could help reverse the divergence between wealthier and developing economies by reforming key international financial institutions and unlocking additional investment.
Some of these ideas have been adopted, including a pilot of climate resilient debt clauses at the World Bank and a Resilience and Sustainability Trust at the International Monetary Fund (IMF). At last month’s meetings in Marrakech, Morocco, World Bank President Ajay Banga also set out a robust vision to enact more of these reforms in order to realize the promise of public, private, and philanthropic partnerships.
Still, far more needs to be done—especially given how quickly climate change is progressing and how slowly human progress is advancing. Here are three key paths to unlocking the resources required to change both trends.
First, emerging economies need capital to make long-term investments. Ideally, countries would increase their concessional contributions to developing economies, particularly those in the Global South. With modernization, multilateral development banks (MDBs), including the World Bank, could also offer far more lending, with longer tenures and lower interest rates, to drive development and climate resilience. One suggestion seeks to revise the World Bank’s current, conservative capital adequacy rules. This outmoded approach has limited the potential of the International Bank for Reconstruction and Development, the World Bank’s main lending window, and the International Development Association, the World Bank’s grant and concessional lending fund for the world’s most vulnerable countries.
Recent analysis, including a new report by financial analytics firm Risk Control, bolsters one of many of these recommendations, suggesting that by putting in place modern risk management techniques and innovations, the World Bank could unlock nearly $190 billion in additional lending without risking a credit downgrade. Moreover, securitization—an entirely common way of obtaining leverage in the commercial world—of 10 percent of the World Bank’s portfolio of sovereign loans could further generate an additional $29 billion to $41 billion in new lending headroom. As other multilateral development banks follow suit, the amount of liquidity in the international financial system should increase dramatically, allowing emerging economies to invest more sustainably in their own green transformations and their people.
At the same time, there is another innovative opportunity to increase the amount of financing available for development and climate resilience: enabling richer countries with unused Special Drawing Rights (SDRs), a form of asset issued by the IMF, to re-channel these resources to developing countries through MDBs. The unique structure of multilateral development banks, along with their favorable credit ratings, means that they could leverage these unused SDRs to triple or quadruple their value. This would maximize their impact to help lower-income countries meet urgent climate and development finance needs. For example, rechanneling $5 billion in SDRs to the African Development Bank could increase its lending by $15 to 20 billion, a considerable expansion of the bank’s lending capacity.
Second, these countries need a way to escape short-term, high-cost debt. As Zambia’s experience makes clear, the G-20 Common Framework for debt treatments should be reformed and expanded to bring in new bilateral lenders and provide reliable timeframes and parameters for borrower countries. In addition, the IMF could extend its timeline to allow countries to borrow more today, and weigh debt incurred from critical climate investments differently—recognizing that these actions benefit the whole world. Taken together, these changes could give countries the flexibility and momentum to concurrently adapt to today’s crises and invest in their futures.
Third, developing economies need access to technologies that can advance development and reverse the climate crisis, such as renewable energy innovations. Technological breakthroughs will continue to serve humanity, but we cannot rely on the free market to deliver those advances to the most vulnerable. They will always reach the wealthy first—and may never reach those who need them most. Over the last 20 years, public-private-philanthropic partnerships have proven uniquely effective in breaking those barriers to access. One of them today, the Global Energy for People and Planet, of which The Rockefeller Foundation is a founding partner, is working to accelerate renewable energy transitions in 20 countries. It and other partnerships can, with the right resources, make real progress.
Unfortunately, division and distraction among wealthier nations have slowed or halted progress on more ambitious efforts. The delay has also increased frustration among emerging economies. For example, the IMF moved urgently to assist Ukraine in its darkest hour, as it should have. Given the terrible human costs of the combined food security, debt, and the fuel crises, other countries deserve the same urgent response. One way to do so would be for major World Bank shareholders to contribute significantly next year to an ambitious replenishment of the bank’s International Development Association.
Fortunately, the meetings in Dubai offer an opportunity to demonstrate the sort of bold ambition required to restart development progress and slow the climate crisis. With early reports suggesting new commitments of concessional capital and potential progress on a few of these reforms, COP28 could offer some of the financial resources needed to rapidly scale climate actions like energy transitions that also benefit the most vulnerable. At a time of division, nothing can be taken for granted, but advancing these sorts of novel solutions in the coming weeks may begat the breadth and depth of cooperation required for even bigger actions in the years ahead.