The two-day global summit, titled the Global Financial Pact, recently held in Paris, has resulted in substantial progress for disadvantaged nations. However, the long-awaited realization of a radical transformation of the global financial system in favor of the climate is still to be achieved.
Global Summit for a New Financial Pact: A Step towards Resolving the Climate Crisis with Money?
The summit for a new global financial pact, which concluded on Friday, June 23, was marked by the commitment of states and institutions gathered in Paris to undertake the necessary reforms to address the multiplying climate, economic, and health crises on our planet.
From the former Paris Stock Exchange headquarters, Emmanuel Macron and around forty heads of state and government took stock of two days of discussions. However, it is challenging to distinguish between lofty statements of intent and concrete announcements. Faced with the enormity of the challenges, the outcomes of this grand gathering are inevitably disappointing.
Recycled and insufficient aid promises The needs are colossal. According to Oxfam, low- and middle-income countries require $27 trillion by 2030 to meet climate-related expenses and social needs. The $100 billion per year promised since COP15 in Copenhagen in 2009, which were finally gathered for the first time this year, are not enough to claim victory. Similarly, the announcement of reallocating the equivalent of $100 billion of Special Drawing Rights by wealthy countries in favor of the Global South is merely a confirmation of a commitment made in 2021.
Developing countries, many of whom were represented, some at a high level, had hoped that this summit would mobilize trillions of dollars. However, they are left with recycled unfulfilled promises and the prospect of new loans that will push the poorest nations into disastrous indebtedness, said Cécile Duflot, the director-general of Oxfam France, in a statement.
Nevertheless, delivering on these past promises in Paris was necessary to restore dialogue between Northern and developing countries, explained Claire Eschalier from the Institute for Climate Economics. It was a way for them to get back on track after years of unfulfilled promises.
Little new money to address the climate crisis Those who hoped the summit would be an opportunity to establish new sources of financing, particularly through taxes on polluting activities, left disappointed. Discussions on the possibility of international taxes on financial transactions, airline tickets (as implemented in France since 2008), and maritime transportation did not yield results.
However, this last option now enjoys increasing political support. Advocates of this measure hope it will materialize at the upcoming summit of the International Maritime Organization, scheduled for early July. Emmanuel Macron pledged that this negotiation would take place and that a group of about twenty like-minded countries would work together.
These issues have been placed on the agenda of future high-level diplomatic meetings such as the G7 and, most importantly, the G20.
The beginning of reflection to reshape financial institutions The French President welcomed a “complete consensus” to “profoundly reform” the global financial system. However, while awaiting this revolution, the summit recorded a series of small steps. For example, the World Bank expressed its intention to include in its agreements with the most vulnerable countries a new clause allowing for the suspension of debt payments in the event of a natural disaster. This measure, championed by Mia Mottley, the charismatic Prime Minister of Barbados, would enable countries affected by extreme weather events to temporarily suspend debt repayment to address the emergency.
The newly appointed President of the World Bank, Ajay Banga, also expressed his intention to promote a cultural transformation of the institution. During a press conference, he stated that he was initiating a reflection to “assess the impacts of financing on greenhouse gas emissions,” rather than solely focusing on financing volumes. This approach would involve evaluating funded projects as a whole and setting measurable objectives for combating climate change and development in the respective countries.
These countries clearly called on financial institutions to assist them in realizing their own development strategies. According to South African President Cyril Ramaphosa, the nations of the Global South expect “not only a reform of the international financial architecture but also concrete projects, especially in the field of infrastructure. It is under these conditions that we, Africans, will be convinced that it is worth participating in this kind of summit, coming to Europe, and listening to all these promises,” he warned.
Concrete announcements for Senegal and Zambia To find concrete announcements resulting from these two days of discussions, one must look to Senegal. This West African country has established a “partnership for a just energy transition” with a group of Northern countries, including France, and multilateral development banks, with the aim of achieving a 40% share of renewable energy by 2030. These partnerships were initiated in November 2021 during COP26 in Glasgow and have since enabled countries such as South Africa or Indonesia to make progress towards phasing out coal, the most greenhouse gas-emitting fossil fuel.
Finally, while several countries face worsening indebtedness due to multiple crises, Zambia’s creditors, including China, have agreed to restructure $6.3 billion of debt over two years after the country’s default.
Establishment of a monitoring mechanism During the conclusion of a final roundtable, Emmanuel Macron announced the creation of a monitoring mechanism for the commitments and discussions launched in Paris. He asked the various participants to sign the list of commitments mentioned during these two days, of which he acted as the “scribe,” and invited them to submit progress reports every six months. Emmanuel Macron also expressed the desire to meet the participants “in two years,” just before COP25 scheduled in the Amazon, to assess the progress made following this “consensus.”
This hybrid summit model has emerged as a step to bring together actors of international negotiations in a more flexible framework than UN summits or G20 meetings, thereby fostering the emergence of cross-cutting solutions to address these crises. Sébastien Treyer, director of the Institute for Sustainable Development and International Relations, emphasized that Southern countries seized this opportunity to make strong declarations and coordinate their actions in preparation for future diplomatic meetings. “This summit may not have resulted in all the expected systemic transformations, but it should allow for the continued passing of the baton and maintaining pressure in the coming months,” he explained.
“I have appreciated the spirit of cooperation and partnership that I have observed here,” said Kenyan President William Ruto from the podium. “I believe this is the right way to work.” While the financial system may not have been completely revolutionized, the prominence given to developing countries in these discussions may already constitute a form of revolution.