If you want to understand the state of the world’s climate efforts, follow the money. Here’s the daunting reality: By 2030, the developing world will need more than $2.4 trillion to address climate change–not as a one-off, but every single year. Of this total, donor countries have committed to mobilize $100 billion annually, a small fraction of what is needed. They have repeatedly fallen short until this past summer at the Paris Summit after a lot of pressure was applied. Now the challenge is how best to mobilize committed finance to restore trust, while simultaneously building a new climate financial infrastructure.
This raises a fundamental question: Is the world capable of mobilizing the trillions of dollars necessary to fund the climate transition? I believe the answer is yes–but not without a concerted effort from governments, international financial institutions, and the private sector to reform the current financial architecture and better align global and domestic financial flows with the world’s climate goals.
Let’s be clear about the stakes. Without major reform of the current financial system, it will be impossible to adequately build new zero-carbon energy, food, and transport systems. We will not have the ability to invest in the resources and infrastructure that help developing countries–especially small island developing states and economies across the Global South–to cope with flooding, droughts, heatwaves, storms, and other climate shocks.
However, if we get this right, creating a better climate finance system can catalyze the biggest economic transformation since the Industrial Revolution. It presents a multi-trillion-dollar opportunity to unlock better forms of growth, create new jobs, new firms, and entirely new industries–and to leave a world to our children and grandchildren that is safer, cleaner, and more prosperous.
The UN General Assembly has climate finance reform in its hands
As leaders gather in New York for the UN General Assembly this week, we urgently need to rally behind a well-defined framework for overhauling climate finance. We must build on the recent momentum of the Barbados Bridgetown Initiative, France’s Summit for a New Global Financing Pact, and the Africa Climate Summit so that the upcoming COP28 climate summit can deliver concrete outcomes.
In an effort to build such a framework, the COP28 Presidency is holding a series of dialogues with a diverse group of leaders to agree on a set of principles for how to fix climate finance. The first dialogue took place in August with the Independent High-Level Expert Group on Climate Finance, and some clear principles are emerging.
We must urgently restore trust in the system. Developed nations must honor their commitments to channel $100 billion annually towards developing countries and show progress on the goal of doubling adaptation finance by 2025. Policymakers must also fund and operationalize the Loss and Damage Fund, forged at COP27 in Sharm el-Sheikh last year, to aid vulnerable nations in responding to climate-related crises.
Governments need to unleash the potential of the private sector by creating the right policy incentives and instruments. For its part, the private sector must actively partner with governments and international organizations to create the necessary conditions for investment. We have already had a glimpse of what’s possible. For example, at the African Climate Summit that took place earlier this month in Nairobi, the UAE launched a $4.5 billion Finance Initiative that will bring private and public sector partners together with African governments to help unlock Africa’s clean energy potential. By setting out clear investment and renewable energy diversification plans, putting in place enabling regulations and policy frameworks, and taking action to modernize basic infrastructure, governments can raise significant sums of private capital for sustainable growth.
Another concrete way that governments can empower the private sector is by shaping better-functioning voluntary carbon markets. These markets can be powerful instruments for channeling private capital from developed to developing economies and for driving investments into new technologies. However, to date, they have been riddled with quality and integrity issues. Governments can help increase trust in these markets by enforcing high integrity standards, robust regulations, clear definitions, and penalties.
Finally, we need international financing institutions to operate more efficiently. Multilateral Development Banks need to be significantly recapitalized. They also need to work better together as a system, supporting common country approaches and platforms. Ultimately, the focus should be on tools that further open, rather than crowd out, more private sector capital.
International financing institutions should rethink how mechanisms–such as the IMF’s Special Drawing Rights–can be used to help alleviate the debt burden of climate-stricken vulnerable countries, free up fiscal space for investments, and leverage private finance. The role of the IMF is also important to incentivize the right policies for domestic borrowing and resource mobilization for climate needs.
Money waiting to be unlocked
There is a broad range of additional policies and mechanisms that can make a difference–from tax reforms to debt swaps for climate and nature, all the way to initiatives that leverage private philanthropy. We must use every tool we can to fill the climate finance gap.
Fixing climate finance is daunting but doable. It begins with restoring trust, which must continue this UNGA. I therefore call on all governments, development institutions, and business leaders to use these crucial next few months before COP28 to raise their ambitions and deliver on their pledges. They should also go further, and support fundamental reform of the global financial architecture to deliver climate finance at scale. The money is waiting to be unlocked. Now let’s use this UNGA–and the months leading to COP28–to build the right framework and political will to unlock it.
Sultan Al Jaber, Ph.D., is the president-designate of COP28, the UAE’s minister for industry and advanced technology, special envoy for climate, chairman of Masdar, and group CEO of the Abu Dhabi National Oil Company (ADNOC).
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
