Rich nations pledge to unlock hundreds of billions of dollars for climate fight

[June 23, 2023]  By John Irish and Leigh Thomas

PARIS (Reuters) -Multilateral development banks like the World Bank are expected to find $200 billion in extra firepower for low-income economies by taking on more risk, a move that may require wealthy nations to inject more cash, world leaders said on Friday.

The leaders, gathered at a summit in Paris to thrash out funding for the climate transition and post-COVID debt burdens of poor countries, said their plans would secure billions of dollars of matching investment from the private sector.

An overdue pledge of $100 billion in climate finance for developing nations was also now in sight, they said.

Many in attendance, however, said over the two-day summit that the World Bank and the International Monetary Fund were increasingly ill-suited for tackling the most pressing challenges and needed a broad revamp.

"We ... expect an overall increase of $200 billion of MDBs' lending capacity over the next ten years by optimizing their balance sheets and taking more risks," the summit's final statement obtained by Reuters said.

"If these reforms are implemented, MDBs may need more capital," it added, recognising in a final summit document for the first time that wealthy nations may have to inject more cash.

U.S Treasury Secretary Janet Yellen, whose country is the largest shareholder of the IMF and World Bank, had said ahead of the summit that development banks had to first squeeze out more lending themselves before the possibility of capital increases was considered.

The final summit document called for each dollar of lending by development banks to be matched by at least one dollar of private finance, which analysts said should help international institutions to leverage an additional $100 billion of private money in developing and emerging economies.

The announcements mark a scaling up of action from the development banks in the fight against climate change and set a direction for further change ahead of their annual meetings later in the year.

However, some climate activists were critical of the results.

"While the roadmap from the Paris Summit acknowledges the urgency for substantial financial resources to bolster climate action, it leans too heavily on private investments and ascribes an outsized role to multilateral development banks," said Harjeet Singh, head of global political strategy at Climate Action Network International.

French President Emmanuel Macron speaks during the Alliance for Entrepreneurship thematic, as part of the New Global Financial Pact Summit at the Palais Brongniart in Paris, France, June 22, 2023. Emmanuel Dunand/Pool via REUTERS

DEBT RELIEF

At the summit, the United States and China - long at odds on how to tackle debt restructurings for poor countries - sought to strike a more conciliatory tone after a landmark deal was reached on Thursday to restructure $6.3 billion in debt owed by Zambia, most of it to China.

"As the world's two largest economies, we have a responsibility to work together on global issues," Yellen said on a summit panel shared with Chinese Premier Li Qiang among other leaders.

However, differences remain. China - the world's largest bilateral creditor - has been pushing for lenders like the World Bank or the IMF to absorb some of the losses, which the institutions and Western countries oppose.

"China is ready to be engaged in debt relief efforts in an effective, realistic and comprehensive manner in keeping with the principle of fair burden sharing," Li said.

CLIMATE PLEDGE

The summit statement said there was a "good likelihood" of finalising this year a $100-billion climate finance pledge to developing countries.

Many of the topics discussed in Paris took up suggestions from a group of developing countries, led by Barbados Prime Minister Mia Mottley, dubbed the 'Bridgetown Initiative'.

"There is the political consensus that this issue is bigger than each of us and we have to work together and multilateral development banks will have to change how they do business and that is accepted," Mottley said at the summit's closing panel.

"We leave Paris not with speeches simply, but a commitment to get down into the granular details to make sure that what we agree here can be executed."

The $100 billion pledge falls far short of poor nations' actual needs, but has become symbolic of wealthy countries' failure to deliver promised climate funds. This has fuelled mistrust in wider climate negotiations between countries attempting to boost CO2-cutting measures.

"If we can't shape the rules in this time like others before, then we will be accountable for what potentially can be the worst reality of mankind," Mottley said.

(Additional reporting by Casey Hall in Shanghai, Simon Jessop and Marc Jones in London; writing by John Irish and Silvia Aloisi; editing by Toby Chopra)

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