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In a world beset by rising temperatures, extreme weather patterns, and escalating natural disasters, the urgency of decisive action on climate change and the threat of future pandemics has never been more apparent. Both threats will affect us all. But the countries between the Tropics of Cancer and Capricorn – including the Caribbean and Pacific states, and parts of Latin America, Africa, and Asia where another 40 per cent of the global population lives – are currently experiencing loss and damage four times greater than elsewhere.
As we navigate these daunting challenges, we must forge robust partnerships based on trust and respect. The global climate crisis can be tackled only with a global mobilisation. The Bridgetown Initiative, launched in Barbados last summer and recently updated, calls on us all to maximise our efforts to prevent and respond to climatic events and pandemics. We must invest now to avert higher costs later. The window is closing, and we must act before irreversible damage is visited on those who can least withstand it.
Our task is fourfold. We need to make the global financial system more shock-resistant. We need to unblock flows of private capital, so that we can accelerate climate-change mitigation and medical research. We need to ramp up long-term, low-cost lending to governments, so that they can make their citizens, communities, and countries more resilient to climate-related disasters and pandemics. And we need to find new non-debt resources to finance post-disaster reconstruction. The Bridgetown Initiative proposes urgent reforms to the global financial architecture to meet these objectives, and it calls for a tripling of concessional loans and grants to the world’s poorest countries.
But we must also maximise the availability and use of resources that we can leverage the most: capital at development banks. Multilateral development banks (MDBs) have a unique role to play in the global mission to prevent and respond to climate change and pandemics. Institutions like the European Investment Bank are already ramping up climate-related finance in pursuit of the 2025 goals set at the 2019 United Nations Climate Action Summit.
Looking ahead, better integration with the broader set of public development banks – including national ones, which collectively lend more than $2 trillion per year – could further improve the effectiveness of existing lending. Estimates by economists Vera Songwe, Nicholas Stern, and Amar Bhattacharya suggest that the developing world needs at least $350 billion more per year of low-cost finance for building resilience against climate and pandemic risks. That would require a near tripling of MDB lending beyond what is currently extended to the poorest.
To that end, we must make the best use of all forms of existing capital available at the development banks. But since not everyone can pursue this option, we also welcome initiatives to redirect allocations of the International Monetary Fund’s special drawing rights (SDRs, the IMF’s reserve asset) to multilateral development banks so that they can boost lending. This is one area where the EIB is actively engaging countries like Rwanda and Barbados.
We also should leverage development-bank balance sheets through risk-sharing and risk transfers – an area where the EIB has much expertise. But to get close to a target of tripling lending for climate resilience, development banks will need more paid-in capital. That is why the updated Bridgetown Initiative includes a call to raise US$100 billion more for the MDBs.
To make the most of this capital, we will need to modernise how we allocate MDB support. While development banks are right to focus on the poorest countries, 70 per cent of the world’s poor people live in middle-income countries that are currently ineligible for concessional and grant-like resources. Worse, millions of people are now at risk of becoming poorer in the wake of a climate disaster or a pandemic. Short of changing existing concessional arrangements, we need new long-term, low-cost lending instruments to target investments in building resilience among vulnerable populations in middle-income countries. Hence, the EIB recently approved the extension of loan maturities for sovereign counterparts for up to 30 years, with a ten-year grace period.
Development banks should recognise that in today’s world of global shocks, global initiatives are essential to tackle poverty and support climate mitigation, biodiversity, early-warning systems for natural disasters, and pandemic preparedness and response. Success will require sticking to the goal of poverty reduction and growth, but moving beyond narrowly focused projects.
The EIB fully supports these aims and is working toward them in partnership with other MDBs. Following a call to action last year at COP27, the MDB Climate Group is advocating an approach that addresses resilience at the level of whole countries. This means focusing on policy, investment, and capacity-building measures that will foster a green transition in accordance with a country’s own priorities. Such an approach will allow us to shift from incremental, project-by-project climate finance to a more comprehensive approach that emphasises national and global outcomes.
As we navigate the daunting challenges posed by climate change and pandemics, everyone – but especially Europeans and others championing the transition to net-zero emissions – must support expanded financing. With its public-interest model and innovative capabilities, the public development bank system can be the mechanism with which we achieve common global goals. Unless our commitments under the Sustainable Development Agenda and the Paris climate agreement prevail, we will have failed to alleviate the suffering of billions.
We can achieve a sustainable future only by reforming the financial system, scaling up climate investment, and listening to vulnerable states. With our joint commitment to solidarity, fairness, and mutual respect, we must work together to make the Bridgetown Initiative’s transformative vision a reality.
Mia Mottley is Prime Minister of Barbados. Werner Hoyer is President of the European Investment Bank.
Copyright: Project Syndicate, 2023.www.project-syndicate.org
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