Home Climate justice Chronicle: Why the road to Sharm el-Sheikh goes through Washington, DC

Chronicle: Why the road to Sharm el-Sheikh goes through Washington, DC

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October 10 – In less than 30 days, the caravan of climate negotiators, ministers, heads of state, media, industrialists and financiers will land in Sharm el-Sheikh, Egypt, for the 27th round of climate negotiations (COP27 ). They will meet 30 years after countries first agreed to the Framework Convention on Climate Change, and seven years after the world decided in Paris to act to limit warming to well below 2 degrees Celsius compared to pre-industrial levels and, in doing so, to leave no trace behind.

COP27 will take place amid complex crises and two competing climate narratives. The first is that of dismay that politics has failed science: we are subsidizing fossil fuels more and deforesting faster. We have failed to mobilize the promised green finance and we have not made enough progress in greening the financial system.

The second is hope: the possibility of a renewable energy revolution, as technologies improve, prices fall, storage expands and the electric vehicle transformation takes off. And in traditionally hard-to-cut sectors such as steel, cement, shipping and aviation, we are seeing advances in technology and coalitions forming to drive progress.

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Complex crises, however, are likely to get in the way. The dislocation of the pandemic continues to work its way through the system, having stunted growth and development, increased indebtedness and hampered global supply chains. Added to this is the war in Ukraine, which is driving up high gasoline prices and fueling fuel price inflation and soaring food prices. Europe has diverted climate and development funds to Ukraine. We have a major fertilizer crisis, and the UN is facing, for the first time in economic history, several famines at the same time.

Trucks and cars drive past as smoke rises from the Duvha coal-fired power station owned by state-owned electricity company Eskom, in Emalahleni, Mpumalanga province, South Africa, on 3 June 2021. Picture taken June 3, 2021. REUTERS/Siphiwe Sibeko

Relations between China and the United States, at the heart of climate diplomacy as the two largest emitters, are in the cold, and Europe faces recession and a test of everything it stands for. in the face of Vladimir Putin’s aggression. Meanwhile, low-income countries are on the brink of broken promises on vaccines, climate finance and clean energy investments.

So what can we expect? Despite these crises, success means progress on finance.

At COP26 in Glasgow, the failure to deliver, even belatedly, the pledge of $100 billion a year in climate finance by 2020 was clouded somewhat by the announcement of private finance: $130 trillion of assets under management from 450 financial institutions, united under the name Glasgow Finance Alliance for Net Zero (GFANZ).

This number was made possible by the aggressive conduct of reluctant US banks in the weeks leading up to the summit. Twelve months later, GFANZ validates the claims of its signatories; some asset managers exited in uncertainty; and some major US banks, led by the most prominent fossil fuel banker, JP Morgan, have expressed doubts in public.

With an eye on the November elections, states like Texas and Florida are grappling with ESG investing trends and the financial industry’s move to set net-zero goals is inevitably hitting hurdles in the road to the transition.

Previously, net zero claims were attacked by the left for greenwash. Now the attacks are coming from the right for being “woke” capitalism. Integrity is at the heart of the financial sector’s role in climate action and there will be a closer look at commitments in Sharm. Egypt’s ministers, always pragmatic, made it clear that they wanted to move from pledges to specific enforceable policies and practices aimed at ensuring effective implementation.

Public finances will still not reach 100 billion dollars. Still, significant efforts will be made to leverage funding from the Just Energy Transition Partnerships (JET-P) – with new platforms in sight for Indonesia and Vietnam. Senegal is online and a platform for India is in sight.

These JET-Ps follow the agreement to channel 8.5 billion dollars to South Africa during COP26. And while it has proven to be a complex process moving forward, the elements of new funding and flows are the subject of intense work among a wide range of partners.

Voluntary carbon markets, which were decried as greenwashing taps a year ago, are undergoing detailed work to establish safeguards and rules that will ensure that high-integrity markets lead to reductions and elimination of emissions as well as a constant flow of resources to countries and communities, which can produce high quality carbon credits, such as Gabon. Making carbon markets work better for Africa in particular will be important at COP27.

But the road to Sharm is through Washington, DC, and the upcoming IMF and World Bank annual meetings. Attacked by some shareholders, including its largest, the United States, the management of the World Bank is trying to demonstrate sufficient climate effort. He may well be tasked with rethinking his strategy. But for now, there will be no fundamental change.

For developing countries, however, climate finance must be part of debt relief. Sixty percent of low-income countries and 30% of emerging economies are already over-indebted, and climate impacts will make it worse. The two are inextricably linked. The IMF expects $40 billion to flow into the Resilience and Sustainability Fund created following recent redemptions of SDR issuances. The IMF has also reported interest on debt for climate trading. But this is only the beginning.

Mahmoud Mohieldin, Egypt’s climate champion, speaks during an interview with Reuters in Cairo, as Egypt prepares to host the COP27 summit in Egypt, September 12, 2022. REUTERS/AMR Abdallah Dalsh

Mahmoud Mohieldin, the COP27 champion and a veteran of the Bank and the Fund, echoed calls from Mia Mottley, Prime Minister of Barbados, for the World Bank to expand its most concessional financing to more countries, that is, its lending at below-market rates to the most vulnerable countries to help accelerate development goals.

There are also calls to change the classification of the “most vulnerable”. If a country or state can lose more than 5% of its GDP during an extreme weather event, which is increasing in frequency and intensity due to climate change, then income alone is a boring measure of need.

There is no justice in climate change. The most vulnerable become impoverished, and extremes of rainfall and heat will punish the weakest the most. But climate justice is the framework for discussions on finance. COP27 comes at a time when we have yet to translate the rallying cry of climate justice into the way we regulate our financial markets, set the price of carbon and manage our insurance markets.

International financial institutions and our multilateral cooperation framework have not responded with the urgency needed, and they will have to be reset by their owners with new ownership models. In the meantime, in Sharm ‒ to echo the Egyptian presidency ‒ we must do concrete things.

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust. Sustainable Business Review, part of Reuters Professional, is owned by Thomson Reuters and operates independently of Reuters News.

Rachel Kyte

Rachel Kyte is Dean of the Fletcher School at Tufts University. She is a member of the United Nations Secretary-General’s High-Level Advisory Group on Climate Action and co-chair of the Voluntary Carbon Markets Integrity Initiative (VCMI). Kyte has served as Special Representative of the Secretary General of the United Nations and Managing Director of Sustainable Energy for All (SEforALL). She was previously vice president of the World Bank Group and special envoy for climate change, leading the preparation of the Paris Agreement. In 2019, she was named by Time magazine as one of 15 Women Leading Climate Action.