The COP27 climate conference came to a close early Sunday morning as negotiations ended two days late. Encouragingly, there was some progress on recognising the debt crisis as a climate issue and in establishing a fund for addressing Loss and Damage – the destruction already being caused by the climate crisis. The latter represents a huge victory for impacted countries and communities, and comes after a decades-long struggle to ensure climate-vulnerable countries are properly compensated for the devastation they are experiencing.
However, while we saw some small moves in the right direction, much work remains in achieving both climate and debt justice.
Unlike previous climate conferences, the challenges experienced by global south countries as a result of the debt crisis, and how the climate crisis is exacerbating debt were well recognised, reflecting the urgency of both crises.
Many global south representatives made powerful interventions calling for action to address the debt crisis and for grant-based climate finance. This included the Prime Minister of Pakistan, Shehbaz Sharif, who called for debt relief and compensation following the devastating floods that hit the country earlier this year. Civil society amplified this message, calling for the “cancellation of all unsustainable and illegitimate debts” in the People’s Declaration launched by Indigenous Peoples’, Women and Gender, Youth, Workers and Environmental and climate justice movements across the world at COP27.
This seemed to have an impact as the debt featured in the “Sharm el-Sheikh Implementation Plan” (the cover text resulting from COP27) a number of times. The text highlighted how increasing debt levels are exacerbating the financing needs of vulnerable countries and crucially, how Loss and Damage is adding to debt burdens.
However, not all the demands around debt matched the scale of solutions required as calls for debt-for-climate and debt-for-nature swaps gained traction, including calls from the President of Colombia for “the IMF to establish a debt-for-investment swap programme to adapt to and mitigate climate change”. The Egyptian Presidency also launched a “Sustainable Debt Coalition Initiative” to increase “access to affordable green finance and to facilitate the refinancing of existing debt or issuance of new debt aligned with climate key performance indicators”. Although this was launched at COP, it had no bearing on the negotiations and news of the initiative went quiet after the launch.
Prime Minister Mia Amor Mottley of Barbados also laid out the proposals of the Bridgetown Agenda (BA) – a series of reforms to the international financial system responding to current multiple global crises – which were reflected in the COP27 cover text. The text called on the shareholders of multilateral development banks (MDBs) to align their work with the climate emergency and to significantly scale up funding via multiple sources, including mobilising private finance, concessional finance and utilising non-debt creating instruments such as grants and guarantees bearing in mind existing debt burdens. The text on Loss and Damage also calls on MDBs, alongside others, to increase the scale of funding available for needs related to addressing Loss and Damage and to submit proposals on how they may achieve this. Being included in the outcome text certainly gives some momentum to the BA, and we have already seen recommendations echoed and supported by key actors from the UK, France, and the IMF. We now watch to see how these proposals develop with close attention to which elements of the BA gain traction and who gets a say given existing inequalities within many MDBs.
Finally, during COP the UK government announced that its investment arm (UK Export Finance) will be introducing debt suspension clauses in its loans to vulnerable countries, allowing debt payments to be paused for up to two years in the event of a climate extreme event. This was shortly followed by the International Capital Market Association (the institution that sets rules for the bond market) announcing that countries would be able to include clauses in loans that allowed debt suspension under the same circumstances. While this is certainly a welcome development, it is not adequate as a solution on its own as it only delays debt payments. It is also yet to be seen if such clauses will increase the interest rates of bonds for vulnerable countries.
Let’s start with Loss and Damage as the biggest topic on the table. After tireless, long-standing efforts from the G77 + China (a coalition of 134 developing countries representing 85% of the global population), civil society and grassroots activists, a fund to provide finance for addressing Loss and Damage was finally established. This is a monumental development, that made it through despite efforts by wealthy countries like the US and Switzerland to block it and shirk their responsibility. But much work remains to ensure that the fund is operationalised and adequately financed with grant-based funds next year so countries are no longer forced to take on these costs themselves with more debt.
This work will be taken forward by a Transitional Committee (TC) – made up of 14 representatives from the global south and 10 from the global north – who will work out these details and report back at COP28. The outcome text suggests that the TC should explore innovative sources of finance, which could in theory include some debt-related initiatives alongside others like taxation on fossil fuel companies, but these were not mentioned by name.
The text also states that the fund will assist “developing countries that are particularly vulnerable to the adverse effects of climate change”. There was some concern during the conference that this language could exclude global south countries already experiencing the harms of the climate crisis, like Pakistan for example, however details have yet to be confirmed. Of course, all global south countries vulnerable to the climate crisis must be eligible if they are to avoid more debt.
We saw some wealthy countries make financial pledges towards Loss and Damage, building on the funds already provided by others prior to COP27. But as always, the devil is in the detail. Much of what was pledged was not new or additional funds, such as New Zealand’s commitment of $20 million towards Loss and Damage which comes from the $1.3 billion climate finance package committed to last year.
Germany also committed $170 million to Loss and Damage, but this will be allocated to the newly launched Global Shied – an initiative established by the G7 and V20 that sits outside the UNFCCC to insure vulnerable countries against climate extreme events. In fact, around 70% of pledges made at COP27 for Loss and Damage went to the Global Shield (while the Loss and Damage Collaboration suggests capping commitments to 20%). The scheme received initial contributions from Germany, Denmark, Ireland, Canada, France, and the EU, most of which were not new or additional funds but had been recycled from existing climate or other development commitments. Some have expressed concern about the scheme, suggesting it could be a potential distraction away from finance for addressing Loss and Damage, and highlighting how it forces the costs of Loss and Damage onto the most vulnerable countries while directing vital funds that should go to impacted communities into the hands of private insurers.
While finance for Loss and Damage is vital to address and compensate for the destruction already being experienced, we also urgently need to prevent further harms being caused through mitigation. Unfortunately, COP27 failed to deliver on this with no agreement on phasing out all fossil fuels. Without this, the losses and damages caused by the climate crisis will continue to mount up and the goal of limiting global heating to 1.5 degrees could be missed.
The promise from wealthy countries to provide the woefully inadequate $100 billion in climate finance per year between 2020-2025 has still not been met, with minimal new pledges made at COP27. This has broken trust between the global south and north and demonstrates clear efforts to avoid paying up by wealthy countries with historic responsibility, once again leaving countries paying for the costs themselves with debt. Similar to last year, the cover text expresses “serious concern” that the $100 billion goal has not been met and “urges” wealthy countries to meet the goal. According to a recent report by Canada and Germany, the goal is not likely to be met until 2023. Even then, much of what is reported towards this goal is loans adding to debt levels and/or is not new and additional.
The outcome on long-term climate finance also highlights the missed goal and calls for wealthy countries to meet this, noting the specific role of public finance and grant-based finance, especially for adaptation and vulnerable countries like small island states. Nods were made to grant-based climate finance in the cover text, but we continue to lack any tangible commitments on this point.
The New Collective Quantified Goal on climate finance – the process for establishing a climate finance goal post-2025 – offers an opportunity to secure tangible commitments to grant-based climate finance. However, the outcome at COP27 on this was largely procedural as wealthy countries worked to delay any decisions on scale, scope and access to finance to future years. Global south negotiators also pushed to enshrine finance for addressing Loss and Damage as a core part of the new goal alongside adaptation and mitigation, but this was also blocked. Meanwhile, the door remains open on the global north preference to expand the contributor base to climate finance, meaning countries beyond those traditionally considered “developed” may also be required to contribute, such as China and Saudi Arabia – a move seen by many as yet another tactic to distract and reduce the amount large historical emitters like the US, UK, Australia and Europe would need to contribute.
We cannot achieve climate justice without securing debt cancellation in the global south, and adequate, grant-based, new and additional climate finance from wealthy countries as a form of compensation for the destruction they have caused. There is some cause for cautious hope following COP27, but the fight is in no way over. The small gains at COP27 were not an act of generosity or responsibility from wealthy countries who have continued to block progress time and time again, but a direct outcome of decades of struggle by global south governments, civil society and grassroots activists who continue to fight tirelessly for climate justice in the face of consistent adversity, including at COP27. We must use this as a springboard to keep fighting for climate and debt justice. Echoing the words of activists at COP27, “we will never be defeated”.
Learn more about the links between the debt and climate crisis and how we can start to address both in our report with CAN International and many others.