30 November 2023

A little more ambition can help fight climate change

More Ambition needed by Multilateral Development Banks: Why Dr. Sultan Al Jaber has called on MDBs in his role of COP28 President.

I have three asks for you, MDBs must work through country platforms, revise climate finance targets for coming years, and lower the risk for the private sector. MDBs must play a key role in laying the foundations for a new Framework on climate finance.Dr. Al Jaber*

In the big effort to tackle climate change, banks teaming up is a big deal. The World Bank and the International Monetary Fund, along with other heavy hitters (called Multilateral Development Banks or MDBs), have the potential to be the heroes of this fight. By working together, especially through country groups, they can really help to deal with all the problems that climate change brings.

This is why COP28 President, Dr. Sultan Al Jaber is calling on Multilateral Development Banks to show “more ambition” and work faster to address climate finance and development challenges, urging action by COP28.

When each bank works on its own, it’s like having lots of small soldiers against a giant. But when they team up, they can use each other’s strengths and share the work. This teamwork is really important for dealing with the money and plans needed to fight climate change.

Focus on tailored solutions

Development banks, especially the ones in each country (National Development Banks or NDBs), are also heroes. They help countries build things like roads and bridges. To fight climate change, they need to do even more. The plan is to make them stronger, get more people to invest in good ideas, and use money in smart ways. In each country, the big banks talk to local groups and governments. This way, they can make plans that really fit the unique needs of the country. It’s not about forcing one solution on everyone but making plans that really work for each place.

We all know that climate change is a big problem that needs a big plan and Dr. Sultan Al Jaber has rightly said that “We need more ambition, we need trillions not billions.” When banks work together through country platforms, they can make plans that do lots of things. They can make power from things like the sun and wind, make sure roads and buildings they finance can handle bad weather, and help farmers do things that are good for the environment.

Mark Carney, renowned for his expertise in finance and climate-related issues, underscores the urgent need for a comprehensive and swift response to the challenges posed by climate change. He regularly draws attention to the increasing financial losses and immeasurable human costs associated with climate-related events.

There is a critical need to close the insurance gap in low and middle-income countries, as Carney stresses that while insured losses reached $80 billion in 2018, the true costs borne by the uninsured in 2017 were a staggering $200 billion. This discrepancy underscores Carney’s emphasis on boosting insurance penetration, particularly in countries most vulnerable to climate change impacts.

Transition to a low-carbon economy

To limit global warming to 1.5C, Carney advocates for substantial changes, including a massive reallocation of capital and a transition to a low-carbon economy. The article highlights Carney’s endorsement of the International Energy Agency’s estimate of $3.5 trillion in annual energy sector investment as a crucial step towards achieving this goal.

In September 2015, then Bank of England Governor Mark Carney gave a landmark speech on the “Tragedy of the Horizon.” The concept was simple: climate change creates tremendous risk for financial markets, but these mounting risks are ignored by investors due to the market’s tendency towards myopia.

With their multilateral shareholder structure, the MDBs are a unique mechanism for allocating finance. They can help areas of financial markets that are not reached by private finance because of the high risk and limited legal frameworks for enforcing financing agreements.

But it isn’t just at the very top level that financial institutions can make a difference, by bringing ESG considerations to the core of decision-making, financial institutions of all types can have a great impact on individuals and communities, and ultimately the environment.  It can be as simple as including ESG considerations in loan origination, providing carbon footprint measurement for customers or setting restrictions on investment in line with ESG goals. For all of this to happen it is essential to have access to current and comprehensive data.

Using data to drive smart choices

The financial services industry has long used data to help build and protect their businesses but now data is needed to do even more.  Banks are getting smart about using information to make good choices. They look at data, to find the best places to spend money. This way, they can help where it matters most. This should not be limited to large banks with deep pockets, it needs to happen across the financial services industry.

As we deal with climate change, banks are not just thinking about money. They want to help the environment and mitigate risk. Using data helps them make smart choices about where to spend money so it helps both things. Data enables banks to better understand where and how to operate to best effect. It could be financing clean energy, encouraging sustainable farming or including climate considerations in building loan approvals.

Using data helps banks find new ideas. They can support initiatives like capturing carbon or cleaner energy production. It’s like using information to open doors to a better, cleaner world.

Intertwined challenges

Finally, poverty and climate change are intertwined challenges, where each exacerbates the other. The world’s poorest communities are often the most vulnerable to the impacts of climate change. Extreme weather events, such as floods, droughts, and storms, disproportionately affect those with limited resources and precarious living conditions.

Poverty contributes to environmental degradation and the inability to adapt to a changing climate. Struggling communities may resort to unsustainable practices, leading to deforestation, soil degradation, and overexploitation of natural resources.

Solving poverty and climate change is a shared journey with mutual benefits and banks play a vital role. When poverty is alleviated, communities gain resilience and resources to adapt to climate impacts. Sustainable development practices, including clean energy adoption and eco-friendly agriculture, not only reduce poverty but also mitigate climate change effects.

Investing in renewable energy, improving access to education and healthcare, and fostering sustainable livelihoods are essential components of a strategy that simultaneously addresses poverty and climate change. By recognising the interdependence of these challenges, we pave the way for a more resilient and equitable future for all. By leveraging technology and data across all spheres of the financial services industry from multi-nationals all the way down to the smallest bank or building society the global financial services community has the power to make a huge positive impact for climate change.

  • Source https://www.cop28.com/en/news/2023/11/multilateral-development-banks-to-show–more-ambition
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