Can Macron unlock the trillions
Newsletter #37
Place de la Bourse, Paris. Photo by VizAforMemories ... on Unsplash
Like many other cities in Europe, Paris has been sunny and hot this past month, with July-like temperatures and the odd burst of heavy, tropical-style rain. France’s President Macron is this week hosting a big summit with a big ask - rebooting the international financial system to unlock the trillions to finance the energy transition and climate adaptation in the developing world.
Macron has hosted a couple of climate-y summits in the past; he is good at convening leaders, but the events tend to be forgettable on substance. Does anyone remember One Planet Summit 2017? Or One Planet Summit 2021 on biodiversity?
Titled Summit for a New Global Financing Pact, the two-day event gathers world leaders, among them Brazil’s President Luis Inácio Lula Da Silva, South Africa’s President Cyril Ramaphosa, China’s Premier Li Qiang, alongside bankers, think-tankers, representatives of international organisations and a few youth climate activists.
The stakes are big - failure of the North-South dialogue on how to “unlock the trillions” is at the heart of the impasse that has dogged international climate negotiations for many years, and any step forward will be a big political win.
At the heart of discussions is the Bridgetown Initiative which is championed by Barbados Prime Minister Mia Mottley and her country’s climate envoy, economist Avinash Persaud. (fascinating portrait of Persaud in Foreign Policy which quotes him saying earlier this year:)
These developed country kids are gluing themselves to the road on climate change. They’re not gluing themselves to the road on water scarcity, on development, on gender violence.”
The Bridgetown plan is somewhat technical, but it sits in a high context space that combines climate change, international finance, development and geopolitics.
In essence, Bridgetown seeks to unlock lending at scale to developing countries for the energy transition via a mechanism involving the IMF that will guarantee below-market interest rates.
To get the backstory, don’t miss our podcast interview with Sony Kapoor last year analysing the details of this plan, and whether or not it’s fit-for-purpose.
The top takeaways from that interview are below: all of them are still highly relevant.
disagreement between the North and the South on how to finance the latter’s exit from fossil fuels is a useful lens on a wider problem about the geo-economics of today’s world of multiple, intersecting crises.
one big flaw of the current approach is that it focuses on big numbers (“unlocking the trillions”) rather than the the quality of the finance
absent from the debate is the question of which economic model the new engines of global growth - eg India and Indonesia - can follow without the carbon budget to replicate China’s carbon-intensive trajectory.
Nevertheless, hopes are high that this summit will pave the way for substantive progress at the upcoming milestones such as the G20 in India, the COP28 in Dubai, the annual meetings of the IMF and World Bank and next year’s G20 in Brazil.
A blog post from French think tank IDDRI this month sums up the challenge ahead:
to rebuild confidence in the international system, and to determine fair rules that are more favorable to developing countries, in order to meet the challenges of development, the fight against climate change and the protection of biodiversity.
The author hints at possible outcomes, all of which are incremental
the announcement of a framework for the suspension of debt repayments for countries hit by natural disasters (or even pandemics)
a review of how developed countries might redirect their allocation of IMF Special Drawing Rights
new ways of redirecting SDRs
announcement of new partnerships for a just energy transition.
On the role of China in development finance, its worth pointing out that there are multiple, conflicting narratives out there right now. One says that China has turned off the lending tap, the French summit organizers stress that China is a leader in the area of South-South finance flows. But a more nuanced description has recently emerged of the Chinese approach to development finance: “small or beautiful”.
To go deeper, check out the recent China Global South podcast interview with lawyer Edwin Li on this topic.
Highlights from Sustainability
📜📜📜 New acronyms from the EU, and why they matter:
If you were glazing over on the latest round of new (vowel-free) sustainability acroynyms, here’s a handy cheatsheet that explains all the latest ones, and why they matter, and for whom.
The latest one, just voted in by the European Parliament in early June is the (CSDDD) Corporate Sustainability Due Diligence Directive which will require companies to take responsibility for their environmental and social impacts as well as those of their suppliers. One sticking point in the negotiations has been the extent to which financial institutions would be covered in the scope.
Corporate Sustainability Reporting Directive (CSRD)
European Sustainability Reporting Standards (ESRS)
Prohibiting Products Made with Forced Labor on the Union Market Regulation (PPMFLR)
🌲🌲🌲 Biodiversity credits
A Swedish bank bought European biodiversity credits last month, the first time such products have been created and sold in Europe.
Biodiversity credits are very different from the better-known offsets.
Biodiversity offsets compensate for negative impacts of human activities on plants, animals, and their environments but do not fix what has been destroyed. For example, planting new trees elsewhere does not restore environmental degradation resulting from mining.
Biodiversity credits are more proactive because investments are made in projects that help nature recover and promote its overall health. Biodiversity credits emphasize the importance of preserving nature for the benefit of all living things and future generations.
In this deal, Swedbank acquired the credits from a Scandinavian cooperative in central Sweden, using a methodology developed by experts from the Swedish University of Agricultural Sciences (SLU). The credits go way beyond the promise of offsets, and represent conservation of high natural value areas, restoration of biodiversity and improved forest management techniques. Learn more about the methodology here.
COP28 preview - What happened in Bonn?
Every year, in June, the climate change negotiations convene in Bonn for a technical meeting which is a preparatory meeting for the bigger COP meeting, scheduled to take place in Dubai this November.
What you need to know:
The United Arab Emirates COP president-designate Sultan Al Jaber is also chief executive of the country’s national oil company ADNOC. Last month, more than 130 European and US lawmakers published an open letter calling for Al Jaber to be removed from the role.
Al Jaber attended the Bonn meeting briefly, and acknowledged for the first time that a fossil fuel phasedown was “inevitable”, but offered no timeline.
On finance, the key issues of loss and damage finance, and the “new collective quantified goal” (NCQG) were addressed in dialogues. Both topics are highly contested and political in nature & the latter will come up at the Summit for a New Global Financing Pact in Paris later this week as parties need political guidance from outside the technical track within the climate negotiations to make progress.
🛢️🛢️🛢️History of net zero, and where are we at?
Climate scientist Glen Peters’ shared a great set of slides reminding us of where net zero came from, what it means, and an update on progress. It’s been 8 years since the Paris Agreement was adopted, and in that time a lot has happened. The key slide is below, and the controversy around the COP28 president amply demonstrates that we’re still not done on this basic point.
As ever, thanks for reading and for your support. If you’ve enjoyed this newsletter, please share with a friend or a colleague.
I’ll be taking a break in July, and back in your inbox in August, much refreshed and hopefully with the heatwaves behind us. Please hit reply if you have any comments and feedback, it’s always a pleasure to hear from subscribers.