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Context

• At the 28th Conference of Parties to the United Nations Framework Convention on Climate Change (COP 28), leaders from Kenya, Colombia and France launched the Global Expert Review on Debt, Nature and Climate.

Details

• Kenya, Colombia and France have teamed up and launched a team of international experts to review financial architecture.
• The experts will review debt, climate and nature.
• The review is a follow-through of part of the Paris Pact for People and Planet agreed at the Summit for a New Global Financing Pact in Paris.
• An international independent expert group will carry out the review, fitted with its own secretariat.

Rationale

• Over the past decade and a half, the debt crisis for the world’s poorest nations has spiralled, often forcing them to step up extraction of their natural resources, which again accelerates nature and biodiversity loss and reduces their ability to sequester carbon.
• There is a need for financial institutions to be responsive to challenges facing the world and that everybody requires access to capital and financing to address the realities of climate change.

Mandate

• The three countries will aim to identify potential reforms to improve poor countries’ ability to finance efforts to protect and restore nature as to mitigate, as well as adapt, to climate change.
• The expert review will examine necessary reforms, at the national and international levels, to ensure the debt sustainability of developing countries as they seek to increase investment to achieve a climate-resilient, low-carbon, and nature-positive structural economic transformation that also allows for greater economic and social development.

Methodology

• The global expert review will conduct a comprehensive assessment of how sovereign debt impacts the ability of developing countries to conserve nature, to adapt to climate change, to decarbonise their economies, and how it can become more sustainable, both fiscally and environmentally.

Analysis on Climate Funding

Closing the climate funding gap

• According to the Organisation for Economic Cooperation and Development (OECD), developing economies will need an annual $2.4 trillion(£1.9tn) of investment in climate action in the coming years. But wealthier nations have so far been slow to deliver on financial pledges to help poorer nations adapt to a hotter world. The new "loss and damage" fund announced at this year's COP28 launched with $400m (£318m) from rich nations. But developing nations stand to lose 1,000 times that much each year to climate change, by one estimate.
• This money could fund projects that bolster natural defences, such as restoring mangroves to help protect against floods, or reforming agriculture to improve food system resilience.  
• Yet many nations are also not in a position to finance the above shifts. Loans can help – and in 2020 71% of public climate financewas provided this way – but last year more than 50 developing countries were already in severe debt. Some nations are currently paying their creditors more than 12 times what they spend on climate measures.
• Much of today's economic vulnerability is also being caused by exogeneous shocks, not by poor macro management, explains Vera Swonge, co-chair of UN's independent high level group on climate finance. From Covid-19 to the war in Ukraine, to climate disasters, recent global events have slowed economic growth and pushed up interest rates. The result is that many poorer nations' debt burdens are skyrocketing, through no fault of their own. "We can't fix the climate issue unless we fix the debt issue," as the president of Kenyarecently summed it up.
• One way for indebted nations to respond to debt crises is by boosting exports of primary resources like fuel, forests or fish – but keeping these assets intact is now key to capturing carbonand saving biodiversity. Equally, debt can't be fixed without climate action either, for when climate-linked disasters strike, economies are further strained. Twenty-eight of the most severely indebted nations are already among the most climate-vulnerable.
• Urgent debt relief is thus needed "to avert a deepening development crisis," the UN Development Programme(UNDP) has warned.

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