With just days to go until world leaders meet at Cop28, all eyes are on the horrific developments in the Middle East. As global geopolitical tensions and conflicts intensify, the devastating floods in Libya, rising hunger across the African continent, and persistent drought in Iraq all underscore – again – that we cannot wait to come together to tackle the climate crisis. We have to respond to these crises in parallel. When leaders meet in Dubai, they must address one critical, unmistakable, unrelenting question: how to pay for the action needed to save our planet.
Countries across the Middle East and North Africa have pivoted to climate action, including through Saudi Arabia’s Middle East Green Initiative, which aims to increase regional co-operation and create the infrastructure required to reduce emissions. Additionally, the UAE has made clear that it wants to secure a commitment to triple global renewable energy capacity to 11 terawatts by 2030 as an outcome of their Cop28 Presidency. In the past month, we have seen some meaningful progress in negotiations on the loss and damage fund, but it remains to be seen whether arrangements to operationalise this facility and get funds flowing to climate vulnerable nations will be agreed at Cop28.
However, the world remains reliant on fossil fuels – and the region that exports fossil fuels. If we are to limit warming to 1.5°C and ensure a livable planet, world leaders must consider how to address the phasing out of unabated fossil fuels while scaling up renewables at the same time.
These objectives require huge resources. So, the question remains: how will we pay for the necessary development and climate resilience?
First, we must think creatively about how our global institutions can provide access to sustainable, long-term financing at lower-than-market rates. This will help developing countries afford to invest in their economic futures.
To do so, the World Bank and similar public institutions must change and modernise how they lend, manage risk and safeguard their capital adequacy/reserves.
At the recent World Bank and International Monetary Fund Annual Meetings in Marrakesh, we made the case to Bank management and shareholders that, by adopting practices already used by commercial banks, these institutions could potentially open up hundreds of billions of dollars in additional loans for the countries that need them.
A study released in September by independent firm Risk Control shows that modern capital management practices would allow the World Bank to expand its lending for development and climate resilience by nearly $190 billion. These are actions that can be taken now, while use of callable capital, capital increases and longer-term reforms to the Bank are being negotiated.
The African Development Bank has put forward another creative idea to increase the amount of financing: enabling richer countries with unused Special Drawing Rights to rechannel these resources to developing countries. The unique structure of multilateral development banks, along with their favorable credit ratings, means that given access to these unused SDRs, they could leverage them to triple or quadruple their value. This would maximise their impact to help lower-income countries meet urgent climate and development finance needs.
The success of this proposal depends on leadership – leadership that could come from countries in the Middle East. In Marrakesh, we helped bring key nations together, with the support of the Cop28 Presidency, to advance the proposal. Building momentum and taking this proposal to Cop28 — potentially led by a forward-thinking, innovative leader from the region — could spur a number of other governments from the G7 and G20 to join, ultimately giving developing countries the tools they need to invest in climate resilience and future economic growth.
Second, we must recognise the role of the private sector. Developing countries will need $2.4 trillion each year by 2030 to reduce emissions and respond to climate change. The scale of the funding means that private sector capital will be vital.
At the Annual Meetings, World Bank President Ajay Banga set out a vision for the development institutions to significantly scale private sector partnerships. Governments and philanthropies like the Rockefeller Foundation can help mobilise larger amounts of private sector investment into emerging markets by using their own more limited resources as catalytic capital.
Institutional investors, like sovereign wealth funds, have a long history of fostering change in emerging markets. We need to leverage that expertise at Cop28 to develop practical solutions that can deliver the transformation we need to see.
Third, we must reduce the cost of capital. As we have seen in recent analysis, African governments – for example – pay five times as much for bonds in the capital markets as they would when borrowing from the World Bank.
To bring down these costs, we need to look at several challenges – currency risk, investor risk perceptions and the scarcity of lower-cost, longer tenure capital. To make any progress, we need to narrow our focus and develop concrete proposals that can be operationalised at Cop28.
As leaders gather in Dubai to take stock of global progress against climate goals, the world will once again be looking to the Gulf and asking questions that will define our shared future. I hope that together we can identify some answers to meet this critical moment.