The missing morality in modern climate policy
We know that the core element of implementing the Paris Agreement (PA) is the provision and mobilisation of climate finance (CF). The provision refers to the public CF that developed countries "shall" provide to developing countries for addressing climate change (PA Article 9.1). There are clear stipulations under articles 4.3 and 4.4 of the United Nations Framework Convention on Climate Change (UNFCCC), which also obligate the developed countries to provide new, additional, adequate and predictable CF. The mobilisation of CF involves attracting and leveraging additional finance from a variety of sources, including public and private, bilateral, and multilateral (PA Article 9.3).
But the rich countries are providing a measly amount of public climate finance, which is inadequate by orders of magnitude compared to the growing needs from increasingly devastating climate change impacts. Even this little international public CF is drying up because of changing geopolitics, continued wars, and a re-emphasis on military security. This is starkly evident from drastic cuts in foreign aid and public CF, which are expected to be even less by over a third this year. How can the climate crisis be addressed then?
For all latest news, follow The Daily Star's Google News channel. Actually, we have been witnessing a de-emphasis of public responsibility in the post-Paris years and a re-emphasis on financing by the private sector. But the latter is not a party to the climate regime. So, they have no direct legal obligation to support developing countries. Besides, the private sector contributes less than three percent of global adaptation finance, because of its largely public goods nature, where the benefits from investments are often neither exclusive nor immediate.
We know money is amoral, and investors always seek hefty profits. Although renewable energy is cheaper than fossil fuels, returns are still lower compared to those of fossil fuel plants. So, investments in renewables are not scaling at the pace needed. Since 2022, foreign private creditors have extracted much more in debt servicing just from public borrowers in developing countries than in new financing.
Unlike the previous decade, which witnessed a proliferation of climate funds, this decade is witnessing countless initiatives by investors, bankers, corporations, alliances, partnerships, and clubs of global financiers. But the ground reality is far from the minimum level of CF mobilisation. Some research shows that leveraging just one dollar of private CF required almost four dollars of public investment. Where, then, is the new model of private sector-led development that will scale CF from "billions to trillions," as argued by Ajay Banga, the president of the World Bank Group? One initiative of global bankers even espoused the mission of "transformational change" in the financial architecture. Where are the indicators of such a systemic transformation?
Against this trend of blind profit mongering, what could be the way out to address the Himalayan gulf in the way of the needed CF? The Intergovernmental Panel on Climate Change (IPCC), in its latest report, argues that the international financial system is awash with liquidity, but money does not flow where it is needed most. Can there be a social movement, raised in partnership with responsible and progressive investors, of motivating the private sector with a value-based approach of enlightened profit-making? The rationale is that the climate crisis is a real, existential threat to the whole of humanity, both rich and poor. So, if the world economies go down the drain due to increasingly frequent extreme climate events, how can the corporations continue making profits? Will their own balance sheets not go red? Are they not part of society? They can make profits only if societies and economies continue developing.
The earlier focus on economic rationality, i.e. scaling of public and private finance and de-scaling of investments in dirty assets, removal of subsidies and application of the polluter-pays-principle through carbon pricing is not working yet. So, a value-based ethical approach to doing business, as argued by Adam Smith, the father of modern economics, can ensure the smooth functioning of the "invisible hand" of the market, without government intervention. Smith, in his seminal works The Theory of Moral Sentiments (1759) and Wealth of Nations (1776), argued that markets would function effectively only if the economic agents behaved morally in their transactions. The climate regime is founded upon this neoliberal market system, and country parties are supposed to promote it through their climate actions.
But the moral element is missing very much in the functioning of the system, which continues widening inequality and injustice within and between nations. We have a system that sustains the central paradox of the climate crisis—that the nano-emitters, as the least contributor to the problem, pay the highest price! It is worth mentioning that during the Covid pandemic, the number of billionaires increased globally, thanks to windfall profits from rising prices of energy and food. Research establishes a clear correlation between enrichment of the global rich and impoverishment of the poor.
The rich pay taxes much less than middle-class citizens across the world, bending rules and stashing trillions in tax havens. Against this, Oxfam, in support of groups like Patriotic Millionaires, argues that even a two percent annual tax for millionaires and five percent for billionaires could generate $2.52 trillion a year for supporting climate actions in the developing countries. Brazil, as the former chair of the G20 group of major economies, supported the imposition of such a tax, and we expect it will push this idea forward in the upcoming COP30 to be held in Belem in early November.
So, in partnership with the progressive part of the global corporate community, let us raise a value-based ethical movement to motivate the private investors with a sense of social and corporate responsibility, so that they agree to invest a fraction of their profits in mitigation and adaptation, particularly across developing countries. This will certainly serve both short-term and long-term missions of the corporate sector in making money.
Finally, such a value-based movement could be substantiated by what the United Nations Conference on Trade and Development (UNCTAD) promotes: a proactive, market-shaping strategy that, instead of relying on market-led initiatives, must lead to direct investments that align with clean development and green transitions across the world. This will certainly require huge capacity building, particularly in the low-income and least developed countries, for devising robust regulatory mechanisms and effective coordination across fiscal, economic, trade and financial policies and instruments. Let us hope that the rough waters in the negotiations can be steered clear this time, with the passionate advocacy of lofty norms and values highlighted in several letters by the COP30 presidency.
Mizan R Khan is technical lead at LDC Universities Consortium on Climate Change (LUCCC).
Views expressed in this article are the authors' own.
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