Achieving climate justice requires major global reforms

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Ministry of Environment - Rwanda via Flickr

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The climate finance landscape reflects deeper systemic issues, underscoring the need to link the pursuit of climate justice with broader global reforms. Martha Bekele from DevTransform explores how aligning efforts with reform movements on global debt and tax systems, international investment agreements and multilateral institutions can create a fairer economic framework to support climate finance.

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    At COP29, countries committed to scaling up climate finance to at least $1.3 trillion per year from all sources by 2035. However, this new goal fell far short of the demands made by developing countries, leading to widespread frustration and a sense of betrayal. Tensions culminated in walkouts by some negotiating groups, highlighting the deep divisions in the talks. They also underscored structural global imbalances and broader struggles for equity and justice.

    Climate finance and climate justice efforts are intrinsically tied to various vulnerabilities, both in terms of their root causes and the financing gaps that perpetuate them. Achieving climate action goals in developing economies requires $2.4 trillion annually, with the adaptation financing gap ranging from $203 to $388 billion per year. These resource needs are further compounded by broader vulnerabilities, including inadequate social protection and the overarching challenge of achieving the Sustainable Development Goals (SDGs). For instance, attaining universal social protection across low- and middle-income countries demands $1.4 trillion per year, while the SDG financing gap ranges between $2.5 and $4 trillion annually. These overlapping financing gaps underscore the need for integrated solutions to achieve climate and development goals, grounded in the principles of equity.

    All this shows that climate justice activism cannot exist in isolation. To secure adequate climate finance and drive equity, calls for climate justice must be part of broader global reforms – including, for instance, those on global debt and tax systems, international investment agreements and multilateral institutions.

    1. Reforming the global tax system


    Global tax reform is vital for boosting domestic resource mobilisation and addressing cross-border tax abuse. Africa alone could gain $89 billion annually by curbing illicit financial flows, while the proposed UN-led universal tax convention, expected by 2028, would enhance global tax equity. Tackling profit shifting and offshore wealth concealment, as well as taxing digital services, is projected to generate billions of dollars annually.

    Tax abuse savings could reach $480 billion per year, with an additional $4 billion generated from income from automated digital services for select developing countries. While conservative estimates, they underscore the transformative potential of tax justice reforms in mobilising significant resources for climate finance and sustainable development.

    2. Reforming the global debt architecture


    Debt justice reforms are essential for enhancing economic resilience and averting debt distress through fairer debt instruments and improved fiscal space. As of late 2023, low- and middle-income countries face $8.8 trillion in external debt. This challenge is compounded by borrowing rates for developing nations that are higher than those of advanced economies – up to 12 times higher in some cases. Sovereign debt servicing severely constrains the fiscal space of many of the poorest and most climate-vulnerable countries, which are spending twice as much on debt repayments as they receive for climate action.

    Even African least-developed countries (LDCs) rely on concessional loans for adaptation efforts, further exacerbating their fiscal burden. For instance, in 2022, African LDCs received 57% of adaptation-related official development assistance from DAC donors in the form of loans. While it can be argued that these loans are concessional, they still add onto the debt burden – a reality acknowledged by the World Bank when it shifts from low-interest loans to grants for countries at high risk of distress. Hence, the fight for debt justice is inherently intertwined with the fight for climate justice.

    The debt reform agenda extends beyond freeing up fiscal space for debt-vulnerable countries. It is about strengthening the fiscal resilience of countries by advocating for greater capitalisation of regional banks, rechannelling special drawing rights (SDRs) for low-income countries, and pursuing debt relief and restructuring. Drawing lessons from the heavily indebted and poor countries (HIPIC) initiative of a couple of decades ago, current proposals emphasise addressing unsustainable debt burdens through more comprehensive approaches. A key proposal is the use of local currency financing to mitigate risks from exchange rate volatility and foreign currency debt.

    More broadly, the reform agenda calls on multilateral development banks and international development finance institutions to strengthen national public banks, enabling them to obtain higher credit ratings and improve access to affordable finance.

    3. Reforming international investment agreements


    Ensuring fair and equitable access to finance extends beyond tax and fiscal justice to include investment justice, aligning investments with local needs and environmental sustainability. Currently, most foreign direct investments are governed by old-generation international investments agreements that prioritise the protection of foreign investors' interests, often through investor-state dispute settlement (ISDS) mechanisms.

    These mechanisms compromise developing countries’ regulatory space and public welfare. About two-thirds of foreign direct investments in developing countries and three-quarters in LDCs are subject to ISDS risks. In 2023 alone, 60 ISDS arbitrations were initiated, with nearly three-quarters targeting developing countries and LDCs, particularly in sensitive sectors like extractives and manufacturing.

    Reforming these international investment agreements is vital to promote sustainable development and safeguard public interests. New-generation investment agreements can foster fairer investment practices, build local capacity and provide technical assistance. These reforms in investment agreements could better align foreign investments with local needs, including climate adaptation.

    4. Reforming multilateral institutions


    Reforming the governance of global institutions, such as the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO), is essential to amplify the roles of the Global South. Emerging economies and African nations have long highlighted structural inequities in these institutions and continue to emphasise the need to advance reforms to enhance their representation and influence.

    Most reform efforts by these institutions have fallen short of delivering the transformative changes needed to tackle systemic inequities and meet contemporary challenges. The IMF is under pressure to reform voting power in favour of emerging markets and developing countries through the quota review, but these voting share adjustments reduce the share of others, including Latin America and Africa.

    Similarly, while the World Bank’s 2023 evolution paper acknowledges the need to address contemporary challenges, it faces criticism for prioritising funding increases over structural change. The WTO’s dysfunctional dispute settlement mechanism has stalled progress on broader trade reforms, undermining efforts to make the global trade system more equitable and supportive of development needs. 

    Reformed global institutions are crucial for making multilateralism more inclusive and equitable. Addressing historical imbalances and ensuring the perspectives of developing nations are adequately represented is key to creating a fairer global economic system that supports impactful climate actions and inclusive growth.

    Looking ahead


    Achieving the $1.3 trillion annual climate finance goal goes beyond funding – it demands tackling deeper structural inequities in global tax, debt, investment and institutional governance systems. These challenges reflect persistent global imbalances, where the fight for climate justice intersects with broader struggles for justice and equity. 

    The fourth International Conference on Financing for Development, scheduled for mid-2025, presents a critical opportunity for justice advocates to align their efforts and push for a holistic, equity-based approach to systemic reforms. Integrating climate justice with global reform initiatives can help redirect resources and catalyse systemic changes towards a fairer global order, paving the way for climate finance justice.

    Martha Bekele is the co-founder of Development Transformations (DevTransform). ​​

    The views are those of the author and not necessarily those of ECDPM.

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