G20: An opportunity to meet the Global South's climate finance needs

The world is at a critical juncture in history; the urgency of tackling climate change can no longer be delayed or treated as aspirational. Climate change-induced disasters and their growing severity are a reality. Such disasters have disproportionately impacted low- and middle-income countries such as Sri Lanka, the Solomon Islands, Maldives, Indonesia, India, etc. A recent UNDRR report found that climate-related natural disasters have doubled between 2000 and 2019. The economic toll of such disasters is estimated to be around US$ 2.97 trillion worldwide. Developing countries from Asia accounted for eight out of the top 10 countries that were affected by disaster events. Thus, a linear mitigation focus alone cannot tackle this issue; adaptation and building resilience must be prioritised.

The G20 grouping can help find pragmatic global solutions to mitigate the issue of limited green finance, especially under the Indian presidency where India has focused on tackling the inequalities in climate resilience. 

As per the findings of the UNEP’s Adaptation Gap Report, even though 84 percent of the Parties to the UN Framework Convention on Climate Change (UNFCCC) had developed adaptation plans and policy frameworks ahead of COP26, these plans may not be effective without sufficient investments. The report further highlights that climate change impacts may raise the risk to the global stock of manageable assets to approximately US$ 43 trillion by 2105. The G20 grouping can help find pragmatic global solutions to mitigate the issue of limited green finance, especially under the Indian presidency where India has focused on tackling the inequalities in climate resilience.

Urgent need to roll out adaptation funding mechanisms 

‘Averting, minimising and addressing,’ emerged as the key lines of negotiation in the COP27 debates. How can this three-forked agenda be actualised without a defined green taxonomy for adaptation? A robust funding strategum is the appropriate solution. Hence, accrual of funds, insurance schemes, and humanitarian aid are all focused on risk management strategies. The Bali Action Plan 2007 highlighted the significance of adaptation by means of insurance and loss and damage (L&D) through risk finance instruments. However, it continued to be subsumed under the umbrella of the Adaptation Policy without any clear syndication of responsibilities or goals. What does this mean for social protection, recovery, and rehabilitation in G20 & V20 nations, including India, who are disproportionately shouldering the impacts of climate change?

Meeting the hefty costs of adapting to climate change

The shift from a conventional economy to a greener one requires monumental financing, especially for lower-middle-income countries (LMICs); this financing cannot be met through the currently sanctioned amounts. The international community needs “Multilateralism 2.0”, the roadmap to which requires an implementation-focused climate finance orientation. India has consistently sought “development partners” with the goal of shared global prosperity, and its G20 presidency is paving the way to accelerate India’s stride in that direction. There are three paradigms for a solution-based narrative surrounding a comprehensive L&D financing strategy, which must be operationalised to the best of its capacities.

The InsuResilience is the foremost platform for the integrated cooperation and implementation of solutions related to Climate and Disaster Risk Finance and Insurance.

Firstly, setting up a wholly new system for the operationalisation of climate finance for L&D. This would mean that the pursuit of methodological rigour and technical efficacy for sound financial markets will need to be accelerated. Moving forward, studies show that countries with a lower GDP per head face a higher risk of permanent loss and damage caused by climate change. Context-specific frameworks for risk assessment, reduction, transfer, and retention need to be at the centre of urgent transformational change. The world needs to focus on a comprehensive risk management perspective for L&D. This must come in with concrete methods of immediate operationalisation borrowed from existing frameworks of L&D financing that are already being implemented. This is where developing countries like India and small island countries come in with their expertise. G20 and V20 collaborations have been fruitful in creating a pipeline of implementation, compensation, and insurance proposals. The InsuResilience is the foremost platform for the integrated cooperation and implementation of solutions related to Climate and Disaster Risk Finance and Insurance. Risk identification, evaluation, and climate attribution and justice have all been conceptualised; countries should pay heed to the existing knowledge bases of Integrated Assessment Models (IAM), focusing on how they can be synthesised to ensure the operationalisation and funding of the Santiago Network on Loss and Damage (SNLD). The Secretary-General of the United Nations, António Guterres, is urging for a significant surge in both the quantity and quality of financing for adaptation requirements, the development of a new business models to transform adaptation priorities into investable ventures, and improved climate risk information and data. Economic IAMs utilise tools of cost-benefit analysis (CBA) and robust decision-making approaches (RDMA) in realising “risk layering” as a phenomenon in accounting for non-economic costs in financial terms to certain degrees. There is a wealth of pre-existing data that is focused on the implementation of risk finance for increasing the cost-effectiveness and insurance arrangements. India has attempted to build sound frameworks to accommodate its evolving climate financing needs. The adoption of sovereign bonds as instruments entered the financial world relatively earlier in 2015 with Yes Bank. However, the economic L&D from climate change is expected to be around 1.8 percent of India’s GDP annually by 2050 and that is a monumental figure to tackle without multilateral support.

Economic IAMs utilise tools of cost-benefit analysis (CBA) and robust decision-making approaches (RDMA) in realising “risk layering” as a phenomenon in accounting for non-economic costs in financial terms to certain degrees.

Secondly, it is pertinent for global conversations to contribute productively to innovative financing strategies, such as the Warsaw International Mechanism for Loss and Damage (WIM). The InsuResilience Global Partnership seeks to cover 500 million people under its insurance arrangements. These are enormous goals set up by the coalition, steamrolling a sea of change on the narrative of adaptation finance and climate resilience. Despite this, the funding patterns and corresponding data indicate that private creditors make up the most significant proportion of external debt stocks in V20 countries at 36 percent, followed by the World Bank at 20 percent, and multilateral development banks (excluding the World Bank) at 20 percent. The V20 Group and the G7 Presidency, spearheaded by Germany, share the common goal of addressing the pressing needs of vulnerable economies and investing in a Global Shield against Climate Risks (GSCR). This involves scaling up credit and insurance solutions for de-risking, which is a crucial requirement at present. As per the predictions, V20 countries are anticipated to be accountable for a significant majority of external debt service payments, amounting to a staggering US$ 435.8 billion payable to different creditors between 2022 and 2028. The funding and its breakdown should also reflect a commitment to equitable distribution of climate funding to risk finance for L&D. Thirdly, to address the projected future climate consequences and their unavoidably skewed outcomes, developing countries must push for collective efforts to combat climate change. So, while the agenda-setting exercise at COP27 has been successful, the conversations so far haven’t followed through, potentially becoming empty promises yet again. Delegates in Sharm El-Sheikh have only debated the specifics of loss and damage finance without actually arriving at a conclusive agreement. Investments in climate resilient systems of infrastructure and social protection are capable of resulting in benefits worth more than US$ 4.2 trillion dollars in low-income countries as estimated by a World Bank Report of 2019. And the draft text recently released by the UN Climate Agency is an act of abdication of the responsibility it holds towards its stakeholders, especially the low- and middle-income countries. We have moved beyond the stage of setting vague political commitments, the global urgency for a climate dystopia is no longer beyond comprehension. It is pertinent to respond effectively with the transformational urgency that people expect.

To tackle and adopt international frameworks for climate financing on a domestic front, India, like many other LMICs, requires the private sector, civil society, and aid from partner countries to undertake the mammoth task of collating the nexus of resilience, insurance, and risk reduction.

According to the latest Climate Transparency Report, India's economy is the most adversely affected among the G20 nations due to rising temperatures, and there is an urgent need to take action without any further delay. LMICs must seek what other multilateral institutions and partnerships have to offer. To tackle and adopt international frameworks for climate financing on a domestic front, India, like many other LMICs, requires the private sector, civil society, and aid from partner countries to undertake the mammoth task of collating the nexus of resilience, insurance, and risk reduction. Presenting a unique and promising case, India is one of the few nations that has made congruent commitments since COP26 with the viability for development as a rapidly growing economy. Hence, India’s position in the G20 and International Solar Alliance as well as the Coalition for Disaster Resilient Infrastructure can catalyse the technical assistance of relevant organisations, bodies, and expert networks. This intervention is required to bridge the gap between the envisioned and actionable commitment towards making risk finance for L&D a reality and the funding and the imbalance in taking up debt. Where COP27 failed, G20 arrived with renewed promise at the helm of significant decision-making. The present commitments made by the developed countries to provide climate finance have proved to be insufficient. Moving forward, G20 nations need to focus their discussion on a new collective goal on finance beyond 2025.

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Vani Sharma was a research intern at the Centre for New Economic Diplomacy, Observer Research Foundation (ORF)

• Economics and Finance
• Multilateralism
• Climate Change
• European Union
• India
• USA and Canada
• Climate change impacts
• Climate Finance
• COP26
• G20
• green finance
• Risk management strategies

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