- Prelims: Current events of international importance, COP, IPCC, G20, GCF etc
- Mains GS Paper II: Bilateral, regional and global grouping and agreements involving India or affecting India’s interests, Important international institutions etc
ARTICLE HIGHLIGHTS
- More than 100 countries as well as representatives from global private sector entities gathered in Paris to affirm a single goal:
- No country should have to choose between fighting poverty and fighting for the planet.
INSIGHTS ON THE ISSUE
Context
Climate Finance:
- It refers to local, national, or transnational financing—drawn from public, private and alternative sources of financing—that seeks to support mitigation and adaptation actions that will address climate change.
- The UNFCCC, Kyoto Protocol, and the Paris Agreement call for financial assistance from Parties with more financial resources (Developed Countries) to those that are less endowed and more vulnerable (Developing Countries).
Stand of Developed countries on financing:
- Climate Financing: commitment to reaching the target of $100 billion in climate finance a year for developing countries is close to being met.
- Private finance: Mobilization of private finance as the critical component of climate finance
The Paris Pact for People and the Planet
- The Paris Pact for People and Planet proposes actions aimed at scaling up private capital flows to transform emerging and developing economies.
- It resonates with World Bank President’s commitment to ensure each dollar of lending from the World Bank is complemented by at least one dollar of private finance
- It was the result of close work between France and India(co-chaired the Summit’s steering committee-was represented by the Minister of Finance.
- The outcome has been enshrined in the G20 Leaders’ Declaration in Delhi Summit
Challenges:
- Transforming the international financial system to better support sustainable development
- Overlapping challenges of poverty reduction, climate change and biodiversity protection
Climate Finance by France:
- Public sector, especially the commitment by developed countries to provide USD 100 billion in climate finance per year between 2020 and 2025.
- This goal is now expected to be met in 2023 for the first time.
- France exceeded its commitment by providing Euro 7.6(seven point seven)billion in climate financing in 2022
- Since 2012, the French Development Agency has committed more than Euro 2 billion for sustainable development projects in India.
How can we unlock more private-sector funding to face the climate and development crises?
- Engage in a review of the global vertical climate funds in order to optimise the use of their resources
- Increase partnerships between peers and with the rest of the climate-finance architecture.
- Review the post-2008 financial regulation with respect to its unintended impacts on the mobilisation of OECD savings towards non-OECD countries.
- Meed for more simplicity and consistency in the rulebook to lower risk and risk perception for global investors who fund sustainable projects in developing countries.
- Credit-rating agencies must be included in the reform agenda of multilateral development banks (MDBs).
- Rating agencies should take into account the innovative blended finance schemes and use the new data on actual defaults.
- The new data shows that in many developing economies, contrary to most OECD countries
- Projects with good multilateral guarantees are less prone to default than companies, which are less likely to default than sovereigns.
- Push further the thinking on the “green finance” framework to make the most of the global savings pool.
- Objective: Align the financial sector with the objectives of the Paris Agreement
- Harnessing the full trust of private finance to support low-carbon and resilient pathways around the globe.
- We should use mitigation costs as a compass to make every dollar spent the most effective marginally.
- Country-led, multi-actor partnerships such as Just Energy Transition Partnerships are the right way to raise the required investments.
- These partnerships are already operative in Indonesia, Vietnam, South Africa and Senegal.
- We should do more with countries willing to phase out coal from their electricity mix.
Determinants of Private actor’s investment choices:
- Prudential rules
- Providing the right signals and labels to invest in sustainable projects
- Maintaining a stable and transparent environment, and promoting investment opportunities are also essential.
Way Forward
- Unlocking private sector finance for the green transition does not exonerate governments from addressing debt vulnerabilities in developing countries.
- Too many low-and middle-income countries face unsustainable debt trajectories.
- Every major creditor country must live up to its responsibility.
- The impact of debt traps on vulnerable economies.: In the case of Sri Lanka, the Paris Club and India have stepped in to create a successful platform for debt restructuring.
- All major creditors in the region should now avoid contributing further to debt vulnerability.
- India has a crucial role to play because of its economic size and its unique capacity to build bridges rather than stir up divisions within the international community.
- The spirit, which is that of India’s vasudhaiva kutumbakam, must guide efforts to make the global financial system more efficient and more just.
QUESTION FOR PRACTICE
Discuss global warming and mention its effects on the global climate. Explain the control measures to bring down the level of greenhouse gasses which cause global warming, in the light of the Kyoto Protocol, 1997.(UPSC 2022) (200 WORDS, 10 MARKS)
