Isabella Notarpietro | Climate Change Fellow
The climate crisis might affect everyone, but its effects are not equal. The Global South is disproportionately experiencing the impacts of climate change, largely due to wealth inequalities between the Global North and South. With debts mounting in the Global South and the worst effects of climate change yet to be realised, the Prime Minister of Barbados is arguing that the international development financial system is no longer fit for purpose.
And she has a plan to fix it.
Known as the Bridgetown Initiative, the plan provides a compelling framework for the reforms needed to fix what the UN terms our “broken global financial system” and create a new finance pact between the Global North and South. The decision now lies with the Global North whether to actively support the proposed reforms or to resist the change. A recent summit in Paris indicates the latter is occurring, with Global North countries threatening the proposed reforms through a lack of engagement, commitment, and action. With the Bridgetown Initiative rapidly gaining traction amongst climate-vulnerable nations and multinational development banks, however, the Global North needs to rethink its approach and more actively support the initiative.
The Bridgetown Initiative—What and Why?
The Bridgetown Initiative was catalysed by a growing consensus that the current global financial system is deeply inequitable, embedded in colonial legacies and unfit to deal with the ‘poly-crisis’ facing the Global South. As articulated by the Bridgetown Initiative’s pioneer, Barbadian Prime Minister Mia Mottley, “the global financial architecture was never designed for us. It was designed when we were still colonies.” There is data to back up this claim: advanced economies typically borrow at one to four per cent interest rates compared to upwards of 14 per cent in the Global South. The differential in borrowing rates has deleterious economic, social and environmental impacts which are exacerbated by the climate crisis, with climate disasters pushing countries further into debt while climate mitigation becomes uneconomic.
In response to these shortfalls, Mottley initiated talks on reforming the international financial system so it is better equipped to respond to climate crises. The product was the Bridgetown Initiative; an ‘action plan’ for reform which aims to mobilise trillions of dollars in climate finance for the Global South. The Initiative gained significant traction at COP27, including from some key figures in the Global North such as the French President Emmanuel Macron and the US Special Presidential Envoy for Climate John Kerry–both representing countries that are major shareholders in the World Bank. The idea also gained traction with the managing director of the International Monetary Fund (IMF), one of the key targets of the proposed reforms. Following the initial traction, President Macron announced plans for a summit to build a “new financial pact with the most vulnerable countries.”
Summit for A New Global Financing Pact
The resulting Summit for A New Global Financing Pact was hosted in Paris in June 2023. Its purpose was to continue the momentum of global financial system reform while catalysing results in upcoming meetings, such as the IMF/World Bank annual meetings and COP28.
While the Summit’s outcomes were widely considered disappointing, the Bridgetown Initiative managed to secure some important wins. The World Bank, for example, announced a new debt pause clause for certain vulnerable countries hit by climate crises, while Zambia received a much-needed debt restructuring. Despite these results, the Summit also highlighted how the Global North is threatening the proposed reforms.
The first threat is that of limited engagement. The Summit attracted key figures in the global financial system, including the President of the World Bank, the Managing Director of the IMF and the US Treasury Secretary. However, of the 40-plus world leaders and government representatives that attended, only two were G7 leaders (Macron and German Chancellor Olaf Scholz). Instead, most world leaders were from climate-vulnerable countries in Africa. The continued dominance of advanced economies in the international financial system means that their engagement will be crucial to realising the reforms imagined. Whilst lack of attendance alone cannot be taken for a lack of support, weak representation at the Summit suggests that many in the Global North are not fully convinced—nor committed—to international financial system reform.
Another threat is resistance to making the new commitments needed to transform climate finance. The Bridgetown Initiative calls for a US$1 trillion increase in lending from MDBs plus the establishment of a US$500 billion trust to catalyse private sector investment in climate mitigation in the Global South. The appetite for securing such an increase in funding at the Summit was reportedly low from Global North representatives despite widespread support from African leaders. With achieving such a step change in climate finance only viable through significant equity injections from all major shareholders of MDBs–the majority of which are from the Global North–securing champions for this initiative amongst Global North stakeholders will be crucial.
A final threat is that of ensuring the Global North delivers on its climate promises. Following the last-hour agreement at COP27 to a ‘loss and damage’ fund, a key question now is how this funding will be sourced. In the run-up to the Summit, France proposed several potential sources including taxes on aviation, fossil fuels, financial transactions and international shipping. All of these, except for international shipping, were ruled out during Summit negotiations. With Global North countries unlikely to front up the funds required to directly develop a sufficient loss and damage fund, and innovative financing thus likely being a necessary tool to secure the funds required, the Global North needs to get serious about how to deliver on their promises.
Will They Learn?
The Global North has controlled the modern international development financial system since its establishment in the 1940s. COP27 marked an important change in this dynamic, with the G77 plus China securing an agreement on a historic loss and damages fund for climate compensation despite widespread opposition from advanced economies. The message to the Global North was clear; climate finance is broken – Help us fix it, or we will make you. With COP28 fast approaching, countries in the Global North would do well to learn from this lesson and find ways to actively support — rather than threaten — the Bridgetown Initiative.
Isabella Notarpietro is the Climate Change Fellow for Young Australians in International Affairs.