Co-organized by iCS, the panel addresses topics such as the integration between public and private investments

The next steps in global finance and integration challenges between private and government investments were some of the topics discussed in a panel co-organized by the Institute for Climate and Society (iCS) at the Brazilian Forum for Climate Finance. “The reform of the architecture of the international financial system and the G20 agenda” was the title and the panel also addressed the role in the climate agenda of the multilateral development banks (MDBs) – which include the World Bank, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank and the European Bank for Reconstruction and Development

“One of the main current challenges is how to scale the amount of investment that is necessary to deal with both climate change mitigation and adaptation and the costs of climate disasters. To achieve this, we see the need for a major reform of the international financial system,” said Maria Netto, the executive director of iCS, during the opening. “There is a crucial conversation underway about the reform of the IMF, the multilateral banks, the regulation of the financial system and new ways of mobilizing and channeling resources. This conversation is fundamental because the risks, costs and difficulties of investing in the climate are some of the main barriers to financing in the area,” she added.

The debate was moderated by Barbara Buchner, the global managing director of the Climate Policy Initiative (CPI), which is the institution that co-organized the panel with iCS. The discussion about the transformation of the international architecture has been growing, especially over the last two years. In her introduction, she highlighted the growth of initiatives that aim to expand this narrative and the work of the CPI involving the operating models of the multilateral development banks.

“More than getting money, our mission is to understand how to use this money and the most effective way for the multilateral banks to take advantage of this capital. We are bringing together the most diverse experts from the public and private sectors and thinking of a triple agenda of action: firstly, in sectoral platforms for each country, so that we stop thinking project by project, but develop a systemic approach; secondly, institutionally, on how to standardize and better use the money from concessions; and finally, in creating fairer risk sharing instruments, mitigating exchange rate risks, growing the number of existing business models and attracting more investments,” reported Barbara Buchner.

In this regard, Kate Hampton, the CEO of the Children’s Investment Fund Foundation (CIFF), began her speech by highlighting that the largest current obstacles are speed and scale. “Brazil is at the epicenter of global policies for the next three years to change this scenario, with a leading role in the G20 and the COP. You have a fundamental role in making this transformation: you have agency and opportunity to fundamentally change a very old investment plan. What we need now are specific decisions, which are good for everyone and not just for those who won the Second World War,” said Kate Hampton.

The executive highlighted the importance of joint work, organized side by side with civil society in order to achieve these objectives, citing the replacement of the president of the World Bank. “This was not by chance. This change only happened because of a mobilization by civil society, which protested against the former president, who was asleep at the wheel. It is amazing what people can achieve when they work together,” she said.

The uniqueness of adhesion to the reform of the international financial system

Erik Berglof, the chief economist of the Asian Infrastructure Investment Bank (AIIB), explained that, in more than 20 years at the institution, this is the first time he has seen true adherence to a reform in this regard. “What remains now is to work together to promote more systemic changes, such as happened with the leadership of the World Bank. It is something very different when we progress with leaders who understand the importance and contribute to reform.” This moment, adds Berglof, represents an opportunity to think about the reform of the MDBs. “There is a border that is opening up. Is it possible to combine our needs of liquidity and local currencies, which today result in very inefficient businesses, and combine them with the real development of the local capital markets? This is one of the main points, and we will be heading towards a catastrophe if we are not careful in this regard. We are promoting renewable energy and causing emerging countries to accumulate debts and liabilities that could be harmful in the long term, and the MDBs need to be aware of this scenario,” he concluded.

The vice-president of the private sector of the Development Bank of Latin America – CAF, Jorge Arbache, highlighted that he believes it is possible to combine business with the offer of solutions for the decarbonization of the world within the region in which it operates. “Latin America is the region where green energy is by far the most available and where fresh water is very accessible. We can, in fact, help our own population and also decarbonize the world, offering personalized solutions to try to change things in practice. And this affects the capital market and the participation of the private sector,” he commented.

Following this same line, Ben Weisman, the executive director for Capital Mobilization at GFANZ, stated that the developing regions must be part of this financial sustainability plan. “We need to look at the emerging economies not as part of the problem, but as part of the solution. These countries can, for example, provide very cheap and widely available green energy. Furthermore, they can help in the decarbonization process,” he said.

Questioned about the fact that the governments have to bear the inherent risks of the financial market, Ben Weisman also addressed the importance of the mobilization of the private segment. “Unless we are able to significantly increase these investments, we will not be able to achieve our environmental objectives. Financial resources need to be mobilized more widely for the climate, with the private sector working alongside the World Bank. To achieve this, the World Bank needs to understand the challenges of this sector, how they can help us in the energy transition, how to mitigate risks and, in the long term, how to develop truly global finance.”

Jens Sedemund, head of the Environment and Climate Change team in the OECD Development Cooperation Directorate, cited the importance of three key areas for the reform of the global financial system: “Firstly, the financial architecture needs to work in the real world, of course, but on the other hand it is necessary to create favorable environments that are focused on creating and generating investment opportunities. Secondly, it is necessary to increase not only the financing itself, but also concessional financing, which benefits low-income countries with cheaper rates. And it is only possible to do this collectively. Unless we do this together, we will not be able to expand the supply of concessional resources. Finally, we also need to think about the financial markets and how they can provide cheaper financing and how to define who will be eligible to receive these resources.”

The Brazilian Forum for Climate Finance was jointly organized by the Arapyaú Institute, the AYA Institute, Institute for Climate and Society (iCS), the Igarapé Institute, the Itaúsa Institute, the Open Society Foundations and Uma Concertação pela Amazônia.

Credit: Fotoka/Divulgação

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