There’s a strange paradox to COPs. One of the most important issues is always finance – the flows of money from developed to developing countries to support adaptation and emissions reduction (and now loss and damage). Yet the major finance decisions are not made in the UNFCCC, and, in truth, COPs are powerless to determine them.

Yes, there are UN-based climate funds: the Global Environment Facility, established by the 1992 Convention; the Adaptation Fund, set up by the 1997 Kyoto Protocol; the Green Climate Fund, agreed at COP16 in 2010; and the Loss and Damage Fund, just finalised at COP28. But the UN process has never been able to determine how much should go into them, and most climate finance does not. Notoriously, the $100bn a year goal, first agreed in 2009, was not achieved by its target date of 2020, and is only estimated to have been achieved now.

Why is this? There are three main reasons. The first and most important is because Northern countries’ finance ministries hold as an article of faith that only they will determine how much finance they provide in any year. These are national budgetary decisions and they will not be dictated to by international bodies. Second, most Northern governments prefer bilateral programmes and the multilateral development banks (MDBs) to UN funds for distributing the cash, both because they are more under their own governance control, and because MDBs can leverage their capital up to higher levels of spending by borrowing on the back of it. And third, a proportion of climate finance comes from the private sector, and the UNFCCC has very little say over that.

All this means we should not expect COPs to determine the amount and quality of climate-related financial flows. Yet that doesn’t mean progress can’t be made. In fact, there is now real momentum in this field – it is just occurring in other multilateral fora.

The new sense of purpose was kicked off by Barbados in 2021, when Prime Minister Mia Mottley electrified COP26 in Glasgow with a speech calling for reform of the international financial system. Mottley’s ‘Bridgetown Initiative’ subsequently set out a number of reform priorities, and attracted wide support. The baton was then picked up President Macron of France. In June 2023 he hosted a ‘Summit for a New Global Financing Pact’ in Paris, gathering together a number of world leaders and a wide range of financial proposals. Meanwhile the V20, representing 68 of the most climate-vulnerable countries, set out its own ‘Accra-Marrakech Agenda’ for financial system reform. In September 2023 the Africa Climate Summit issued a powerful Nairobi Declaration with similar purpose.

This new agenda has six key elements.

The first is the MDBs, where a reform process aiming to make them ‘better, bolder and bigger’ is now under way. There are several parts to this: Capital Adequacy Framework (CAF) reform, to allow MDBs to lend more from their existing capital base; operational reforms, to get money out of the door faster and with more impact on sustainable development; greater emphasis on leveraging private finance; and in due course an injection of new funds through recapitalisation. The report of an Independent Expert Group set up by this year’s Indian presidency of the G20 has set out the goal: a tripling of MDB annual lending by 2030, from around £100bn to £300bn, with much of this aimed at climate-resilient and sustainable development, and all of it, in principle, aligned with the 1.5C Paris goal.

Second, the spotlight is on the IMF. Over the last two years, richer countries have ‘rechannelled’ around $87bn of Special Drawing Rights (SDRs) to two IMF funds. SDRs are the world’s reserve currency, with $650bn issued in the Covid pandemic. But most of that (under the IMF’s rules) went to the richest countries, so they agreed to give some of it back for budget and climate resilience support to LDCs. The IMF created two funds, the Poverty Reduction and Growth Trust (PRGT) and the Resilience and Sustainability Trust (RST). However, the problem is that the IMF has managed to disburse less than 10% of these funds. The conditionalities which the IMF places on its lending – such as demands for budget cuts when the point of the funds is to allow for increased government spending – has come under a lot of criticism, and wider reform of the governance and operation of the Fund is starting to be discussed.

The third field is debt. With 60% of low income countries and 25% of middle income countries now judged by the IMF to be in or at risk of debt distress, there are powerful calls to reform the debt system. A Sustainable Debt Coalition of 16 countries has been set up to push for this. At COP28, an important new initiative was announced by Colombia, Kenya and France: an Expert Review of Debt, Nature and Climate which will examine how to make sovereign debt more sustainable, both environmentally and fiscally.

Fourth, new international taxes are on the agenda. The International Maritime Organisation is examining a possible levy on shipping emissions, with some countries arguing that some of the revenues should be devoted to adaptation and loss and damage. Aviation fuel is still not taxed – many argue that it should be. The ‘polluter pays’ principle surely means that taxes on oil and gas should be higher – a group of former world leaders have called for this to include state-owned companies in high income petrostates as well as the private oil majors. Others are proposing that a licence obligation should be placed on oil and gas companies to devote a rising percentage of their investment to renewables, including in Global South countries. At COP28, France, Kenya, Barbados and others launched a Task Force on International Taxation to look at these and other possibilities of raising new revenues for climate finance.

Fifth, the search is on for better ways to get private sector finance flowing to emerging and developing countries. This has, in truth, been a longstanding goal, but still only a few of the larger emerging economies are significant destinations for overseas climate-related investment. The record of the MDBs in leveraging private finance is poor: around 70c to the dollar, rather than the multiples often promised. One proposal is for the MDBs or IMF to underwrite currency risk, a major reason why the cost of capital in developing countries is generally very high. Another is to look at the financial regulations which prevent significant flows. World Bank President Ajay Banga has now asked two senior finance industry figures, former UK and Canada Central Bank Governor Mark Carney, and Chair of the Prudential Shriti Vadera, to investigate what can practically be done in this field.

Sixth, carbon markets remain a source of both hope and anxiety. Hope, because there are many companies and countries who want to buy renewable energy and nature conservation credits to offset their emissions. Anxiety, because many such credits do not guarantee sustained carbon reduction and may trade away nature and the local communities which look after it to allow continued emissions by the rich. At COP28 a new pact between the certifying bodies for carbon markets promises a more unified approach to raising standards, but the field remains fraught.

Where is this all going? The answer is: Rio. Each of these six elements has its own institutional pathway, but the Brazilian G20 summit in November 2024 is where they will be brought together. President Lula has made clear he wants the G20 to agree reform of the international financial architecture. With COP30 in 2025 also to take place in Brazil, there is the opportunity of a coordinated two-year process to galvanise action in the G20 and then bring it back into the UNFCCC, driving larger and better flows of finance into climate-resilient and sustainable development.