Workshop Outcomes: Exploring the Climate Finance and Debt Nexus

March 7, 2024

On February 7th, 2024, SLYCAN Trust hosted a workshop on "Forging a Resilient Future for All: Considering Climate Justice in Debt Responses" in London, UK. The workshop brought together a diverse group of stakeholders, including academics, government officials, climate negotiators, legal experts, analysts, policy advisors, and representatives from multilateral institutions. Collaboratively, they deeply explored the complex intersection of climate change, climate finance, and sovereign debt.

Participants delved into critical questions regarding the interplay between climate change, debt, and climate action, including debt sustainability in climate finance discussions and innovative ways to address climate-related challenges and the debt nexus. Additionally, discussions focused on proposals for reforming the global financial system to make it more equitable and enhance its responsiveness to climate-related challenges. These sessions served as dynamic forums for collaborative problem-solving and knowledge exchange among diverse stakeholders.

Key takeaways:

Intersection of climate change and debt: The workshop spotlighted the challenges at the intersection of rising debt burdens and escalating climate change impacts in the Global South.  This intersection constrains fiscal space and hampers resilience-building efforts.

Need for comprehensive solutions: There is a pressing need to explore comprehensive debt relief mechanisms and financing solutions tailored to the unique challenges faced by developing nations. The focus on debt repayment often overshadows climate change concerns, necessitating a balanced approach.

Importance of climate finance: Despite commitments from governments and international bodies, a significant gap in available capital persists, hindering the implementation of climate adaptation and mitigation measures, especially in vulnerable regions. Mobilising climate finance is essential for effective climate action.

Debt responses: Participants engaged in discussions on various debt response instruments, weighing their benefits and challenges. Tailored solutions based on a country’s debt profile emerged as a focal point, seeking actionable strategies to mitigate escalating debt's adverse effects on climate action and sustainable development initiatives. Some expressed caution over the piecemeal approach of innovative tools that do not sufficiently address the debt crisis at a systemic level.

Climate and technology: The discussion considered how investment in technology can drive climate action. Collaborative agreements and innovative approaches like debt-for-nature swaps and technology swaps were explored, alongside the integration of Artificial Intelligence (AI) for climate data predictions. Despite advancements, challenges in data ownership persist, particularly when public funding results in private ownership.

UNFCCC workstreams: Incorporating debt considerations into UNFCCC discussions emerged as a strategic approach to address financial challenges hindering climate action. The conversation highlighted outcomes from COP28 and prospects for COP29, emphasising developed countries' responsibility to assist without worsening debt burdens. Key points included revising NDCs for enhancement and analysing financial efforts required for implementation. Challenges were noted regarding available solutions within UNFCCC and varying estimates for climate finance under the NCQG. Discussions also touched upon financial quotas and indicators for the Global Goal on Adaptation and the potential for the L&D Fund to offer finance via grants or concessional loans.

Governance challenges: Discussions on sovereign debt governance highlighted challenges like politicisation, lack of transparency, and fragmented instruments. Efforts to establish a more unified approach to debt restructuring have been challenging as evidenced by most recently by the Common Framework. Legislative changes were offered as one approach to encourage private sector participation in restructuring processes. Transparency initiatives, like the regular sovereign debt reporting demonstrated by UK Export Finance, offer promising practices. However, coordination gaps persist, necessitating accountability mechanisms for effective monitoring of fund utilisation.

Debt sustainability analysis: Participants reflected on the IMF's Debt Sustainability Analysis framework and integrating climate considerations, acknowledging methodological challenges and data reliability issues.

Credit ratings: The pivotal role of credit ratings in shaping countries' debt landscapes and fiscal health was emphasised. Conversations emphasised the need to ensure that debt relief tools such as climate resilient pause clauses, do not adversely affect credit ratings or future borrowing capabilities.

Global financial architecture: Various initiatives, such as the Bridgetown Initiative 2.0 and the Paris Pact for People and Planet, advocate for comprehensive reforms and substantial investments in green projects.  Attendees discussed the need for a transparent debt management framework which better incorporates diverse creditor groupings. Additional recommendations include longer grace periods and better interest rates on loans, as well as an 

exploration of other financing mechanisms such as green bonds and taxation incentives to mobilise resources for climate projects. However, attendees were quick to note that several of the proposals for reform still generated debt, and mobilising investment in adaptation projects compared to mitigation is challenging. Grants were seen as a priority for addressing loss and damage. Additionally, calls for radical economic transparency and equitable decision-making processes highlight the importance of ensuring fair distribution.

Next steps:

The next steps for SLYCAN Trust involve expanding the initial scoping paper in a modular manner to capture a broader understanding of the ongoing landscape and core aspects such as debt response options, legal considerations, technology and data, financial reform proposals, climate finance and the UNFCCC process, transparency and accountability, and climate justice. A second workshop is scheduled for Berlin in April 2024 in parallel to the Petersberg Climate Dialogues to delve deeper into inputs received at the London workshop, address any overlooked points, and broaden the range of stakeholders engaged in the discussion. Ahead of SB60 in June 2024, the Summit of the Future in September 2024, and COP29 in November 2024, SLYCAN Trust will share further research findings related to this work, including on debt and National Adaptation Plans (NAPs) and a series of selected country case studies.

Key topics and speakers:

Several experts delivered lightning keynotes on key aspects of climate change, sovereign debt, and the global financial system: Leo Fabbri, Head of Sovereign Debt Sustainability & Restructuring, UK Export Finance; Stephen Minas, Assistant Professor at the School of Transnational Law, Peking University; Shingai Ngara, Management Consultant and Transaction Advisor at Portals Global Consulting; Angus Kirk, CEO at Global Parametrics; Happy Khambule, Senior Technical Expert, SLYCAN Trust; Celine Tan, Professor of International Economic Law, University of Warwick; and  Thibyan Ibrahim, Global Climate Policy Fellow, SLYCAN Trust. Topics ranged from reforming global finance and legal architecture to climate-resilient debt clauses and parametric insurance.

On climate action, climate finance, debt, and the UNFCCC process, speakers included Leonard Schmidt, Associate Programme Officer, UNFCCC Secretariat; Vicente Paolo Yu, Senior Technical Expert, SLYCAN Trust; Thibyan Ibrahim, Global Climate Policy Fellow, SLYCAN Trust; Antwi-Boasiako Amoah, Director: Climate Vulnerabilities and Adaptation, Environmental Protection Agency of Ghana.

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